Gentherm Inc (THRM) 2009 Q1 法說會逐字稿

Welcome to the Amerigon Inc., 2009 first quarter results conference call. (Operator Instructions)

I would now like to turn the conference over to Jill Bertotti. Please go ahead, ma'am.

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 PR news wire this morning's news release announcing Amerigon's results, 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 link provided on the events page of the investor section of 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, new competitors may arise, and adverse conditions in the automotive industry may negatively affect its results. Liquidity and trading price of its common stock may be negatively affected by these and other factors. Please also refer to Amerigon securities and exchange commission filings and reports including but not limited to its Form 10-Q for period ending March 31, 2009, and its Form 10-K for the year ended December 31, 2008.

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'd now like to turn the call over to Dan. Good morning, Dan.

Good morning, Jill, and thank you very much for that kind introduction and thank you, everyone, for dialing in and listening to the results of Amerigon's first quarter of 2009. The first quarter of 2009 continued operations under the worst economic slump that the automotive industry, our primary customer base, has seen in about 100 years of existence. Amerigon has enjoyed a long history of good, steady growth and profitability although we have suffered greatly like a lot of the other suppliers to the automotive industry in terms of the reduction of the volumes.

With that, our first quarter numbers, the seasonally adjusted annual rate is referred to many places as the SAAR rate, for the first quarter was roughly around 9.5 million units annualized which was down from a roughly 15 million annualized rate for 2008 for the same period, or about 38% to 40% off. Our revenues reflected that drop which brought our revenues down to around $10 million from about $17 million the first quarter of 2008. And with that resulting drop in volume, the business model that we are currently operating on did not allow us to make a profit. This was a very bad time for Amerigon, bad time for a lot of people.

We managed to pull down our operating costs as much as possible and we did post a million dollar loss, first time we had a loss, I believe, since 2003. We are still suffering under the same situation. The North American marketplace as well as the rest of the world continues to be a very uncertain place, and we are working and struggling to keep our heads above water and keep moving forward.

We have had some good news. We have had some new models that have announced that in the 2010 model year they will add our heating and cooling technologies to their product lines. We are pleased to see a variety of names including the Ford Taurus, the Lincoln Mark MKT, the Infinity G convertible, Jaguar XJ and XK, Toyota Crown Majesta, and this morning it was announced that the Hyundai Equus, which is a vehicle that has previously been sold exclusively in Korea will now be redesigned with heated and cooled seats, front and rear seats, and will be more broadly marketed worldwide, including new markets like China and in Russia. So we do have some positive news coming our way, although it is a very tough time. We are going to attempt to keep to our normal schedule, keeping our comments to a minimum, and allowing you, our listeners, to be able to ask as many questions as possible. So, right now I'm going to pitch it over to Barry and Barry will give us a quick summary of the financial numbers. Barry.

Thanks, Dan. As Dan mentioned, revenue was $10.2 million, down $7.2 million from the first quarter of the prior year, down $2.7 million from the fourth quarter of 2008. So sequentially we're down 21%. As Dan mentioned, this decrease was largely driven by lower industry production volume. Also was increased -- or decreased by some of our tier one supplier customers reducing their inventory levels of our components. We actually had little bit lower production volume than the actual run rate in the industry for some programs. This was offset somewhat by new program revenue in a number of programs that we had launched since the first quarter of last year.

Moving on to gross profit. We saw gross profit margin percentage of 24% in the first quarter. That's down significantly from the first quarter of last year which was 32%, up slightly from -- sequentially from the fourth quarter which was 22%, so up 2% from that period. What is driving this decrease is higher material cost, primarily with component - a material we use, [tolerium], in our product that we have seen increase during last year, unfavorable fixed cost coverage and unfavorable mix of our products, our components that we sell.

Moving on. Net R&D was $1.7 million, that was slightly higher than last year's $1.6 million, last year's first quarter and about the same as the fourth quarter. The $156,000 increase over the prior year, or almost 10%, was primarily due to increases in spending rates at our advanced thermoelectric program at BSST offset lightly by lower spending on engineering costs for the rest of the Company for the CCS system.

Moving on. SG&A was about the same as the prior year at $2.1 million, up sequentially from the fourth quarter by about $1.1 million. That increase reflected a lower than normal run rate for the fourth quarter due to reversing accruals for our bonus program -- management bonus program. That's all added up to a pretax loss of about $1.5 million offset partially by our deferred tax benefit of $467,000 for a net loss of $936,000 or $0.04 per share.

Moving on to the balance sheet. Our cash and cash equivalence is about $25 million, which is where it was roughly at the end of the fourth quarter at December 31. We did take a draw on our revolving line of credit of $1.3 million, considering the loan our actual net cash position has decreased by about $1.4 million. The reason for borrowing on revolver, although we have very good relationships with our bank coAmerica, we wanted to be sure that the credit was actually available given the difficulty we see in the credit markets. So that exercise was successful. We had hardly ever borrowed in the past so we thought that would be a prudent measure for us to try that out. We will expect to pay that back in the second quarter. Then that's about it that I have. Back to Dan.

Okay, Barry. Thank you very much for that report. We will pitch it out to Bud and see if we can get an update on the advanced technology team, Bud.

Thank you, Dan. Good morning everyone. I think just looking broadly at this whole scene for Amerigon and BSST, this is clearly going to be a lumpy year. We are going to use the, as Rahm Emanuel said, no good crisis should go to waste, so we are taking advantage of the opportunity of the crisis to take costs down and reprioritize where we think things are appropriate. I think that's a healthy thing for most businesses. And the objective is to emerge stronger at the end of the year and poise to resume our growth as the industry recovers. We are also working hard to enter new markets that will diversify us from automotive seats.

On the BSST side, a significant effort that is underway is to take advantage of the material breakthroughs that we announced in partnership with Ohio State earlier this year and I would say we are also adding other new more efficient materials to our product portfolio. I'm not prepared to talk about the details at this point. One of the objectives is to broaden the spectrum that we cover to both take advantage of [Joseph] (inaudible) material Ohio State and then to cross pollinate with other pioneering efforts in the material scene, and we are, I'd say, making very good progress with that.

I also believe that we are going to be successful at getting additional government funding. It's clear that private auto company funding is in advance for this year because of the situation both with the auto companies and their suppliers, so our focus has been to drive hard for programs that move our technology forward and pushing the cost picture, and I think we will be able to report good progress on that in the second half. I think that's it from southern California, Dan.

All right. Thank you very much, Bud. I think that at this point in time we should open the floor for questions from the crowd. Operator, if you would take our questions please.

Thank you, sir. (Operator Instructions) Our first question comes from the line of Brett Hoselton with KeyBanc Capital Markets. Go ahead, please.

Gentlemen, Dan, Bud, Barry, good morning. Let's see. A couple thoughts here. First of all, as we think about, I am going to ask general questions about the outlook and I know you are not providing guidance this morning and understand why, I think it's perfectly suitable given the conditions. But as we look at Amerigon's revenue and we think about how it's going to perform relative to production levels, would you say that Amerigon is likely to outperform production levels or underperform production levels kind of as we move through the remainder of this year.

I would say that generally due to the fact that we have some new platforms, we already announced five, actually make that six as of this morning, and we have a couple of more platforms to announce, we should outperform slightly the general market. I would also draw your attention to the comments about the General Motors current shutdowns and even General Motors is saying they don't believe they will be significantly altering their -- your annual production rate guidance. So we suspect that we will probably, on the whole, be able to do slightly better than the overall market.

Okay. And then as you kind of turn your attention to let's say 2010, 2011. In the past I have tended to think about your net new business growth, organic revenue growth let's say, kind of in that 20%, 25% range per year. If we saw flat production for the next two, three years, hopefully not, but flat production the next two or three years just for talking purposes, what kind of organic revenue growth rate would you might see in 2010,2011?

Well, I would hope to see a return to the normal trends we set in the past. However, at this point in time with the broad uncertainty globally in the automotive industry, I personally don't think that the automotive industry is going to return to solid stance for all of 2009 and possibly in to 2010. But I can tell you we are working very hard to increase penetration as we have in the past for all of our C customers to the tune of what you've seen, even this year we're actually increasing our penetration in a dramatically shrunken market but we are continuing to add new name plates and new brands to our product.

In addition to that, in 2010 and 2011, I believe you are going to start seeing some evidence of some of our nonseed and nonautomotive products coming in to bear. We are targeting to try to get back in to a growth mode and recover from this current hole that the automotive industry is in and try to push forward and return to a solid growing company.

And then as we think about your margins going forward, when I look at the third quarter of 2008, you were around 29% gross margin level, still had fairly good gross margins in the third quarter of 2008 but yet production was marginal in the third quarter, not necessarily as weak as it was in the fourth and the first quarter. As we think about production increasing as we move through the year regardless of what happens to sales here, increasing through the remainder of this year, your thoughts on your ability to get back in to that 30% gross margin range. What were the pluses and minuses there assuming production increases as its expected to and sales increase some?

Certainly. Well, in the third quarter, as you point out, in 2008 we did about $17 million in revenue and that is going to be a big factor for us is driving our revenue back up and put us in a position to run the bossiness at the model we originally designed. A couple of things that are happening for us, we are, working hard on keeping costs in line and keeping cost reductions in place as quickly as we can. That's a slow process that we've undertaken for the last six to nine months. But we are beginning to see a little bit of the positives start to come back, and I would be disappointed if our margins didn't improve during the year. Part of that is the material cost efforts we put forth, the other part of it, of course, is that we expect volumes to be better than they were in the first and probably in the second quarter and the second half of this year.

Specifically, [tolerium] pricing. Can you give us an update today versus where it was last year and what are your expectations going forward?

The tolerium pricing that we are seeing today on open contracts are anywhere from $185 per kilo all the way up to $200 per kilo and that is lower than we saw in the fourth quarter and it's beginning to show a little bit of sign of competitive activity in the marketplace. So we are excited about that. We, unfortunately, are not issuing a lot of contracts today because of the fact that our volumes are so low, but it will have a positive impact on our future, we believe. Where that goes in the future, I've actually broken my crystal ball and don't have a really good ability to prognosticate. I would say that we will continue to see volatility in the raw material markets and I think that as long as demand remains low worldwide, you will see continual downward pressure on tolerium, although I would say that's not exactly going to be a long-term economic trend. I would say that we will see demand for tolerium increase over time.

So as we think about tolerium and we think that it's -- I think you said the first quarter your suppliers had a fair amount of high priced tolerium and needed to work through that. As we think about that, it sounds like you are suggesting that at the current price it starts to become a tail wind over the next few quarters?

Yes, when we get to a position where we are issuing significant new contracts for material in the marketplace, at these price levels it should be better than what we saw in most of the second half of 2008 and certainly in the first quarter of 2009.

As we think about R&D, SG&A spending. First quarter, would that be representative of reasonable run rates for the remainder of the year? It sounds like your SG&A may come down just a touch.

The SG&A I think is probably going to be about steady, I think our R&D spending may increase slightly as we go through the year.

As you think about -- well, how you would you define slightly? Is that like $50,000 or is that like a million?

We indicated previously that we do intend to spend a little more money on our R&D programs and I would say that off of the run rate for the first quarter it will probably be in the -- something between those two numbers. Certainly not a million dollars of additional spending but certainly more than we saw in the first quarter. We have been trying to keep our costs and our spending as tightly under control as we could. But in the second half we expect to see the business I think start to expand again and we do plan to increase our spending on our advance technology programs. I think you heard Bud's comments have been very positive and very promising and so we want to continue feeding the -- that part of our business which is showing lots of promise for our long-term future.

Then finally, you have a solid cash position, your balance sheet looks good. Are there any opportunities to -- are you interested in considering making any sort of I guess what I would consider to be small bolt-on type acquisitions to possibly enhance your existing technology or do you feel like what you have on your plate right now is what you need and you are just going to continue to move forward and develop what you have?

Well, we are obviously always open for irresistible opportunities. Although I would point out that these are uncertain times and we are always on the lookout for any technology or material supply or any type of relationship that could increase our ability to bring new products or bring our current products to new markets. So we are not -- it's not a key objective of ours to find places to spend our cash horde or try to go on a acquisition spree, but we do keep our eyes open.

Thank you very much, gentlemen.

Thank you, sir.

Our next question comes from the line of Steve Denault with Northland Securities, go ahead please.

Good morning everybody. Can you talk as much as you can about the test phase that you completed in terms of cooling electrical equipment?

Yes, that's a program that we announced last year that we were going to begin making hardware to ship to a customer that uses the hardware essentially to cool electronic gear, I think primarily to be set in cell phone towers, and those, I think we shipped somewhere, Barry, correct me if I'm wrong, somewhere around a thousand units in the first quarter.

About $144,000 worth of revenue.

Just under a thousand units have been shipped and they have been installed into the marketplace and they are being evaluated and we are looking hopefully that these units perform well and are acceptable to the customer and that we continue to see a nice steady market penetration for that new product. We are excited about that type of opportunity because it plays very heavily on our ability to devise thermoelectric driven heating and cooling elements that are used in an industrial application as opposed to purely just heating and cooling in an automotive application.

Okay. As you think through that opportunity, what do you see the target market as, specifically the cell phone towers?

Well, the target market, of course, these devices, the cell phone towers themselves, there are environmentally and security systems that lock up the electronic hardware and gear, there are power converters and signal amplifiers and all sorts of things built in Iraq that go inside a metal box. When these metal boxes are in the outside world, especially in warm climate conditions, the electronics themselves in normal operation generate heat and that heat has no easy path to escape the container. There is another factor there in all of these remote installations, there are battery packs inside the electronic box to be able to provide emergency service power in case there is a power disruption. These batteries are like all batteries, they are highly sensitive to temperature environmentals shifts, particularly to high temperature applications. They don't like to see prolonged exposure to high temperature, so our devices are being used to offset the heat generated by the electronic gear and to attempt to keep the battery packs themselves cool to say within the operating parameters of the battery.

There are a lot of cell phone towers in the world. We certainly hope that our customers are effective at being able to get the products on the marketplace and prove that thermoelectrics can accomplish the job affectively and efficiently, and hopefully get some more installations and replace the compressed gas systems that are being used now today because there are no other real solid choices.

This is Bud, just to add a couple of comments. First, in the broader sense we think electronics cooling is major market for us and this represents our first step in this arena. I have to say the volume is lower than we had hoped and that our customer anticipated. That's a function of the economic decline which is affecting obviously capital investment and replacement and improvements in the electronics industry where our cooling would be active and industries like the furniture industry where the volume is dropped more than half. So, again, our intent is to establish positions in these markets and prepared to expand them as the economy recovers.

Okay. What do you think the odds of the scrap though are?

I think that the government are seeing successful programs being run in Europe in particular, and I think that the -- there may actual actually be a scrappage replacement program here in the US. I think the odds are fairly high.

Okay. Great, thank you.

Thank you, and our next question comes from the line of Steve Dyer with Craig-Hallum. Go ahead, please.

Good morning, guys. Nice quarter, all things considered. Couple of questions that haven't been I guess asked yet. Kind of relating to the recent one, how should we think about the continued rollout of this cell tower application? What is your thought as to the testing phase and revenue going forward is this a good run rate, does it grow, is this a test phase for a balloon-type of an order, how should we think about that?

I think what we hope for obviously is a positive response from this -- the initial field market testing. And the rollout would be a gradual rollout. There won't be an order for a million units to be shipped within a six-month period. It will grow as the installations grow and our reputation for being a reliable solid state device that provides cooling to these installations will spread. It's not something that you are going to see a spike in demand. It's going to be a slow and gradual process.

We like to ramp up these types of projects and understand everything about how these products are expected to perform and what our role is in the marketplace. Then as our customer understands better how these products perform and they are installed we expect to see them expand in the marketplace. These units that we are shipping today are primarily directed towards the European market and we expect that market to continue to be, as Bud pointed out, under some economic pressure. So the market response may be muted for a while but we do expect it to be a first step in electronics cooling and we think that this will be a growing business over time but it's not going to be a medioric ramp. It's not going to be an iPhone. It's going to be something that's much more steady and much more reliable and dependable over time.

Okay. Just for purposes of sizing the market, is one of these modules or devices used per cell tower?

There is one of these devices used per cell tower, they are obviously primarily directed towards cell towers located in warm environments.

Okay. You touched a little bit on the use of less material in subsequent products, when is -- I seem to recall that coinciding with the third generation of your seats, have you decided or announced the rollout of those?

We are working very hard all the time to try to increase what we call the power density of our devices and that's a process that is underway and we're pushing it as hard as we can.

Okay. I assume that that is then plug and play with your existing customers. In other words, you don't have to be recertified?

There is a lot of testing that is done for all of the products we offer to the marketplace. It would be introduced as additional feature for all products rolling forward, yes.

Okay. Finally, I guess the cup holder next year, anything you can tell us in terms of the size of the program that you are on?

Well, like all our programs, we try to start small and grow. It is an initial phase program so it would be relatively small compared to some of our other programs but it is our first step. We do have other customers lining up and currently evaluating our rather unique design of a heated and cool cup holder. We also have people looking at our designs and devices for heated and cool storage boxes. I think next year you will see a small start in that marketplace and we will continue to add programs as we roll forward.

Okay, would you say the primary difference between your solution and Tellurex's solution is the design?

Yes. I would say that we have a much more efficient design, it's much easier to package. Has very good performance in terms of heating and cooling capabilities. But I say our understanding of thermoelectrics and how thermoelectric devices work give us a big advantage in designing elegant solutions that meet the customer's requirements, and one of the customer's key requirements in the cup holder area is a small compact system that can be put into these very tight package spaces allowed in today's console areas.

Okay. Perfect. That's all I have, thank you.

(Operator Instructions) Our next question comes from the line of Rick Hoss with Roth Capital Partners. Go ahead, please.

Good morning, gentlemen. Two quick ones, BSST expenses net for the quarter?

I have that. It was $1.1 million.

$1.1 million. Okay. Secondly, can you give us a little bit more insight in to the impact to R&D reimbursements with the DOE zonal heat program that it looks like you are working on or additional DOE-type initiatives? What kind of impact of reimbursement could we potentially see?

Bud. I'm driving so I don't have the numbers right at my finger tips. But the -- I think it's fair to say that we expect improved reimbursement from DOE over the second half of the year. This isn't millions of dollars, but it will, I think, improve our net R&D position in BSST.

Okay. So maybe 100, couple of hundred k or --

Could be.

That magnitude it would probably be.

Yes.

That's all I have, thank you very much.

(Operator Instructions) One moment please for our next question. We have no more audio questions at this time. I would like to turn the conference back over the management for my closing statements.

Thank you, Operator, and thank you, folks, for your penetrating questions as usual. To paraphrase Dickens, these are the worst of times. Times have been very bad in our customer base. As you know, several of our North American customers are in a position where they are forced to seek government assistance to continue operations, the other major player in the North America marketplace had already put in position debt instruments to be able to help them carry through the worst case scenario and this, in fact, is the worst case scenario. Despite the current administration's view, this is not just because the domestic three automotive suppliers are poorly managed. This is a global recession. It is hitting all of our customers equally, Toyota, Nissan, Ford, General Motors, they are all being impacted by the current market malaise. We don't see an immediate uptick on that. We have high hopes for the 2010 model year.

The government here in North America as well as governments in Europe and in Asia are injecting massive amounts of liquidity into the markets. We hope that has a positive and stimulative effect on the market in the second half, at least beginning in the second half and moving in to 2010. We do not expect the second quarter to be much better than the first quarter of 2009, but we are hopeful that the second half of 2009 will begin to see some improvement in the marketplace. That hope is not completely just wishes, but we have some new programs that are coming on board.

We have new opportunities and some new product areas and we are very excited about our long-term future of our company and we see much progress being made in the advanced materials area and we believe that the second half of this year you should be seeing some positive news in that respect. Again, we had a very tough first quarter. We believe we survived in a very, very difficult environment and we ask you to stick with us. We think the second quarter is going to be another tough quarter followed by at least a small improvement in the second half. We thank you very much for your time and attention. We'd also like to thank all of our vendors who are working so hard to help us keep our costs under control and focused and we look forward to talking to you again in about 90 days. Thank you, Operator.

Ladies and gentlemen, this concludes the Amerigon Inc., 2009 first quarter results conference call. Thank you for your participation. You may now disconnect