Gentherm Inc (THRM) 2008 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Amerigon, Inc. 2008 first quarter results conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions.

(OPERATOR INSTRUCTIONS)

This conference is being recorded today, Wednesday, April 30th, 2008. I would now like to turn the conference over to Ms. Jill Bertotti, of Allen & Caron. Please go ahead, ma'am.

Great. Good morning, everyone, and thank you for joining us today for the Amerigon, Inc. first quarter results conference call.

Before we start today's call, there are a few items I would like to cover with you. First, in addition to disseminating through peer newswire this morning's news release announcing Amerigon's results for its first quarter ended March 31st, 2008, an email 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 & Caron website at www.allencaron.com. Additionally, a replay of this conference call will be available via a link provided on the events page of the Investors section of Amerigon's website.

Finally, I have been asked to make the following statement. 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 significant increase; additional financing, if necessary, may not be available; new competitors may arise; and adverse conditions in the automotive industry may negatively affect its results. The liquidity and trading price of its common stock may be negatively affected by these and other factors. Please also refer to Amerigon's Securities & Exchange Commission filings and reports, included but not limited to its Form 10-Q for the period ending March 31st, 2008, and its Form 10-K for the year ended December 31st, 2007.

On the call today from Amerigon we have Dan Coker, President and CEO; 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 would now like to turn the call over to Dan. Good morning, Dan.

Good morning, Jill. And thank you everyone for joining us for our first call for 2008.

It has been a very exciting quarter for us. We had a lot of activity going on during the last 90 days, and it's all turned out reasonably well for our team, and we're very excited to report to you that our first quarter was positive and profitable.

We had a lot of turmoil in the industry, which has caused a lot of consternation, basically for one of our premier customers. The General Motors Corporation has been suffering from a lack of ability to get some key components, particularly for the GMT-900 line, and that has spread slightly during the month of April to some of the car lines that were supplied components by the American Axle Corporation, which is a prime supplier to GM. Most of you have probably heard that many of these vehicles -- sorry, the assembly plants have been shut down, in some cases for up to nine or 10 weeks.

Amerigon's first quarter was completely -- not completely unaffected, but was generally unaffected by the impact of the American Axle strike, and we were able to generate about $17.4 million worth of revenue, which is up from the previous year's first quarter of $16.3 million. Barry is going to give you the details on that, but we were very pleased with how the revenue stream started.

We also had some announcements of new vehicles during the quarter, and that's been very helpful for us. The Lincoln MKS, the Hyundai Genesis, and the Lexus LX570 all announced during the first part of the year. In addition to that, we also had some revenue gains from some of the vehicle lines that were announced either in the first quarter or the end of the last year, particularly the Jaguar XJ and XF, and the Lincoln MKS, as I mentioned, and two Nissan vehicles that have not been announced yet, but we have just begun to start generating production volume in support of those programs.

I am going to allow Barry to go through all of the numbers, and then we're going to throw it over to Mr. Bud Marx, who is standing by to give us an update on BSST. Barry?

Thank you, Dan.

As Dan just mentioned, our revenue for the first quarter was $17.4 million. That's an improvement from the prior year of $1.1 million, and was largely driven by new program launches during the quarter. Looking to our gross margin, our gross margin percent was 32%. That's comparable with the prior year. We look to a low 30 target for the balance of the year, as we have mentioned in previous calls.

Our R&D expenditures this quarter were -- were increased by roughly $500,000. That's partly coming from our advanced technology BSST team working on advanced thermoelectrics, and Bud again is going to be talking about that, as well as additional spending in Amerigon, which continues to develop and work on new program launches that will be driving our growth for the rest of the year, as well as some other products. SG&A was roughly the same as the prior year, so that wasn't an increase this time. We had little bit better interest income this quarter versus the prior year, driven primarily by higher cash and investment levels. You'll recall that we increased our cash reserves quite substantially during the year last year, offset partially by slightly lower yields on our investments.

During the quarter previously, we had announced that our investment portfolio is primarily invested in auction-rate preferred stock that -- that has been impacted by the credit issues in the market, and as a result of that, we have reclassed a substantial portion of that asset to -- the non-current or - a long-term investment, as opposed to a short-term investment. That was about $22 million. Looking to the balance sheet and --

Barry, before you go on from that, you should explain some of the current developments which indicate that that situation is easing.

Certainly. As you are probably aware, you know, auction-rate -- auction-rated securities of all kinds began to see significant option failures during the first quarter of the year. The company has only auction-rated preferred stock issued by fixed-income funds, and you know --

Rates.

All of our investments are highly rated, are AAA-rated by either S&Poors or Moody's. Recently, we have seen a number of announcements from the funds who have issued the securities that we're holding stating that their intention is to seek alternative forms of financing and ease the liquidity issues of the preferred stockholders. We have been a beneficiary in the month of April of a portion of that redemption process and refinancing process. We believe that there will be an - additional redemptions on securities that we hold, roughly $5.2 million in May, and we're expecting that that will continue as we move through time, and the fixed-income funds that have issued these investments to - seek alternative financing measures. If anybody has any questions about that, I'll be welcome to get more detail if necessary.

During the question period.

During the question period. Again, moving on to the cash flow, we had operating cash flow this year of $800,000 for the first quarter, and I think a number of people will ask later, our depreciation and amortization amount for the first quarter was $307,000, compared to $119,000 for the prior year first quarter.

I think that's it. And again, we'll take questions on the financial information when we get to that point in the call.

All right. Bud, why don't you go ahead and give us an update on the BSST activities?

Okay. I'm going to kind of ask a little bit of forgiveness from the audience, because I'm going to talk a little bit more at length about this, and try to do it starting from a 40,000-foot view, which we don't in quarterly earnings calls get much of an opportunity to do. But we have been getting, I would say, increasing questions from our investors, which we obviously listen to, asking where is the beef? You guys have been at this for six years, and we're not seeing a lot of product harvested.

So let's just start where we were in 2002. At that point, we embarked on a four-point strategy. One was to develop proprietary PE enabling technology that would improve the efficiency of TEs and also their cost/benefit performance, and put us in a commanding position for new TE-based products that would come in the future. Secondly, we wanted to participate, albeit we're not material developers, but we wanted to be well aware and part of the network in the development of new materials which would complement our proprietary technology, give us privileged access to these materials, and enable game-changing products in multi-billion dollar markets for heating and cooling, and in creating electrical power from waste heat. So that was obviously the -- the big carrot out there. Thirdly, we wanted to reduce our up-front development costs and impact on Amerigon profits by securing funded development projects with large industrial partners, and in the bargain their market access, but funding was important, and also funding from the significant government agencies interested in these technologies; the Department of Energy and the Department of Defense. And then fourth, we wanted to begin the development of products enabled by our technology to create revenue and profits in the interim period before the new materials came. And equally importantly, to create product development and manufacturing capability in -- you know, that was within our house and our grasp, to put us in a leadership position as the new materials became market ready, and to enable the development of products for the larger markets.

So against that strategy, sort of how have we been coming out? First of all, on the proprietary technology, I would claim significant success. We have a commanding proprietary technical position, and a technology position, that puts us right on the path of others that are trying to development TE-based products for these markets. Secondly, in the new materials development area, clearly that's come more slowly. You can't program invention. The initial breakthroughs came in 2001, and the progress has been, you know, not glacial, but it certainly hasn't been fast. To speed progress, about 18 months ago we began directly assisting the most promising candidates with direct financial resources, and testing capability. We are the center of testing for new materials. So in general, we see a -- the stream of new materials from people all around the world who are trying to crack this difficult problem.

Today, I'm prepared to say that we think that this has paid off, and that we are seeing a number of promising developments in materials for both power generation, and probably a little less rapidly but on the horizon, heating and cooling. These aren't in production today, but the money we have put in and the resource and the assistance, we believe, has helped significantly, and in addition has given us a position of what I'll call, in a number of cases, privileged access to these materials for a period of time.

Thirdly, on the side of the upfront development costs, we have received over $12.5 million to date in direct funding from both industrial partners and government partners, and if you accept, which I would assert, that this is has not been wasted money, that's $12.5 million that has not come out of Amerigon's bottom line. In the bargain we have developed relationships with large potential partners in at least three significant industries that bode well for our ability to take, you know, much enhanced product to the marketplace in the future.

On the fourth item, which is the development of product technology and manufacturing capability for new products that would both enter the market early, give us this experience, and provide revenue and profitability and cash flow, we have had our first product introduction with Herman Miller. We will have at least one additional product introduction this year, enabled by our technology. These are small beginnings, but they are in potentially large markets, and again, I say they are intended to set us up with capability as additional markets emerge.

So we're now preparing, gearing up for product development on larger-volume products enabled by new materials, because we believe these new materials are close enough that we can now, you know, anticipate them becoming available in a way that we can incorporate them into product. This likely will take added resources related to product development. I would say this is good news for investors who have been anticipating an important stream of non-automotive seat products, and by non-automotive seat products I mean both non-automotive products and also products enabled within automotive by the new technologies, as a second stage of Amerigon products that complement our continually very successful seat heating and cooling products.

Our intention is to do this responsibly. We're not going to break the bank here. But you have seen a rising level of investment over time. Although, I would say our run rate in the first quarter in the new technology development is very consistent with our run rate over the last three quarters of 2007. So, in net cost we have had some improvement in reimbursement, so our gross cost has been rising a little bit. We will put more resource into this, because we think ultimately, and now in a way that's tangible, this will pay off for Amerigon shareholders in a significant line of products that go well beyond automotive seat products.

I think, Dan, I have said everything I know and probably more.

Well, thank you very much for that as usual eloquent overview of what is going on. And we agree with you, it's a very promising area for our company, and we're very enthusiastic about the progress that's being made as well.

So with that said, we would also like to reiterate with all of the things that are happening in the world, the uncertainty in the automotive industry, which is where our prime customers are today, particularly with the American Axle strike and the gasoline prices escalating up, the company has the seen General Motors' schedules for the second half of the year and our other customers resultant schedules for the year globally, worldwide, and we still feel that, as of today, we feel that our 30 to 40% guidance, revenue guidance, 2008 over 2007, is good, and we're standing with that, and we believe that the company is well positioned to take advantage of opportunities that are still coming in 2008, 2009, and 2010. Dan, I still have one last breath left. I have been thinking. If you also step back, we are right in the heart of the global energy crisis in a positive way, because our products will ultimately take waste heat or heat and turn it into electrical power. And we're right in the heart of the green side of the revolution against greenhouse gases, both in terms of improved fuel economy, which is enabled by recuperation of waste heat, and I would say a mile or two a gallon for engineers in the world we're living in today, and are likely to live in tomorrow, is an extremely important carrot. You know, I have been part of the auto industry, and so I know that each 1/10th of a mile receives significant weighting, and a mile per gallon is worth a lot to automotive companies. And the change in heating and cooling would get rid of the hydro - the fluorocarbons, and also CO2, both of which are targeted by governments around the world; less targeted by our own government, but we're all hoping that will change.

That is the end. All right. Well, thank you again. Again, very timely comments.

I think at this point we would go ahead and open the floor for questions. Kristin, if you have the opportunity to screen our calls there for us, we would be delighted to take questions from the field.

Thank you. We will now begin the question-and-answer session.

(OPERATOR INSTRUCTIONS)

And our first question comes from Casey Flavin from CJS Securities. Please go ahead. Hello Mr. Flavin, if you are using speaker equipment if you could please --

Sorry about that. Good morning, guys. Despite strong sales in Q1, obviously there is continued concerns regarding the American Axle strike and revised global production forecasts that are weighing on shares. Dan, can I just ask you if you were to assume that the strike were to continue through the next quarter, can you just share with us your view as to how this could potentially impact revenue growth in Q2, as well as the timing of various platform introductions that you expect in the second half?

Certainly. Well, first let's review what has happened with the American Axle strike and Amerigon's current platforms within General Motors. The GMT-900 line is a big contributor of our revenues and our GM business, and that is - most of those products are built out of two plants, one in Arlington, Texas, and one in [Salao], Mexico. Both of those plants capriciously are supplied out of an American Axle plant located in Mexico, and is not directly affected by the USA UAW workers strike. So the source of supply of axles and the drive train products supplied by American Axle to General Motors has not been disrupted.

The month of April, the Arlington plant was shut down briefly while they rediverted some of the axle sets to some of the pickup truck plants that are affected by the strike. So we did have a two-week, maybe two and-a-half-week disruption, but that plant is back up into full production, and they are making Escalades, all three models of The Escalades that we currently on, pretty close to full production right now. The other impact on us was some brake parts were supplied to plants that produced the Cadillac DTS and the Buick Lucerne. Both of those plants started back in to full production again this week. We have made our releases this week and our schedules for the rest of the quarter are currently out.

The direct impact to Amerigon on a short-term basis has been mainly disruptions to our schedules, and the ability to react and balance the supply chain materials in and out of these operations. While these plants were down, we did have a fall shortfall of a few thousand sets of seats that would have arrived at these plants on schedule that didn't.

I personally believe that, in a 12-month sense, that the American Axle strike will have very little impact on Amerigon, if anything. So we don't really see this as having a material impact on us. During the second quarter, it has been disruptive to our month of April, but it looks like the month of May is going to come back and be at normal schedules. I cannot go beyond that, of course, because that's the level of prediction that I'm not -- I wasn't gifted with. So -- but my comments I guess in general are, we don't really see any long-term impact from the American Axle strike, and we don't anticipate any unless that strike really gets bitter and it goes in to a -- you know, multi-quarter event, but again, our product lines today are not being directly impacted with the -- the American Axle work stoppage.

Nor are any new product intros that we have been anticipating. We have products that will be coming in in the 2009 model year launches, which will beginning in July, typically. Some of them begin in September of this year, but they will definitely be second-half events. So if the strike lasted that long, there could be some impact, but again, that's difficult for us to gauge at this point.

Okay. But at this point in time, the intros you were expecting to see in the second half do -- are currently on schedule, if I heard you correctly?

Yes, sir. That's correct.

Great. And secondly, it was also made very clear in your press release that you expect R&D to increase over the next couple of years to support various BSST activities. Is this primarily for consumer-product-related applications, power-generation applications? And, you know, how should we look at this as far as, you know, potentially indicating that some of these products - the time line for some of these products to be commercialized are accelerating?

Shall I take this, Dan?

Yes, go ahead, Bud.

Here is what's going on. As we see the opportunity for the incorporation of new materials in product, there are a number of things that have to be done. If you think of this as a bunch of crystals, you have -- you know, make sure you have the technology to harness those crystals into a module. And there are interfaces between the materials, and, you know, there are a number of steps from what I'll call raw product to, you know, thermoelectric engines that are capable of delivering the reliable and rugged and high performance that we would expect of them. And those are the kinds of things that we're going to be working on over the next year and a half. They are gateways to the ability to offer real product, and they are product development-related as opposed to R-related, research-related. And I don't have a gauge for what is the order of magnitude of these, except to say they are not bank breakers, but they are important steps to be able to offer this product.

We have a number potential uses for these, but I can't give you a product intro forecast here. But essentially what we're doing is taking steps that really say after -- I would say more than several years of rather frustrated waiting for the ability to have material that we can harness, we're now looking at the -- you know, what it takes to harness those materials. Does that -- that's about as much as I can say about it at this time.

Okay. And just in terms of on the power generation side, you had spoken to sort of an outlook at some point over the next three to five years you could see something coming to market. Is that still the time line that you are expecting, or do you think this could even move up a little bit?

I think that's still the time line. Some of these markets are shorter term. Actually some of the work we're doing is to understand what are the nearer-term product opportunities. The longer-term product opportunities are very evident, but consistent with our strategy that we talked about, we want to be able to introduce products that have a shorter lead time to give us the kind of experience that will be very valuable as we address the longer-term markets. That's work that's going on and will be going on in the next months.

That's great. Thanks, Bud, and then lastly, and I'll hop back in queue, you have spoke about the heat and ventilated seat, you know, coming to market for quite sometime. And it did this quarter, so congratulations. Can you just remind us of the opportunity there, and as well as what the gross margin level is compared to your CCS product?

Certainly. Casey, the opportunity is for all of the mid-market range and entry-level market ranges, where the relatively expensive heated and cooled -- actively heated and cooled seat technologies do not apply for one of two critical reasons. Number one, the availability of power to operate a thermoelectric actively. And second, the target market's consideration of comfort and convenience, discretionary dollar spending.

So we felt it necessary to add that product line to our product offering in order to address those rather large and growing market, particularly in a developing country -- developmental market worldwide. The products that we are shipping -- we have made some significant shipments during the first quarter to our initial customer, and these products are all -- are targeted toward actually markets outside of the U.S.

The margins that you mentioned, we have a rather common goal for our margins across the board. We would like to see something in the low 30% range, and these new products all meet our expectations.

Great. Thank you, Dan.

Certainly. Thank you.

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

Good morning, everyone. The initial question -- if Barry could answer, maybe, how should we be thinking about the absolute R&D sort of net spend for 2008?

Asking me to tell you what the amount is going to be?

I mean, is the run rate -- I mean, the number we saw in the first quarter, is that a good number to use going forward?

Yes. It may tick up slightly from that level.

Okay.

It also depends upon the opportunities that we see in the developmental areas. We are poised to take investment as the opportunities arrive. But yes, I think you are going to see increases in our spending on R&D across the board.

Was there anything abnormal in the SG&A number within the quarter itself?

Not that I know of.

I mean it felt art -- it felt low.

Well, we -- it was well within our guidelines and our target, so we felt like it was an appropriate number.

I think the question, was there anything in the prior-year number that made the comparison look odd, Barry?

There were a couple of things in the prior year that were in material independently, but there are always one or two things that tick up once in a while. So we probably had a fewer number of those types of things, but as a run rate I think we were consistent.

Okay. And just a final question. I know there has been some concern, and I think it's sort of intuitive concern, that maybe take rates would ease a bit considering the economic climate we're in. Have you seen any changes across your nameplates?

Actually, we have seen some changes across the nameplates during the last six months. During this crisis, we have seen more of our customers add our features on as standard options and not leave them as stand-alone options. We have not seen any falloff of the take rates on any of our products that we're aware of. And we track those fairly closely, so the responses in the marketplace are very positive. We don't -- we haven't seen any drop-off of interest in -- or support of our product.

Thank you.

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

Good morning, thank you. If I could drill down a little bit more on the strike again. Assuming we're back to business as usual with GM on the three models in question, what kind of impact would you see, I guess, from a top-line perspective in Q2? You, you know, you have lost, I guess a month on two platforms and a couple of weeks on another. What impact would you see that you've been - sort of expect to see spread later in the year?

Well, if you were to lay it out like that -- we have -- on several of our plants, we have opportunities where a month may go by and we get very small releases, so it's not unusual to have low releases in any one particular month during a quarter. They usually smooth out over periods of time. So the direct input, though, if you had to lay it out -- this is a guess -- but an estimate for me would be somewhere between 10,000 seats may have been affected in terms of the shipping and delivery schedule that we believe will be reabsorbed during the balance of the year.

Maybe if I could say something from my automotive experience. Assembly plants have enormous legs for catching up with lost production, and so we're maintaining our guidance for the year, you know, first because the impact on us has not been significant thus far, and secondly, because we expect that -- given any reasonable approach on the GM strike, that the losses will be readily made up in the balance of the year.

Is it -- is it too hard at this point to -- to figure out sort of what quarter in the year they will be made up? I assume ratably throughout the rest of the quarter, but it sounds like they are going back with one shift right now and not necessarily racing to make up lost ground at this point in time. Is it more kind of later in the year or would you expect kind of fast and furious here in Q2 to make up for the outage?

I don't know that we can actually pinpoint that, but I would give you some guidance in terms of the fact the new model year will be launching in July, so I think they have probably some motivation to keep product in the customer's sight. The dealer inventories have been dropping dramatically, which frankly has been a positive for General Motors and its dealership. They have been able to absorb unsold vehicle out of the marketplace. Early on, that's a good thing. The longer the strike goes on, the more difficult that becomes for the dealers to meet the needs of the consumers searching for vehicles, and that will put some pressure on the companies to accelerate the availability of all the vehicles that they've got.

Okay. Great. Thanks. And then, you know, I guess we all read sort of the play-by-play in the paper about the strike. Kind of being in Detroit and the inner circle there, if you will, what is sort of the late that's you are hearing? And what is your outlook on that if you were to handicap it? You knew I would ask it.

The latest is that they are talking. I would say the general consensus is that the -- the company and the union are at odds over overall compensation, not necessarily directly the salaries and the buydowns, but I think the overall cost of having American workers with the retirement and insurance healthcare costs that are kind of a burden from the past. And that has not proven to be an easy resolution, although the model exists in the market today with the UAW contracts with the automotive industry itself, and many of the competitive Tier 1s.

So, again, we're optimistic. I certainly thought that the progress would have been to a point where they would be settled by the end of the month of April. I haven't heard any announcements today, so that looks like that is not going to come true. But I don't know how much longer the company and the union can afford to stand away from each other, and not really sit down and do some serious bargaining, and I think that they are beginning that process within the last two weeks, and I think that they will eventually work it out.

Okay. Great. And then finally, how should we think about sort of the non-auto or BSST-related revenues, if you will. You had minimal revenue from the Herman Miller product. You will have another new announcement, it sounds like potentially this summer; how should we think about that as '08 revenue and then as '09 revenue, just as a percentage of the total or a raw number?

I think that would have to be considered at this point an immaterial number to our overall business. It's not something that I think is going to tip the scale in any way during 2008.

What about '09? Would you venture sort of a broad picture as to how that may look?

I think it will remain immaterial in '09, simply because of our continued major gains in the automotive seat business, but bare in mind again what I said. There are two things that are going on. One is, the Herman Miller numbers are small, but the market is very, very large. And we'll being offered as an accessory first to test market acceptance and to make sure the that we're delivering meets all of the customer expectations, and at the moment from my perspective it's a a little noisy, and a little - throws less than it - we'd like it to ultimately, but my wife likes it, so that's a good start. And the second product that we're going to offer also will have a small start, but it will address another quite large market. But in the bargain, it's a going to give us the manufacturing knowhow and the product development capability to give us another step. So it's -- it's both meaningful in its own right, increasingly over time, but secondly, it's a stepping-stone.

Great. Okay. Thanks, guys.

Our next question comes from Rick Hoss from Roth Capital Partners. Please go ahead.

Hi, guys.

Good morning.

The question -- initial one is for Barry. Barry, can you give me the total BSST expenses for the quarter?

The total BSS -- the net expense for BSST for the quarter was $730,000.

730. Okay. Perfect. And then --

Let me interject on that.

Yes.

The -- that's consistent with the run rate of the prior three quarters. So there's no big increase in BSST net expenses in the first quarter compared with the prior three quarters. Compared with the first quarter of '07, it is up, and so we have been running at this rate for roughly four quarters.

Right. Okay. Thank you. And then second question is on the Hyundai Genesis, your paragraph in the news release and then the scripted piece of the call talked about contribution from the Jag, the MKS and the Nissan vehicles but not from Genesis. Is Genesis shipping? Is it still on track?

Yes, it is shipping.

That was an omission on my part by eyesight.

Okay. Okay. All right. So I was just looking too much into that. Okay. Thank you very much.

Thank you.

Our next question comes from Chris [Ryder] from [Lukram]. Please go ahead with your question.

Good morning. Thanks for the picture view on BSST. Can we just do a quick recap on the big picture of your core auto business? What is your current penetration rate? What is your target penetration rate? What is your current market share? And what do you likely think your market share will be at your target penetration rate?

Okay. There's a lot of question there. We believe our current position in attacking the available market - our market share is very, very high, in that we are one of the only people who are offering this type of product. But in terms of the market penetration rate, we believe we are less than 5% of the upper end market for the heated and cooled seat technologies, in terms of being able to place in the available target market. Obviously, our goals are as much of that market as possible. We have not publicly stated what our goals are, but to be able to look out into the future, we see the growth for our business of being anywhere from 20 to 30% a year for the next, you know, two to three years that we have positions in place.

And as you get to that three-year goal, what market share are you assuming?

We're not really assuming -- we haven't publicly stated what we assume the market shares are, but we...

Maybe a better way to think of it, Dan, we have published a chart that is broadly available that talks about the total market for heated, for heated and ventilated, and heated and cooled seats, of which heated is probably half that or a little more than half that, would you say, Dan?

Probably, yes, 60 to 70.

So we're saying that, you know, more or less now that market is in the 7 to 800 million -- 7 to $800 million. So you can make your own penetration figures based on, you know, our forecast for this year, and give us the 20 to 30% growth over the next two to three years, and we think that market by 2010 or 2011 will be $1 billion. So we think there's very broad headroom for us. We expect and intend to get our unfair share of this market, and we are, so -- and we don't see any real change to that position.

Then last question is, given where you stand in terms of your knowledge of the industry, what is happening with competitive product offerings?

We know that all of our potential competitors are pushing very hard to introduce products that have heating and cooling capabilities, and we are obviously doing our best to make sure that those programs are less satisfying than our programs are.

Thank you.

Thank you. Our next question comes from Brett Hoselton from KeyBanc Capital Markets. Please go ahead with your question.

Good morning, gentlemen. Good afternoon, I apologize. Your -- first of all, your 30 to 40% guidance this year, couple of thoughts here. One, confidence level in that 30 to 40% guidance, Dan, what would you say your confidence level is? And then secondly, given your growth in the first quarter, how would you think about the cadence of growth as you move through the second, third, and fourth quarter? Obviously, it sounds like it's pretty back half-loaded. Should we expect a significant ramp up in the third quarter and then maybe a steady growth rate into the fourth quarter?

Yes. Well, let's get around to the confidence levels first. Mike, I'm not 100% confident of anything in the world, so I would say I'm 95% confident that our 30 to 40% numbers are attainable and reasonable for the balance of this year. And the cadence as we go forward, we have indicated that we believe that the 2009 model year launches are going to trigger a large increase in the third quarter, followed by a good, steady, strong performance in the fourth quarter. So I think you are going to see a reasonably good number in the second quarter that we're going to be quite happy with, even with the American Axle disruption. We believe that the second quarter is going to be satisfactory, and then the third and fourth quarter are going to be extraordinary.

Second quarter, would you say consistent with what you saw in the first quarter roughly?

I think it is actually going to be a little better than what we saw in the first quarter, myself.

Okay. And as you think about future products, I'm not sure how much more you are willing to say about this new product that you are talking about today. Could you maybe address -- like the markets, and then the significance of it? I know you have made a few comments along those lines, but is this something that will be fairly de minimis in revenue for a long period of time? Or do you think that there is going to - has the potential to have a significant growth opportunity? And just kind of the end markets?

Actually I think Bud has done a very good job of outlining that from not only the 40,000-foot level, but also the 4-foot level on some of our opportunities here. But all of the products that we start off on, we try to target a market leader in a significant market, and we try to find a product that will allow us both to learn as we go forward in the introduction -- the early introduction of a highly innovative approach to something. And I think the Herman Miller device a very simple example of that, and I think this summer you'll see a couple of more examples of those types of products. All of those efforts that we're making are attached to, or and introduction to, large and significant markets for us, and it's a combination of commercial, industrial, and consumer-based target markets.

And beyond the one that you have mentioned in your press release today, do you anticipate any other introductions through the remainder of the year?

I think there will be a couple of things that are going to come out. As we have said for the last three or four years, we felt like new products outside of the automotive seat business would begin to appear in the latter part of 2008, and early 2009. Barry is just showing me a copy of the quotes we have had for the last three years here, and that's very consistent with what we have said and that's exactly what is transpiring.

Excellent. Thank you very much, gentlemen.

Our next question comes from Michael Nicolas from Lakeview Investment Group. Please go ahead with your question.

Hi, gentlemen. My first question relates to the pricing power that you guys have right now in your current business, and some of the trends that you are seeing in the climate-controlled seating business. Can you go over some of the price trends that you are seeing today?

The pricing trends in the automotive industry in general have been quite consistent for the last, probably, the last 100 years --

Or your pricing power?

Well, our pricing power is to try to make sure that we accommodate the needs of our customers, and our customers are the automotive industry, and they have a need to try to get better cost targets for each of their product categories as they go through. So we do try each year to lower our cost of our product to our consumer by design and by manufacturing efficiencies, and distribution efficiencies as well. And we have been able to achieve that again this year, and we're certainly driving to make sure we seep our costs in line to be able to offer these customers these price concessions as per their requirements.

So most of the top-line growth will be through volume and obviously less so through pricing?

That's -- there's no price increase in our -- in our growth. Our --

Okay.

Actually, it's the opposite, we have actually price erosion that is a planned erosion. And the revenue growth is through penetration and new product introductions.

Is there a planned erosion rate that you can point me toward for the future, or an annualized rate that you expect prices to erode by?

I'm going to intervene here. We really don't want to talk about that publicly. First of all, we don't want to whet the appetites of our customers, and secondly, it's kind of not a good idea to put those numbers in the marketplace. But they are digestible in general. And we have said consistently that our target for margins is in the low 30s.

Uh-huh.

And that's probably the best indicator that we have continued ability to keep our margins near or at our targets, although they will bounce around given quarters and given mixes. Wouldn't you say that's right, Dan?

That's exactly right. That's where I was heading.

Sorry, I thought he was going to sneak you out on the plank, and I didn't want you to get out there.

No. No. I don't want to go out there.

In terms of your top-line growth, quarter over comparable, quarter over - it was about 6.7%. Was there any foreign exchange gains associated to that?

No. All of our revenues are generated --

Are in U.S. dollars. Okay. Great. Thanks, guys.

Thank you.

Our next question comes from Gary Lenhoff with Ironworks Capital. Please go ahead with your question.

Just one simple one. Barry, can you tell us what - break out Asian and European sales for the quarter?

Yes, it was -- I thought we gave that in the press release. But I think it was 57% foreign -- or Asian, and European.

Right, you combined the two. I was wondering if you could break them out. Could you tell us what sales and Asia and Europe were separately?

Yes, I can. Give me one second, I have a ... it was 53% North America, Asia 39%, and Europe is 8%.

Great. Thank you very much.

Our next question come from Tyson [Vayer] from [West Monitors]. Please go ahead with your question.

Good morning, gentlemen, a great job in managing through the marketplace here. Couple of quick questions. When you talk about the 30, 40% growth, have you broken that out between what you expect that growth be contributed by new model introductions and new product introductions with your ventilation system, versus a growth rate in your existing models before the beginning of this year, or if there is an actual contraction in those expectations?

We have -- we have not broken that out, Tyson. But what we do expect -- we typically expect to see a slight fall-off in the regular run rate of models, as models are introduced in to the marketplace and then they ride off their product life, there is a normal soft decay each year, from year-over-year, until the product is reintroduced. Obviously the bulk of our growth is coming from new product introductions, including our heated and ventilated product, and we haven't broken out what those are, we won't until we probably complete the year, and we see how the customers are accepting the product. But most of our product growth comes from -- all of our product growth comes from penetration, and some of that penetration is marginalized by a small amount of decay from the existing previous carryover platforms.

With that said, given your three-year -- or your three-year kind of broad outlook that you mentioned, given the robustness of your new product introductions this year, it would appear that you think you can do just as good if not better in the next couple of years?

That's certainly our expectation.

You talked about competitors' products trying to get to the market, trying to compete with you. They are either doing it trying to get a better product and a quality or going to compete with you by undercutting on price. What has been your sense of what approach they are trying to take in competing with you?

Well, I think initially they are trying to get a product that functions close to what ours does without violating any of our proprietary designs. And I think that's -- obviously it has proven difficult to do, so I think that's the major thrust on their part is, trying to find something that works as well as Amerigon's, without interfering with Amerigon's proprietary technologies.

Okay. Which would mean that if they can't do a better product, then they must be attempting to compete on price, or that's their logic going forward.

I'm not often privy to their thought process and logic patterns.

Well, you are a smart guy, Dan. The production schedules you said you saw going out through the year, are you seeing more downtime in the summer, as has been reported by some sources, that we might see extra in the normal downtime and turnover time in the summer months?

There's -- there are definitely indications that some of the production -- or the inventory numbers will be balanced to market demands in the summer months.

Okay. And the last question for me. In periods of softening that we're in now, and the difficulties they are having at least in North America, even though we see, say, SUVs down significantly, pickup trucks down significantly, you are mainly on the feature-rich vehicles, the Eddie Bauers, the Lariets, the GTs, those type of vehicles, has there been the same kind of deterioration in those vehicles, or it is more of the base-level vehicles, which you are not on anyway, that have seen more of the fall-off in sales?

That -- your thesis is exactly correct. We're on the more feature-rich, high-end targeted platforms, and most of the cutbacks are coming in the early - entry level or the commercial-type vehicles that our product is not currently offered on.

Dan, it's also fair to say, that, you know, the SUVs are high profile, but, you know, more than half of our sales come from luxury sedans and vehicles that are not SUVs; isn't that correct?

That is correct. It's -- actually it's well over 60% of our revenue comes from passenger cars, and that number is growing dramatically.

So I would assume there is somewhat of a misperception or misconception around the company in regards to, if production levels are supposed to go from say, previous estimates 16 down to 15.3, that that does not necessarily draw direct comparison on how Amerigon is expected to do throughout the year, because of the focus that your products are on?

That would be a good overview, yes.

Thanks a lot, gentlemen.

Thank you, sir.

Thank you. Our next question comes from Ian Ellis from Microcapital. Please go ahead with your question.

Good morning, gentlemen. I was a little intrigued by your comment, Dan, about a number of your customers now offering CCS as a standard rather than an optional -- within an option package. Can you give me a sense of how significant that -- that transition is? Because obviously it will take you right to 100% on those models?

Yes, that's true. And it's something that we -- obviously we have enjoyed very high nominal take rates on all of the platforms that we have been introduced on. And again, remembering that these are all typically high-end vehicles, targeting high-end comfort and convenience-focused customers. Several of our customers - the OEMs, our customers - have recognized that a very, very high take rate on a popular feature is, you know, inefficient to have something in the 85 or 90% take range, and they have made the decision to just make the product a standard feature.

The first of those was the Nissan and Infinity products that saw extremely high take rates for their - basically I'd say high-end luxury performance sedans, and they made their sedans standard midyear last year, and then that was followed by the Lincoln MKZ, which again was seeing a very high take rate, in the 80s, I believe that number was, and that was followed by the MKX, which is a very popular cross-over vehicle offered by the Lincoln line as well. We believe that trend will probably continue if the consumers in those target niche markets accept the heated and cooled seat feature the way that these products have. That said, we have again a very good take rate. We're very pleased with the consumers' response to our product, and we're very pleased that the customers, our OEMs, are recognizing that heated and cooled seats is a selling leverage point to the end consumer.

Yes. Great. Thank you.

Thank you, Ian.

Thank you.

(OPERATOR INSTRUCTIONS)

Ladies and gentlemen, at this time, I would like to give the participants a final opportunity to ask any additional questions.

(OPERATOR INSTRUCTIONS)

Management, at this time there are no further questions. Please continue with any further remarks that you would like to make.

Okay, Kristin. Thank you very much. Certainly we have told them more than we know, so I don't see how any more questions would be helpful. We would like to summarize our comments by saying that we feel like the first quarter was successful, we were pleased with the results, we also were pleased with the -- the outlook of the company and our technologies for the future. Again, we reiterate that our 30 to 40% growth estimates for the 2008 calendar year are on target, and we also, as you have heard from Bud, are very pleased and confident that our activities with our advanced technology programs are working and on target as well.

So we would like very much to thank everyone, all of our partners and our vendors and our employees, and our customers worldwide, for helping generate such a very good first quarter, and we ask you all to join us here in another 90 days, and we hope we have more good news for you then. Thank you very much, and goodbye.

Ladies and gentlemen, this concludes the Amerigon, Inc. 2008 first quarter results conference call. You may now disconnect.