Gentherm Inc (THRM) 2007 Q4 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the Amerigon Inc. 2007 fourth quarter and year end results conference call. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question and answer session. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded Tuesday, February 12, 2008.

I would now like to turn the conference over to Jill Bertotti, of Allen and Caron, please go ahead.

Good morning and thank you everyone for joining us for the Amerigon Inc. fourth quarter and year end results conference call. Before we start today's call there's a few items I would like to cover with you. First, in addition to the (inaudible) through PR Newswire this mornings news release announcing Amerigon's results for it's fourth quarter and year ended December 31, 2007, an e-mail copy of the release was also sent to a number of conference call participants. If any of you need a copy of the news release, you may download a copy from either the Amerigon website at www.Amerigon.com or the Allen and Caron website at www.allencaron.com. Additionally, a replay of this conference call will be available on the internet via a link provided at Amerigon's website.

Finally, I've been asked to make the following statements. Certain matters discussed on this conference call are forward-looking statements that involve risks and uncertainties and actual results may be different. Important factors that could cause the company's actual results to differ materially from its expectations on this call are risks that sales may not significantly increase, additional financing if necessary may not be available, new competitors may arise and adverse conditions in the automotive industry may negatively affect it's results. The liquidity and trading price of this common stock may be negatively affected by these and other factors. Please also refer to Amerigon's Securities and Exchange Commission filings and reports including but not limited to it's Form 10-K for the year ended December 31, 2007. On the call today from Amerigon, we have Dan Coker, President and Chief Executive Officer, Bud Marx, Chairman and Barry Steele, Chief Financial Officer. Management will provide a review of the results after which there will be a question and answer period. I'd now like to turn the call over to Dan. Good morning Dan.

Good morning Jill. Good morning everyone. Thank you for joining us for our fourth quarter and year end earnings results call for Amerigon. 2007 ended on a pretty solid note for our team and we were pleased with the results particularly the ability to be able to deliver on our promise in a tough market and tough economic times. As you note, 2007 was a pretty hard year for the auto industry and the U.S. economy and more importantly to the automotive players in general. Amerigon, in particular, was pleased to report year end sales of about $63.6 million in top-line revenue which was about 25.7% higher than our previous 2006 total which was $50.6 million. That number was delivered in a very tough marketplace and we're very pleased with the results for that. Barry is going to give you an amazing number of numbers here in just a few seconds and dazzle you with his knowledge of the intricate details and I just wanted to focus on those two numbers in particular and also to mention that our units came very close to reaching the million units in one calendar year. We did about 940,000 units in a calendar year, which brings our total up to about 3.7 million since the inception of the program.

We were quite pleased to have some new programs join us in 2007. During the year we saw the Jag XJ Sedan, the flagship of the Jaguar line and then later we have seen the Jag FX, which is an all new version of the mid size Sports Jag Sedan out. We've also had -- fairly recently the announcement of the Hyundai Genesis which is an all new vehicle designed and built by Hyundai that will be targeted to the North America marketplace. But we are very pleased. As Jill has said, we're going to have Barry give a quick summary of the numbers, we're going to ask Bud to chime in and give us an update on how things are going with out advanced technology team and then we'll summarize briefly and open the floor for questions. Barry?

Thank you, Dan. Just touching a few highlights for the quarter, as Dan mentioned, revenue was up, our quarterly revenue was $16.4 million, that growth is 9% year over year, 3% sequentially driven by new program launches, a couple ones to mention, the MKX was launched late in the fourth quarter of the prior year and the new Hyundai Genesis was launched during this year -- fourth quarter. So, that was driving the higher revenue. Gross margin -- we had a high gross margin percent compared to our history for the quarter, is 35.3%. That's an improvement of 1% over the prior year and 2.8% sequentially. This is driven largely by product mix. There is some benefit coming from fixed cost coverage in there. Looking forward we would not necessarily look for these high percentages. As we grow we'll be working to be in the low 30% range. Net R&D increased by 382,000 year-over-year and sequentially actually decreased by 144,000. The increases are driven by our spending in our advanced thermoelectric programs which Bud will take about in a few moments and a combination of both higher costs as well as lower partner revenue for the period. We talked in the last quarter how Visteon, one of our partners, had backed off the program a bit and we are looking for additional partners on the automotive side of that program. We do expect higher R&D -- net R&D costs as we go forward into 2008. SG&A increased also by 2.7% year-over-year, 6% sequentially. This is driven by increase in our incentive management -- management incentive plan as well as higher marketing costs associated with our expanding business in the next few years.

On the cash flow statement, depreciation for the quarter is something everybody likes to talk about. That was $221,000 for the quarter -- for the year it was $654,000. Operating cash flow was strong once again in the fourth quarter, with $4.9 million in operating cash flow, $14.2 million for the full year. Some of this came from decrease in our working capital over these periods. We wouldn't necessarily expect that to continue. We will start to grow our working capital as we grow the top line here in 2008. Another thing to mention is currently we are not a cash taxpayer so that helps us to have nice operating cash flow. We expect to become a cash taxpayer to a large extent, sometime in early '09. So, we have one more year of net operating loss utilization that will be -- will significantly offset any cash out lays for taxes. And because of the strong cash flow, we are -- have been able to increase our cash and short-term investments to now a total of $25.1 million so that's helping the balance sheet become more strong. And those are the highlights on the financial results. I'm sure there will be questions and I'll turn it back over to Dan.

I'm sure there will be questions. Bud, we would like to see if we could get an update from you on how our advanced technology group is doing.

Thank you, Dan. Good morning. One thing I want to say at the outset in general is that you will see, as I said before, because we are a relatively small company, our quarters bounce around. So, nobody should take our fourth quarter and extend it in a straight line to the moon. I think that it's the trends that are key and our ability to deliver on what we're saying we will accomplish in our future periods.

Turning to BSST, we have begun deliveries on our C2 personal heater and cooler with deliveries to Herman Miller. These are relatively low volume. We believe if we are successful, and Herman Miller believes if we are successful, there is an opportunity for significant growth over the next two to three years. We will be likely announcing a second product in the second quarter for a different marketplace. This follows our strategy of entering niche markets using our technology to prepare for the development of IM markets that's employ both our technology and materials that have greater efficiency than today's present materials. As I see it, if I look down the road over the next two to three years, we have what I would describe as the wind at our back. We are seeing legislation, very particularly in Europe, but that we expect to spread through the developed countries on carbon limitation that makes our green story and our story of not using HCFC's and on being able to recuperate energy from waste heat, a very strong story. The second element of this, which is technical development, is also beginning to come into focus. Our own technology,, we believe, is in very good order and provides significant efficiency for thermo electrics. In addition, we are seeing first in high temperature materials that are suitable for power generation, developments after some couple of years of very slow progress and frustration, beginning to show promise of being more than lab curiosities. So, I guess I would say watch this space. And as a consequence we are moving toward what I'll call a long-term product development position for volume markets using our new technology and developing the capability to use materials when they're available in volume.

So, that's a thumbnail of our position in BSST. If you look in the financial statements, you will see that our development support revenue is down and our development costs are up. And we see that as a likely progression through 2008 as we pursue the opportunities that I've described. But I think we're in quite a stable position and we are getting support from other first-tier companies that are helping us to work on automotive product with the reduction that took place in the Visteon funding. So, all in all, I would say a very positive set of developments in BSST that should take shape over the next two to three years.

Thank you very much, Bud. We have one other random thought, that I look back at the numbers here, that in 2007 our mix of business source from our markets around the world. Our US customers in the past have very heavily dominated our revenue sources in years past. It was about 75% North America customers, 25% international customers. In 2007 we ended the year with a little bit under 60% of our revenue came from north American customers and a little over 40% came from our international customers. So, that's really just to remind everybody that it is a very global business, it's a very big business and in the the North American marketplace the two key competitors are having a bit of difficulty -- I'm sorry, the three big competitors are having a bit of difficulty. But internationally there's still a lot of growth and a lot of opportunities to be had, with our standard existing products of the climate controled seats in addition to the other advance programs that Bud has been referring to. So, I think at this time we'll summarize and open up the floor for questions. And see what everyone has to say. Jill we'll turn it back to you.

Operator, we're now ready for questions.

Ladies and gentlemen, we'll now begin the question and answer session. (OPERATOR INSTRUCTIONS) One moment please for the first question. Our first question comes from the Casey Slevin with CJS Securities. Please go ahead.

Good morning Dan and Barry, congratulations on a great end to the year. Your revenues were quite strong in Q4 and at the high end of guidance for all of 2007. Do you attribute this primarily to the increase in the number of platforms, a little bit of pricing or just some sort of combination of the both?

I think it was actually a little bit more of a higher volume, but from the platforms that we're on. There were a couple of things that happened during the year that we found very positive. Two things in particular come to mind. The Lincoln MKZ and followed later by the Lincoln MKX. Both had very high take rates for us in our product in the low 80's. They both made the decisions that since the take rates were so high and the demand from the consumers were so high, that they would just make our product a standard feature. So, that joins a fairly small number of our customers that offer our product as a standard feature but it's kind of the beginning of the convergence of our product becoming expected on the -- certainly the high-end luxury models and we saw that in a couple of places where the take rates have proven to some of our customers that it's a good idea to go ahead and include this in some of their bundled high-end luxury if not making them a standard feature across the board. So, to answer your direct question, yes, we saw some very good solid strength that we were a little hesitant to completely correct our guidance based upon the market uncertainty. So, we were very pleased with the way things worked out.

That's great. And you can just sort of revisit the gross margin improvement and provide a little bit more detail there and also comment on your outlook going forward for them?

Alright, Barry.?

Yes. Again in the fourth quarter you saw sort of a spike in our gross margin percent and it's driven primarily by product mix. From component to component to component there are different margins that are sort of built, in so they had a good effect for the quarter. But going forward we're still suggesting that the low 30 range is really what's appropriate and what we'll see as we go into 2008. There was also some fixed cost coverage that benefited us and that will help in future periods as well.

Okay. Thank you, Barry. And can I ask you guys just to briefly touch on, as you have some more of these BSST applications coming to the market, what margins you expect on these type of applications and what we can expect.

Maybe I can deal with that. I think we'll see initially in low volume, margins that are not typically at the 35% range. That was our track record in Amerigon as well when we first introduced the heated and cooled seats. It took us probably two years to work through both the low volume penalties, because we're going to be knife and forking this in California initially while we get our processes stable for what we believe will be a successful transition to high-volume production. So, these margins I would expect, will be somewhere in the 20's and we expect to improve them as we did with seats as we get to higher volume production and as we get our supply base oriented and also oriented toward high volume production. This shouldn't have any significant impact on Amerigon's margins because the volume should be relatively low in 2008 and then marching into 2009, but what it is doing is setting us up for very profitable high volume production when we hit that second gear. Is that a -- does that kind of -- ?

No, absolutely that was a great overview, Bud. Thank you.

Okay.

And lastly, I guess, Barry if you can touch on what drove the lower tax rate on the quarter that I believe added a penny to earnings.

There's a number of things actually that make that up. We had re-estimated our full year impact. There were some benefits from the R&D credits as well as we trued those up and recorded more credits for 2007. We would look at our tax rate being actually a little bit higher, maybe 37% or 38% range, for a couple of reasons. Mainly in Michigan where we are a taxpayer and have some apportionment, we will not have an income tax versus a franchise type tax which was recorded above line. So, it's to be a reclassed in the provision. So, again, I would look for the high 30's as our tax rate as we go into the 2008.

This is Bud. I actually think because we have some significant tax numbers moving both in 2007 and in 2008, because we made our full transition to being on a crude rate as we recognized we weren't going to incur losses and we're going to be able to use all of our available loss carry forward, so I think it's much better to look at the operating income line for those two years and those quarters to get a -- what I'll call a clean perspective on the trend in operations. And then now those comparisons, the numbers look quite good.

Absolutely. Well you guys have provided the robust outlook for 2008 so I appreciate it and keep up the good work.

Our next question comes from Brandon Farrow with Keybanc Capital Market, please go ahead.

Good morning gentlemen.

Hello.

I just kind of want to start -- I wanted to start with your 2008 revenue growth guidance, 30% to 40%. Is there any way you can guys can call out potentially, Barry, what's included in that guidance for just aggregate North American production, for instance?

You want us to identify individual platforms?

If you guys have any numbers in front of you where you can look to them and say for the programs that we have, as we exit 2007, we expect production to be up and down X% in 2008 or if you want to just say North America that would be helpful as well.

Well, I can't give you a specific percent, but I can tell you that built into our estimate is a reduction on all existing programs.

We do factor in when we are doing modeling, we're not going to get into all of our modeling details for you. But we do factor in, based upon the age a platform in the marketplace, a normal decay for each of the volume units that are generated in previous years. And then we layer on top of that our projections and estimates of the estimated take rates and volumes of the new platforms. Of course that's modified by when the platforms are expected to be introduced.

Okay.

Brandon, we could tell you more detail but we would be shot for doing it. Our customers really don't like us to make those type of projections (inaudible).

Certainly, understandable. We wouldn't want to keep all you guys around anyway so we'll refrain from doing that.

Okay.

You can guys call out what the 4Q-07 volume was on new CCS programs introduced either in late '06 or maybe during 2007. I'm just trying to separate volume on pre existing programs versus new ones.

That's a little bit of a complicated calculation for us on the call. It is something that I think Barry can come to. It's not very -- again, (broad strengths) Barry, you have got a number in mind?

Roughly if you -- if you look at sort of new model growth, it's roughly for the fourth quarter, $3.5 to $4 million, (inaudible) brand new, wasn't there last year or we're fueling a full year effect, type of thing.

Okay, and I know everybody's going to want to talk about mix and gross margins and you guys continually guide toward the lower 30% range, but if you kind of look back historically, if you're looking at sequential changes and average selling prices versus gross margins, there's typically been an inverse relationship so average selling prices go up, gross margins go down. This is the first quarter in quite sometime where we kind of broke that relationship. ASP's went up, gross margins went up so it implies something else took place in the fourth quarter. Is there anything taking place in the fourth quarter that might, you know, continue to take place in 2008 that we should be thinking about? What broke that relationship?

I think you're drawing an incorrect correlation between those two statistics. Without -- I'll give you sort of competitive information, I would say that that's not necessarily the case for those. So, those things are running either inverse or direct relationship.

Okay.

We would say that fourth quarter is unusual and --

Is not expected to be repeated.

Yes.

Okay. Dan, I was going to ask you a board related question. Can you kind of just describe to me the mutual self-interests of Mr. Devine joining the board. Certainly that's a feather in your cap. Can you kind of walk me through that there?

Well we're actually delighted with all of our board members. We have a rather exalted group of people who help advise us on how the business should be planned and run. Mr. Devine has a strong interest in automotive market as you probably have seen from his resume, but he's also keenly interested in our technology and how that might play out in the marketplace as a kind of a break-through technology. He is a gentleman who understands the automotive market and understands what implications technology like a highly efficient thermoelectric would offer us. So, I think that his interest is one of trying to see that Amerigon delivers on its promise of improving the high advanced efficiency thermoelectric devices in many applications not just the heated and cooled seats. Bud would you like to comment on that as well?

Yes. I think it's fair to say that we have a board membership between Francois Castang and avery highly rated venture capitalist, Maurice Gunderson, and Jim Paulson and John. A group of people who would not really be strongly attracted to a board of $100 million company if they didn't think that there was a chance for us to break out and do things that are very significant in the future. So, I think Dan is absolutely right, it is the promise that the new technology might transform how rooms and cars and people are heated and cooled and in the inverse how power is turned into usable electricity as opposed to being just tossed into the air. There is strong enthusiasm for what we're doing with our advanced technology and for the kinds of products and game changing products that this might enable.

Fair enough. Thank you guys. I appreciate the time.

Thanks for the call.

Our next question comes from Steve Dyer with Craig-Hallum. Please go ahead.

Good morning.

Mr. Dyer your line is open. If you're using a speaker phone, please lift your handset, we are unable to hear you.

Can you hear me now?

We got you.

Yes, sir.

Thank you, sorry about that. I was wondering if you could give us any color on sort of the linearity of revenue throughout the year. I assume it's largely back half loaded, specifically 4Q even, just based on when the new models roll out, is that correct?

You're referring to 2008?

Yes.

Yes. That's very true. We spent a lot of 2007 getting ready for 2008's launches. We have advertised, as has been pointed out this morning, a 30% to 40% revenue increase during calendar 2008. That will be generated from a raft of new platform launches that will occur. Mostly in the second half of the year. We've already had a few early announcements that will help our -- partially in our second quarter and we'll drive a little bit our third quarter.

But the announcements that will happen probably in the second quarter and early third quarter will drive our revenues very strongly in the third and fourth quarters of this year. So, it's not a very linear thing. It has a -- uncharacter shape of a hockey stick more this year than it has in the past. We will follow very much more the calendar model year paradigm that happens in the auto industry. Our first and second quarters should be slower growth than our third and fourth quarters which would be very significant.

Okay. Great. Thanks. And I know it's too early to pin you down to something beyond 2008, but how generally should we think about growth accelerating, kind of similar to '08, decelerating?

Well we think that -- well again we've said '08 is going to be 30% to 40%. We believe that '09 has a very good chance of being somewhat similar. Perhaps on the low side of that growth rate. And then 2010 is going to be very similar again. So, again, we are targeting a 25% to 30% growth rate as one of our key focuses on our heated and cooled seat business and that and other new products are starting to come in on top of that as well. So, we think we're going to continue to be a fairly stable steady strong growing business for the next three to five years.

Great. And then my last question just revolves around the heated and ventilated solution. When can we expect to here something more about your first customer there?

I would think something around the middle of this year you'd be able to hear and maybe even see some of the early devices. These will be of course targeted for the international markets. They are not directly targeted to the north American marketplace so those of us who reside here won't be able to see and ride in these vehicles but in the Asian markets in particular and more specifically in some of the developing countries, this product is going to be introduced in midyear.

And how quickly might we see that product ramp on to additional platforms in the next two to three years?

We think that platform ramp-up will be fairly steady over the next three to five years. Again, as the interest in heating and cooling of seat surfaces or the temperature of seat surfaces becomes more prevalent throughout the market, including get down into the mid level marketplace, which is where this targeted, is toward the mid market product range.

Great. Thanks. That answers my questions.

Thank you, sir.

Our next question comes from the Steve Denault with Northland Securities. Please go ahead.

Good morning everybody, nice quarter.

Thanks, Steve.

You make reference to -- you know, you had a nice mix shift from '07 to '08 in terms of non-domestic revenue and it appears that you are referencing there be a continuation of that in 2008. Is the implication that the driver of that would be the heated and ventilated seat?

No. Not necessarily at all. In fact the heated and ventilated seat is going to be -- it's an entry early program and we have seen a very good strong reaction particularly in our Asian markets and with our early successes in Europe, we're seeing a better blend of business every blend and that's what we're referring to. 2008, we're going to see growth in both major markets in North America and in Asia and we need to do more work in Europe.

Okay. And then if we think about -- if I drill down a little bit more on first half or second half, and hockey stick shaped nature of the business, should we be thinking about first half in terms of single-digit growth or something better than that, year-over-year?

We don't really break it down into that much specifics. We are saying that we believe the year will be 30% to 40% and we think the majority of the big growth will be in the second half.

Okay. And the final question -- directed towards Barry. The gross margin was pretty phenomenal in the quarter and you referenced product mix and a little bit of improved through-put driving fixed cost coverage. Was it -- is it the majority of the improvement product mix and if so, can you -- what -- whatever color you can provide to help us better understand that would be very much appreciated.

Well, I can't give a lot more color but I can answer your question that is the product mix was more substantial than any improvement on fixed cost coverage. As you know, our gross margin is highly variable because of our contract manufacturing structure and so that there isn't that much fixed cost that we really do cover. So, that's about all I can really add at this point.

Thank you.

Our next question comes from Mark Tobin with Roth Capital Partners.

Good afternoon, guys.

Hey, Mark.

Hi, Mark, how are you?

Good. Quick bookkeeping question. Barry what were the BSST expenses for the quarter?

For the quarter? Go on to your next question and I'll pull it out for you, I don't have it on the top of my head, I don't want to give you a --

I've got it right here.

Fot the quarter it was net $800,000 cost for BSST.

Okay. And you can offer any color on the CapEx outlook for '08 and '09? Obviously '07, we could see a decent amount as we prepare for '08. How do you view that going forward?

Actually a lot of the 2007 CapEx was to refurbish our R&D facility -- about a million and a half out in Erwindale. That said, that will imply our CapEx will go down, although that is not necessarily true. We will have some CapEx related to the new program launches but certainly not very large amounts so we would look at it and it would be more flat to slightly up as we go into 2008.

One thing from the BSST side that you might see late in 2008 is some Capex to gear up for additional level of product and volume and also to put us in position to take advantage of the new materials that can be incorporated in new product. I don't think this will be a bank breaker but I do expect we'll spend some money in capital in BSST in 2008.

Okay. And as far as the cash balance, you're now over $25 million in cash. Can you share any thoughts as far as plans for that cash and the way you look at it?

Maybe I -- Dan, and you probably should chime in on this as well, as we've had some discussion of this at the board level as well as amongst ourselves. My long-time partner who was a real pro in the investment world said you can never have too much cash. And I think he was a sage guy. And what we see with the cash that's accumulating is the ability to move in a variety of directions if the opportunities present themselves, both to expand our business, to take advantage of weaknesses on the part of others, and to enter new marketplaces without having to worry about being able to go out and raise the financial resources. So, I see it and I think Dan and the board see it as a significant strength and an opportunity for the future that will obviously use judiciously but having it is a significant strategic advantage.

Just to follow up on that question, Mark, we very much think that having cash is better than having debt in our stage of development as a company. I mean frankly also just to kind of put it in perspective. It's only $25 million. It's not that big a pile of money. And it is something that we are intending to husband until we see opportunities that could develop in terms of -- in many of the things that Bud has just mentioned. So, we think $25 million is a good thing. We have no debt on our balance sheet. We do not want to incur any debt and we want to be flexible and very nibble if opportunities do present themselves.

Okay. And then a final question. There was the discussion about a little bit under 60% of '07 revenue was to US customers. Can you give a mix on -- by end market as far as what percentage of your '07 revenue was actually sold within North America versus international markets?

Yes. About 58%.

No he's asking a different question, Dan.

Oh, I'm sorry, I didn't understand.

He's asking how much of our revenue actually goes to vehicles sold in Asia for Asian customers as opposed to in North America.

Okay, actually we do not try to track that, Mark. For us, it's a destination market. We don't really care where the product goes after it reaches the assembly factory and moves on for us.

Actually, we do not even really know, right?

Actually, it's very difficult for us to be able to directly determine that as well. Some of the product we could tell you directly where it goes and where it stays but it is difficult for us to track the vehicles after they leave the assembly plants.

It's fair to say a significant amount of the Asian volume comes to North America. Probably you know, a little less so in the -- well maybe the same in Europe. But we just don't have those numbers.

Okay. That's all I have. Thank you.

Thank you, sir.

Our next question comes from Tyson Bower with Wealth Monitors, Inc. Please go ahead.

Good morning, gentlemen and a great year.

Good morning, Tyson.

A couple of quick questions. Can you give us a little color on what kind of concessions the OEM's are asking for this year and is that part of the gross margin decline as far as your guidance or you're seeing less content in your products in some of your newer platforms such as the F-Series and some of the other new ones that will be coming on later in the year?

Well their requesting -- very politely, our first born male children and a left arm. And there is continuing pressure to try to fight down our prices on -- particularly on the purchasing wings of our various customers. We continue to try to be good citizens and try to find ways to grant efficiency gains and pass those through to our prime customers and that is a continual struggle and we work very hard at that. We win some quarters and lose some quarters. We have had a fairly steady year in 2007 and 2008 we expect the continuing pressure and of course cost savings are more and more difficult to find as life goes forward. But we do anticipate still being able to maintain our low 30 gross margin targets and continue to offer price concessions to our customers to help offset their cost pressures.

Okay. Are you -- just the way it's working out in '08, are you having some of your product introductions to OEM's that have preferred to take less content and do more of the assembly themselves?

I'm going to step in. You guys are all picking away at this gross margin issue and we've been pretty consistent saying the low 30's is a very stable and good target for us, that you'll get quarters that bounce around. Some of what you're asking, frankly for competitive reasons, we're not really at all interested to share because there are a lot of competitors and customers that read these bits of information pretty carefully. So, I think Dan's statement is probably the one that should stand. We have a continuing pressure for cost reductions from our customers. We have responded to that with design innovations that permits us to bring costs down and our suppliers share in those efforts to bring costs down. And you get, you know, over time a kind of a stability, you can get a quarter that will bounce around because our design actions aren't matching the things that we are doing in order to remain in good standing with our customers. But in general, we think we've compiled a very good record over time of the above 30% gross margin which in this industry is quite outstanding.

Okay, thank you. The very last one, I'll touch on that one then. You talked about the hockey stick growth and the revenue going through the year. Will we stay within that low 30% margin consistently throughout the year as we progress also or will we see any variability as we work through the year?

There will be a little normal natural variability up and down by quarter by quarter, but -- and the overall scheme of things we're still looking at -- as Bud said, we target the low 30's as our gross margin line and that's our business plan.

Okay. Is your unit growth mirroring your guidance for revenue growth? Or is that slightly higher?

It will be slightly higher because again we have offered price concessions to several customers and that will take down our average selling price.

Okay. And last question for Barry. What are you -- what are you projecting for your cash tax rate in '08? Is that 7.5 -- 10%.

Cash rate will be about 2%.

2%. And then you go to a full cash taxpayer in '09?

Sometime in '09, yes. Depending on where the file numbers are for '08.

Okay, thanks a lot, gentlemen.

Thank you.

(OPERATOR INSTRUCTIONS) Our next question comes from David Kowroski with Kowroski Investments, please go ahead.

Thank you. Earlier you mentioned that some of your customers take the product as a standard feature. Do you have the exact percentage? Can you put a number on that?

The number of people who offer it as a standard feature as opposed to an option?

Correct.

I don't have that number committed to memory. It's a very small number of our customers offer it as a standard feature. I can tell you who they are. The Nissan Infinity M45, the Lincoln MKX and MKZ. I believe the Jaguar XJ Sedan, the Hyundai Equis, offered in Asia, and the Cadillac XLR are the ones that I believe that currently offer it as a standard feature. All the rest offer it in some form of option to the consumer.

If you see an increase in it becoming a standard feature, how would that affect your revenue, would it be more stable or not?

It would affect us revenue wise positively, obviously, but most of the customers who make that decision, our take rates, the percentage of people who choose to take the option on that particular platform, are usually fairly rich. Something in the 75% to 80% range typically when they convert. So, we would see a, obviously, a somewhere around a 20% to 25% percent gain on those individual platforms. So, it would be very positive for us. The question as to whether it would be more stable, I don't think we could actually directly attribute being a standard on any vehicle as being a stable item because their sales -- their unit sales fluctuate from year to year and season to season.

Right. One final topic. Do you have an estimate for the value of the total luxury car market, not including some of these mid-priced vehicles that you're trying to get into, but just the pure luxury market, have you all looked at your addressable market?

Yes, we have looked at that. And we've kind of backed into it as a generalization. With the market averages around 60 million vehicles built each and every year. Approximately 15% of those cars sell for more than $40,000 each and that's the general thumbnail description of a luxury or near luxury vehicle. So, if you took around 15% of that 60 million, you get somewhere around 9 or 10 million vehicles and that would be some for us, two front seats each, that would be somewhere around hopefully estimating 20 million seats and with our average selling price of roughly $70 a seat, that's what the total addressable market is.

Now we have seen, you ask us to ignore rest of the market, but we are seeing crossover down into the middle market, particularly on the -- as many of the consumers in North America go from the larger, maybe I'd say less fuel efficient vehicles, the SUV's and such and move down off into the cross over vehicles and the more mid sized vehicles, they want to take their luxuries with them and this is one of the feature that we're seeing a cross over demand going down into the mid level. Of course today it's on the upper end of the mid level but we do see a little bit of the crossover which is not directly covered in our initial kind of global target market identification.

How do you define that level price wise in the cars? The mid level you call it.

I think -- well I think its somewhere between 25 and 40 are the mid price range cars and below 25 are considered to be entry level models.

Okay. And last question. Going back to the luxury market, just the luxury market, what would you say your penetration rate is right now?

Very small. I think that in general we ship -- I just mentioned earlier that we shipped about a million seats in 2007 and we've just identified that there is roughly 20 million seats available so I would say we have somewhere around a 5% penetration in the high end market. I'm sorry. Less than a 5% penetration.

Okay, thank --

(Inaudible) have to do with numbers.

Thank you very much.

Thank you very much for your call.

And our next question comes from as a follow-up from Brandon Farrow. Please go ahead.

Hello guys, I just wanted to follow up on kind of what you're thinking on in 2009 and 2010. And I apologize if I missed this. Did you, Dan, state that there wasn't any headed ventilated estimate growth in your assumption that you can kind of generate similar revenue growth in '09 and '10 compared to '08, is that all CCS related growth?

Actually, our projections do include the heated and ventilated products. What I referred to earlier, maybe you heard me say the numbers we're referring to are only for our initial climate control seat business, that includes the heated and ventilated products, but we do see 2009 and 2010 being a general continuation of what we've seen so far and again we're targeting that 25% to 30% range would be very good for us as a business.

Okay. And then Bud, I was just wondering, should we expect any time during 2008 an announcement of a non-CCS auto related product for you guys?

Interesting question. (laughter)

Careful, Bud. They're setting you up.

Let's put it this way. To incorporate new technology into a vehicle in a way that significantly changes the function of that vehicle system, whether it be heating and cooling or energy recuperation from waste heat, that's a "design your new vehicle" proposition and therefore is, I would say a three to five-year cycle from where we are today. What you may very well see are announcements of our participation with OE's and programs that have good opportunity to lead to production and I can't forecast when those things will break into print. But certainly in the 2008-2009 period, if we are successful, we should be talking about some of that.

Okay.

Is that a fair statement, Dan?

Very fair statement. And a very good overview of what the situation and the realities are. It would also be safe to say that we have acknowledged publicly that we are working on projects outside of the seat in a couple of other different areas and so that is something that, that process has started, that Bud is referring to. So, we're underway. We're not predicting when any announcements will occur but we are working on some projects.

Okay.

Just to carry this one step further, we look upon this whole development effort as a second string to our beau and a second kick to the value of Amerigon over a three to five-year period. So, from our point of view, many of you have been early and patient investors with us and what we're attempting to do is that you have a plan and executable delivery, that creates value over an extended period of time rather than worrying about one quarter or the next quarter or CCS seats only.

Okay. That's good. I appreciate it, guys.

Thanks a lot for your question.

And at this time there are no further questions in the queue. I would you like to turn the call back over to management for any concluding remarks they may have.

Well, thank you very much. It's always good to hear the questions from our various interested parties. And as usual, you have been mean to us and asked us question we cannot address completely, but in summarizing, I would like to leave one thought that we have very good visibility on how our business is expected to play out, particularly within a 12-month period and we have indicated to the market and again reiterated today that we do believe that in 2008 our revenues will be 30% to 40% higher than they were in 2007 and we have indicated today that we believe that 2009 and 2010 will also continue to be very good years for our business. We've also indicated that we believe that there will be some early announcements of some early developments of our advanced technology systems outside of the heated and cooled seat businesses that we're working today to implement and grow. And we believe that those will be interesting and I think we're somewhat predictive of what we're seeing in a longer range. We do have a lot of work yet to go, both on the heated and cooled seat business. We've indicated we have less than a 5% penetration rate. We are working very hard to further penetrate these markets and to fend off competitors, keeping them out of our space.

We have a lot of positive things happening for us and we've got a lot of good people helping not only guide us, we've mentioned our Board of Directors which is a -- frankly it's a blue ribbon committee of advisors, management couldn't ask for a better group of people to come in and help us think through what we need to do and what we need to do next. We also have a strong team of employees and management, team members here who are helping us drive the original business model that we envisioned, really it's now for me it's 11 years ago, but at least 10 years ago for most of the people who are involved in this project. And we do see a continued financial success for the business. So, we very much appreciate everyone's time and attention today and as Bud is famous for saying, we ask you to again watch this space in the future. Thank you very much for your call.

Ladies and gentlemen, this does conclude the Amerigon Inc. 2007 fourth quarter and year end results conference call. You may now disconnect and have a pleasant day.