Gentherm Inc (THRM) 2009 Q3 法說會逐字稿

Ladies and gentlemen, welcome to the Amerigon, Incorporated, 2009 third quarter and nine-month results conference call on the 28th of October, 2009. Throughout today's recorded presentation, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. (Operator Instructions).

I will now hand the conference over to Jill Bertotti. Please go ahead, madam.

Good morning, and thank you all for joining us today for the Amerigon, Incorporated, third quarter and nine-month results conference call. Before we start today's call, there are a few items I'd like to cover with you.

First, in addition to disseminating through PR Newswire this morning's news release announcing Amerigon's results, 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 & 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 investors' section of Amerigon's website.

Finally, I've been asked to also 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 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 and Exchange Commission filings and reports, including, but not limited to, its Form 10-Q for period ended June 30, 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.

Thank you, Jill. Good morning, everyone. Thank you for joining us on our third quarter 2009 call. We've had an exciting quarter. We're going to try to follow the same format that we've used fairly successfully the past few quarters. We're going to spend about 10 minutes going over a very brief highlight overview, and then we will move on to questions.

For our perspective, the third quarter of 2009 turned out to be a record on revenue, as all of our customers who had been relatively dormant for the first half of this year have returned to operations--although not full operations, they've returned to operations--and all the factories that have been closed down for most of the first half of the year have gone back into production.

And a second positive factor for us is that several of our, all of our new programs for 2010 models have launched. That allowed us to spring back from a very quiet first half of the year, where we averaged between $10 million and $11 million in revenue per quarter to a fairly impressive $18.4 million for the third quarter.

Another thing that we think was quite exciting during the third quarter was the launching of a new venture for improved thermoelectric materials. We launched a venture with Plus, which is a partnership between Amerigon and a Canadian material manufacturer named 5N Plus, and we're very pleased with how that has started up and how well our teams have integrated, and the progress that that team is making as well.

The other highlight for us, during the third quarter we shipped our five millionth seat set. So we have now shipped 10 million TE devices into the OEM automotive market worldwide, and I think that's a fairly significant step for a little company just getting started and bringing in new technology into the automotive business.

With that, Barry, I think I'd like to ask you to hit a few of the highlights on the P&L and balance sheet. Mr. Barry Steele.

Thank you, Dan. As Dan was pointing out, our revenue has increased. We have $18.4 million for the quarter. That's an improvement of $1.8 million from the prior year and an improvement of $7.7 million from the prior quarter, from the second quarter. That is 11% and 72% increases, respectively.

Again, a lot of that driven by new program launches. A couple examples is the New Lincoln MKT and the Ford Taurus, two very important new vehicles for us. We also had a couple of programs launch on existing vehicles, where we have product in the rear or middle seat position. The Jaguar XJ and Land Rover Range Rover are two examples of that.

And the MKT.

And the MKT, which is newly launched. It's an option on the middle seat row. And so that's a higher content per vehicle for us.

These good news variances are offset partially by lower production in North America, primarily, and lower SAAR rates, vehicle selling rates, compared to the prior year. But production improved vastly from the prior quarter.

North American production, for example, was 2.4 million units in Q3 versus 1.7 million units in Q2. That's a 41% increase, and again, that has helped to drive our, as Dan mentioned, our spring back from $10 million quarter revenue levels.

Our gross profit margin was 24.6% in the third quarter. That is lower than the prior year's 29.1% but an improvement over the second quarter of 23.6%. The main driver is higher material costs in terms of these lower margins.

Our products rely on a commodity called Tellurium, where we've seen in the prior year increases in our cost of Tellurium. Those costs in the marketplace have started to decrease, and some of the benefit of that is just now starting to impact us. We see sort of a flat $165 per kilo rate over the last six months. That's come down half from where the levels were a little over a year ago--actually, two years ago--and so we're seeing some improvement from that, and we hope to continue to see that benefit into Q4.

Our mix in products has been a little bit worse in the current quarter versus the prior year, but pretty consistent to where we were in the second quarter.

Moving along, our net R&D was $1.4 million for the quarter. That's a decrease from the prior year of around $600,000 and an improvement from the prior quarter of just around $100,000 or so.

Some of this decrease is due to lower spending on several new product programs, such as cup holders and cool boxes that we're developing in the bed program. We would characterize those decreases as more associated with timing of how we spend money on those programs and not really not working on them or having an end. We would expect that some of that cost would come back.

We also have a reclass in some costs related to our advanced material program and the new joint venture. Some of those costs are taken out of our current R&D line and now represented in a new caption in our P&L called "Loss from Equity Investment." That is for the ZT Plus joint venture. Our joint venture partner is absorbing, at least from a P&L perspective, half of those costs. From a cash perspective, they're currently absorbing 100% of those costs.

Our SG&A has been very consistent, almost the same number as the prior year, slightly lower than Q2. Our strategy is to continue to control costs as we move through the lower economic times that we're seeing today, and so we expect that we will continue to be very diligent in making spending decisions in the SG&A line as well as throughout the entire spending of the Company.

Moving on, we have a new way we're presenting what we call non-controlling interest. There's a new accounting pronouncement called FAS 106 that relates to the treatment of what used to be called minority interests. They're now called non-controlling interests.

The non-controlling interests associated with Amerigon happened to be related to our BSST subsidiary, where Lon Bell, Dr. Lon Bell, the President of BSST, holds a 15% stake. And so there's an add-back now in our P&L that represents 15% of BSST's net losses, and that increased our earnings per share for the quarter by $0.01 and $0.02 for the year-to-date or nine-month period. That's new accounting.

Moving on to the balance sheet, I wanted to point our real quickly, we still have significant cash reserves, $24.9 million in cash and cash equivalents. That's down $1.3 million from the prior quarter, down $400,000 from the prior year--prior year end, excuse me. And primarily, that's driven by our need to invest in working capital as we see higher revenue levels. Primarily, receivables have gone up, as our revenues have gone up significantly.

And that's the end of my comments.

All right. Thank you, Barry. At this time, I think we'll throw the call over to Bud Marx and see if we can get an update on how things are going with our Advanced Technology group at the BSST and ZT Plus level. Bud?

Well, we now have two things to talk about, Dan. One is how we're coming in BSST itself and secondly, how is the joint venture that we formed recently in September doing?

So I'll take the second subject first, because we have some comments on the venture. But operationally, it's going quite well. We've found a separate building because we need to install new equipment and actually become prepared to make material for prototypes, and we anticipate doing that based on how well the team is working and the coming together of the equipment in the building, which the upside of the really difficult economic conditions were that we found a completely empty purpose-built building.

And we found in another site equipment that was ideal for our purposes, essentially from an operation that had shut down. And we bought the equipment, leased the building and put our people in, and we think we're going to be up and running effectively in November. And we hope to be making prototype material, what I'll call an advanced material recipe, in December or January.

So operationally, things are going well, and the people from 5N have integrated extremely well with our people.

We did include in the press release a statement that said that our partner had raised some concerns over the probability of achieving the venture's objectives in the planned time frame. And this is, I think, really a reflection of how difficult the economy has been and how difficult the auto industry has been. And that is obviously weighing on people's minds, and our partner just wants some real reassurance that things are going to go as planned.

And their request, which was a pretty strong request, came right at the time that we had to prepare our third quarter earnings release. So we weighed the situation and decided that we didn't want to issue as positive an earnings statement as we have and then, three weeks later, have to come back and say, "Oh, we've had to do something that affects the accounting or whatever on the venture." And so prudence just suggested that we put a slight cautionary note in there.

So we expect to move through this and come out the other side in reasonable shape. But that's the reason. It was really, I would say, very untimely timing, so that's the situation.

I think, in the BSST side, now the challenge is for us to man up, because we think we will be seeing advanced material that will be very usable in a timeframe that makes it sensible to start really working to develop and commercialize the products that will use the higher-performing material. And so we are embarked on strengthening our operations in Europe, where we think the first usage of these materials for automotive for sure will take place at waste heat recovery with a number of customers that we're working with. And also to put the development team in place to essentially be ready to put the products to customers as we have the capability.

So that's what we're about. In general, I think things are going very well. Dan, I think that's my report.

All right, thanks a lot, Bud. With some trepidation, Christine, we'd like to open the phone lines and see if we have any questions.

Thank you, sir. (Operator Instructions) The first question comes from Rick Hoss. Please state your company name followed by your question.

Gentlemen, Rick Hoss from Roth Capital Partners. First question, Barry, BSST expense net. Do you have that number available?

I can give it to you in just a quick moment here. For the quarter, the BSST amount was $962,000.

Okay, perfect, thanks. And then speaking of gross margins, we've talked about Tellurium negatively affecting gross margins for several quarters. When are we through that, and when can we see gross margins start to approach an historical run rate of 30%plus?

We will see the benefit of some of the reduction in the Tellurium market in the fourth quarter, primarily. There was a very little bit in Q3, but we're working through our inventories and our suppliers are working through their inventories.

So I would say that inasmuch as the Tellurium market has softened, and it hasn't softened any more than--it hasn't softened as much as we'd have liked, we'll see that benefit in Q4.

Barry, plus we're also taking cost reduction measures as fast as we can, but this is an incremental process. It's not that we flip on a switch and all of a sudden our margins jump back up to where they were. It's a long, hard fight to get margins up and keep margins up. And when something like this happens beyond our control, we have to do what we can. The market is helping a bit, but it's still quite painful.

I think Barry mentioned that the costs are somewhere now between $165 and $175 per kilo. Historical numbers were below $100 per kilo. So we're still struggling with Tellurium and will be for a long while. But we have several initiatives underway right now to try to find ways to work the market for Tellurium as well as work on our designs and our use and consumption of Tellurium.

Okay. So it's not going to be a spring up to 30%. It's going to be, like you said, a longer process, assuming that Tellurium holds steady.

Yes. Instead of a spring, I'd refer to it more of a claw-back.

Okay, that's fair. And then, Dan, can you give us an appreciation for selling rate versus production rate in the third quarter?

In the fourth quarter?

Third quarter.

Third quarter.

We've seen an improvement there. The selling rate for North America was down 11%, whereas production rate was down 21%. Still quite a sizable difference between those two numbers and what we're seeing, it sort of balanced out. That deviation was much more pronounced in the first half of the year.

Okay, but production is still below selling? Is that correct?

That's correct.

Okay. Okay, thank you, gentlemen.

Sure.

The next question comes from Steve Dyer. Please state your company name followed by your question.

Thanks. Good morning. Steve Dyer from Craig-Hallum Capital. Very nice quarter, guys. As you look forward into next year, what are your expectations regarding maybe a North American SAAR and how that may impact you guys in terms of--I know you didn't offer any specific guidance--but typically, around third quarter, you give a glance into the following year. What can you say at this time?

Well, to the SAAR--North American SAAR--what we have been using is some of our numbers are just below 12 million, and that seems to be a general consensus of somewhere between 11.8 million and 12 million. So that's the numbers we're using for our planning.

And we're also seeing (technical difficulty) we're getting a little static on our end of the line there. I hope that's not inconveniencing anyone. But we're seeing similar resurgence in Europe and in Asian markets as well. So right now, looking forward into our rather murky crystal ball, we see next year as looking fairly strong right now. Our early indications, the first quarter releases, are in line with what we've seen in the third and fourth quarter. And if that trend continues, then we expect to see a very good 2010.

The reason we didn't provide any direct guidance this year is that, again, our crystal balls are rather murky. We're having difficulty seeing that far in advance, and there's still a lot of risk involved in where the market may go. But right now, things look pretty good.

(Operator Instructions) The next question comes from Michael Needleman. Please state your company name followed by your question.

It's Michael Needleman with Preservation Asset Management. Just a few questions. I just want to have a clarity on the joint venture issue that you brought up. Was this the partner that brought up the concerns of the joint venture?

In a word, yes.

And going into the joint venture, wasn't this a concern of theirs? I'm not following why all of a sudden they decided to do a statement now versus prior to the joint venture being formed. With the realization, pardon me, with the realization of the issues of whatever the joint venture was trying to accomplish anyway?

Well, yes. We're talking about people's levels of confidence and attitudes and, quite frankly, I really don't want to get deep into a description of the discussion, because these guys are our partners and we're working with them and think we'll work through it. But the short answer to your question is yes, there is not what I would call material new information that would have dramatically changed the situation from when we signed our agreement.

Okay. And then the second question is, although you don't have a material look, and to paraphrase, a murky look into next year, clearly you have what I would think would be a visibility into the current quarter. Can you just, maybe at a top level, and if you don't give guidance, which you don't, but can you just talk about production schedules that you're seeing currently from the standpoint of the run rate for this current quarter?

Yes, certainly. Our current fourth quarter results (inaudible), obviously, we're nearly a month into the fourth quarter, are still strong and are very much in line with our third quarter release rates. So we are predicting that it will be very similar to the third quarter results on the top line.

So I just want to be sure that I heard what you just said. You're suggesting that the revenue run rate will be flat or close to being flat, maybe up, to this current quarter's, I mean, third quarter revenue rate. Is that correct?

What I actually said was consistent with the third quarter, but you can spin that either way you like. But we're perfectly confident, another strong quarter.

This is Bud. It's fair to say that the fourth quarter is an odd quarter, because it depends on what the auto companies decide to do in the last 15 days of December. So we might have the same run rate, but the results will be affected by whether they decide to run up to Christmas or whether they decide, essentially, to pack it down.

Okay. And then, the next quick question is, based on past fourth quarters, are there any material costs associated with how things are either stepped up or stepped down? And I guess my question is, is are there any abnormal expenses in the fourth quarter?

Not necessarily in terms of how they react to the inventory situation and the sales rates in the market with their schedules. They do have some flexibility in the December schedule in particular. If they see that cars aren't selling and they want to soften their schedules, they have certainly the mechanism to do that with the holidays falling in the fourth quarter.

I'm speaking of you, I'm speaking of your expenses. Based upon--?

I was trying to get to that.

Okay.

We don't necessarily incur any additional expenses, whether they ramp up or ramp down. We have material in process and in flow, and it's very easy for us to adjust one way or the other.

And then last question for me, gentlemen. The last couple of days, you've put out some comments based on new design wins. Did they start, and I think you said this past quarter, the one that was just reported, you started to ship those? Or are those in the process of starting to ship?

Most of them--well, almost all of the 2010 platforms that we've announced this year have begun shipments in some form in the third quarter.

Okay. So you did start to see some revenues off of the Jaguar, the--.

Taurus.

And the other parts that you mentioned in the last couple of days as far as press releases?

Yes, sir, we have.

Okay. Thank you so much, gentlemen, and good luck.

Thank you.

The next question comes from Matt Michon. Please state your company name followed by your question.

Good morning. Matt Michon, KeyBanc.

Good morning, Matt.

Hello.

Hey, how you guys doing?

Good.

All right. Can you give an update on Sealy and any revenue you booked in the quarter from the cell phone towers?

The update on Sealy is pretty quiet. They are, like a lot of consumer goods people, they're in a little bit of a slowdown in the market for them, and they are not eager to introduce anything. And I think I mentioned on the last quarterly call that the early indications are from them that we won't see anything until some time next year at the best.

So with relation to the cell phone tower, I think that's also suffering a similar fate from our European partner. There's very little activity. I think we had certainly less than $50,000 worth of revenue in the third quarter for the electronics cooling product line.

And is there anything, are you expecting to make any kind of new announcements in the fourth quarter or early 2010 beyond what we've already heard?

There will be announce--sorry.

Go ahead.

There will be announcements in early 2010 about our 2011 model introductions. But I don't think that we have any surprises for you for the balance of the year.

Okay. It seems that you guys are making some really great progress with Ford, you know, with the Ford Taurus and the Lincoln MKT, as well as previous Ford partners in Jaguar and Land Rover. Can you discuss a little bit about what some of the other OEMs are thinking about your product?

Well, actually, I don't know how to respond to that.

Oh, no, no. For instance, you've definitely launched on Toyota. Are you seeing maybe Toyota maybe roll out a little bit more and General Motors starting to roll out a little more?

Actually, what I think you'll see is that there are several customers that are very attuned, particularly at the high end market customers, they're very attuned to their customers' needs.

I guess I would use Nissan as an example of that. Nissan very quickly adapted the CCS concept, and then they pushed it through a lot of platforms, and they continue to push through platforms with our product. So we're quite pleased with that.

We're also pleased, on the other side, the Hyundai people understand, particularly the American market and the Asian market, where heating and cooling of seats is a critical requirement for the high end market. And they're also very aggressive now in understanding the heated and ventilated concept that we're bringing for the mid-level and entry-level market and product.

So in general, we're very pleased with how the market and our partners have responded to heated and cooled technology and how they have continued to roll out their CCS products within their lines.

Okay. And then switching over to gross margins, and I know you've already discussed it a couple of times. Is the inventory now completely finished, the high cost inventory, is that now completely done as of the third quarter and you're now working off the $165 per kilo in the fourth quarter?

That's correct.

Yes, we've been very short on material commitments in the marketplace, so expect for a small box--I think Barry had it in his desk drawer in his office--we're pretty much dealing with the current market rates.

And when we said that they dropped to $165 to $175, that didn't happen in the last few weeks. It's been slowly sliding down. At the beginning of the year, it was still in the $200 range, and then it slid down to $185. And right now the market's somewhere in the $165 range. But in direct answer to your question, we have consumed most of the prior commitments at higher dollar values.

Okay. And at this level, at $165 to $200, can you guys do gross margins at 30% and plus?

It would be very difficult if it's $200. If it's $150 per kilo, we have a shot to get back to the 30% range. And actually, that's where we're working and struggling to get to.

Okay. And just one last--.

This is Bud. Just one point. And Dan has said, and Barry has said, that we're working to reduce the amount of Tellurium in our product. So we hope that that will also have its effect over time, but this is a gradual process.

Yes, yes. Thank you, Bud. And just lastly, I think Barry mentioned on the R&D costs coming down, part of that was on some lower spending on some products and platforms, and he specifically mentioned lower spending on the heated and cooled cup holders. Is there anything going on there like that's not meeting your expectations or OEMs are just not really adapting to it and you're sort of cutting your losses on that?

No, that's not, that's why I characterized it as more timing and not really any reflection of the product itself. So I would expect that we would be in different parts of the development, setting different amounts and so you might see higher costs in the future on some of those.

And we're also in the final pre-production phase of that product now. A lot of our early costs have already been expended. We have a product coming out in the fall of next year. So we're down to pretty much just the pre-production effort right now to get that ready.

So quite the opposite of the comment you made. We think this is going to be a good product and it's more the timing. So we're feeling good about the market for these products.

All right, great. Thank you very much, guys, and congratulations on the growth. That was a pretty big number.

Thank you, Matt.

We have a follow-up question from Steve Dyer. Please go ahead.

Thank you. Sorry I went radio silent on you. I got hung up on before. So I didn't hear your--.

We wondered what happened to you, Steve. You've never asked one question and went away.

I didn't hear the response to that, but I'll follow up offline. A lot of the stuff has been hit. Your receivables jumped, obviously, in coordination with your increased sales. Any questions or issues on the quality of those receivables?

No. Actually, we're fairly confident that our receivables book are looking pretty good. The question you may be alluding to might be the Lear situation, where one of our major customers did find themselves slipping into bankruptcy. But they are current on all their payments, and we believe that we will be compensated for every invoice we ship to them. So I'd say that we are, we're normally conservatively protected for any potential bad debts, but we don't see any particular issue, and we feel quite comfortable with our receivables.

Okay, great. And then you talked a little bit about the heated/cooled cup holder. I'm assuming zero in revenue from some of these other, the bed and so forth, next year, and hope to be pleasantly surprised. But the cup holder, how should we think about that in terms of revenue generation? Is it on a pretty decent production run car, or how should we think about that?

You should think about it very positively. It's a new product, a new opportunity for us. It's on a vehicle that we're quite pleased with. It's our first platform at this new company. It's a very critical and important vehicle for them. But again, it's not an F150 and it's not a GMT900. It's more of a high-end sedan-type vehicle, but these people are quite concerned about hitting a target market. So we're very pleased to have been selected as the partner to ship this new technology to this new company.

One thing I'd add to that, it's a pretty late in the year launch, so it probably won't have a huge impact on--.

Yes, it's a 2011 model. So we won't see anything until the third and fourth quarter of next year.

Okay. And then just one last housekeeping question, Barry. How should we think about tax rate going forward? It's kind of jumped around, and it's been 30-ish this year. What does that look like for next year?

The thing I'd point out to you is that when we approach breakeven, the tax rate acts very strange. It becomes worse because you have permanent differences. But I would look to previous years' tax rate in the high 30s is really a normalized rate for us.

Okay. Okay, thank you.

Thanks, Steve.

Your next question comes from Tom DeHudy. Please state your company name followed by your question.

Good morning. Tom DeHudy with Brandywine Global. Can you talk a little bit about the stimulus funds that might be available to you through DOE and what specific areas that you might get some R&D assistance on?

Well, we're not particularly a candidate for the stimulus fund package. The Cash for Clunkers program that just went through mainly targeted the lower end or entry-level vehicles with high fuel efficiency. We have benefited from some solid work that our advanced technology team has done through Department of Energy programs, but I don't know that I would consider them a part of the stimulus package. It's part of the government's ongoing effort to try to encourage increased fuel efficiency in the US fleet of vehicles.

We did receive a couple of very good, very nice programs. One, a program extension and one, a new program award that the DOE is sponsoring. But again, I don't think that particularly relates to the stimulus package itself.

But there are billions of dollars of incremental advanced energy technology loans and R&D development grants available, and I would think some of it must be applicable to the work that you're doing.

This is Bud. Maybe I can respond to that. You're right. There's a lot of money flowing through DOE at this time, both under the impetus of Steven Chu, the new Secretary of Energy, and the situation is this. It's a little bit paradoxical.

There are huge amounts of money going through for solar and for, I'll call it, the auto companies themselves. And the DOE is not set up to process these kinds of requests in the kind of volume that they're processing them. And they're trying to hire new people to get in place and do the contract administration.

But for people that -- and we have programs that we've put into DOE and to the ARPA-E, which is Chu's idea for essentially duplicating the work of DARPA in the energy field. But they are small numbers compared with the much larger numbers, and we are having a little trouble getting to the top of the pile, although Dan says we have two very nice programs from DOE, who are very strong supporters. So it's a little bit paradoxical. We are working to essentially take advantage of the opportunities created by this flow, and we're hopeful that something good will happen. If anybody happens to know Steven Chu personally, please give us a call, because we could use an audience.

But I think, in general, things are going well, and if the merit of what we've proposed is recognized, I think we might get some additional funds. But it's very hard to predict. And again, the Department of Energy is really laboring under the flow of much larger proposals than ours would represent. Battery technology's another one where they're just pouring money in.

Thank you.

Your next question comes from Tyson Bauer. Please state your company name followed by your question.

Tyson Bauer, Wealth Monitors. Good morning, gentlemen.

Good morning.

A couple of quick questions. One, because of the abnormal production schedules that we've seen in '09, would you expect getting back to historical seasonal patterns as we get into '010, or are we in a unique situation that's kind of out of whack and don't take historical trends and apply them going forward at least for another year?

Actually, we're praying for the historical patterns to return a bit so we can have a little bit more consistency in what goes on. Again, we pray for that, but we're actually planning for the opposite. We see right now a strong fourth quarter. We see a very good start to a first quarter. We're getting preliminary indications that the second quarter will continue. But all of this is based upon how the world turns.

If oil prices shoot up to $150 a barrel, if the dollar continues to sink, if the Renminbi and the Yen go and the Euro go through the ceiling--there are all sorts of risk factors that could throw this economy and this market off worldwide.

So that's why we're hesitant to provide direct specific guidance for 2010. But right now, we believe that it's going to be a pretty good year, particularly coming off of 2009, which you point out has been a rather remarkable, I'd say catastrophic year in terms of how the auto industry is seen.

Did you have a benefit in Q3, I'm assuming without the production going, in the first half of this year? Inventory is (inaudible) plus the (inaudible) manufacturers being relatively low. Did you have a boost in units to restock some of that inventory plus the actual production runs, where now in Q4 and going forward, it will be more dictated by those production runs?

I think there was a little bit of inventory rebound in the third quarter, but there were also, I think, some people who weren't fully back up to speed yet. So I think there's a little bit of a balance there. I don't think we had a significant inventory rebuild component in the third quarter, and so I don't expect it to disappear in the fourth quarter. And I do expect some of the other people who have come up slowly in the third quarter will come up full steam in the fourth quarter.

In a broad look in '09, some of the comments you've made in the previous calls was some commercial partners pulling back on R&D spending, product development spending. Are you seeing that rekindle or grow as we're getting into '010, or are they still kind of tight on those funds?

They're pretty tight. The rest of the world hasn't seen the recovery that we've seen. The rest of the world hasn't seen the type of recovery that we've begun to see, so the people like Sealy, in particular, it's a tough time for these guys. They're having to marshal every penny. And we are a technology company, so we're aggressively pursuing new technology and new opportunities for technology.

And the final question, have you heard anything through the grapevine or otherwise in regards to GM platform decisions and whether certain models will be more on the crossover platform as opposed to the large SUV platform, and their decisions with like Janesville, Wisconsin, those type of items? Is there a timetable that they have set to make those decisions, or is it still really in flux right now?

Well, I think I'd describe General Motors as, that's almost a perfect description, as a state of flux. They are reviewing everything. They're working very hard to pull their product plans together. For us, the GMT900's a very significant component of our GM business. Those vehicles are solid throughout 2016, I believe as they've indicated.

There is an obvious trend toward crossovers, away from the heavy truck frame-based SUVs and minivans that have been prevalent in the past on everybody's design tables. You look at the MKT from Ford. If you look at it, you park it next to a Lincoln Navigator, you've got pretty much the same vehicle, but one gets much higher gas mileage and has a much better ride.

So I think the long-term trend is you're going to see fewer, I'd say, medium-duty trucks, SUVs and pickups, and you'll see a lot more of the general long-term crossover conversions coming in. We're seeing that ourselves, and I think you'll continue to see that everywhere, including GM. But there's no real clear guideline or indication that any big changes are afoot.

But you don't have any near-term risk on certain models that you're on that are within the 900 platform?

Not that we're aware of.

Okay, thank you.

Your next question comes Walter Ramsley. Please state your company name followed by your question.

Good morning. Yes, Walter Ramsley, Walrus Partners. Congratulations, Dan, Barry, Bud. Nice to talk with you again.

I had a question about the warranties, I guess. A lot of people are keeping their cars longer than they used to. Has that influenced the warranty expense at all?

Our warranty expenses are pretty, pretty minimal, and we've not seen any trends in any particular direction for warranties.

So the product itself hasn't shown any signs of breaking down over the fact that it's being used for a longer period of time?

Not that we've (inaudible).

There has been no indication at all.

Good. Okay. The take rates, they changed it all for whatever reason?

Oh, they've remained very consistent. The only changes we're seeing is that after we've seen 2009, we've had a lot of people shift from what I would consider a fairly high take rate over to a standard. That trend has continued.

We just mentioned the MKT a few seconds ago. The MKT launched with its front row seats as a standard feature, and the mid row is an option. And we understand they're getting pretty good play on the mid row option. So I'd say, in terms of take rates, we're very pleased with the response, too.

Okay. The manufacturing efficiency, any ups or downs there?

Well, we've had a pretty tough first half. All of our partners have had to gear down and wind down pretty dramatically and then, at the same time, in the third quarter, we've had to wind right back up. So we've put some real pressure on our operational people and our partners to be able to react to the flow in the marketplace. And I think they've done a remarkable job of being able to jump when the markets have snapped and sagged for us.

So I'd say that generally, our efficiencies were impacted during the first half at the production floor level. But we're beginning to recoup those efficiency losses in the third quarter by gearing back up. We had a record quarter for units and revenue in the third quarter, and we certainly hope to have a very good quarter in the fourth quarter, too.

Good. The ventilated product, any update on that?

Again, that was designed primarily for the entry-level markets, and it's being received very well in those entry-level areas. I think you'll see several new platforms next year, again primarily Asian entry-level and mid-level market focus, but you'll see several coming out next year.

Do you think that adoption rate will follow the same curve as the higher end product?

I don't know that it will follow the same curve. In fact, there's some, I guess, math that you could indicate that there's a whole hell of a lot more entry-level and mid-level market vehicles in the world than there are in the high level.

But the higher end markets, the customers are pretty focused on comfort and convenience features. The mid-level markets are a little bit less focused on that and more focused on economic activity.

So I'd say that we're going to see, it's going to be interesting to see how it does play out. But there's an awful lot more platforms that would be classed in the mid-volume range.

Yes. And I guess just one last thing. There was some thought being given, at least, to penetrating the medical bed market and the chemotherapy chairs, that sort of thing. Getting anywhere on that?

We're still thinking really hard about that.

Thinking, yeah. But is there any prospect of actually getting some orders or that's more of a longer-term operation?

It's a longer-term issue than the quarterly reviews that we've been trying to provide for everybody. But we think there's a very good potential market, particularly in the medical area and the rehabilitation areas where people are either confined or restricted to a bed or a wheelchair or something that restricts their motion. To be able to make those people as comfortable as possible from a thermal standpoint is very, very key for their recovery and, in some cases, their health.

Yes. So is there a technical obstacle, or is it just a sales issue?

It's a combination, I think, of any time you get into the medical market, there's an awful work that has to be done to prove out and to validate your concept and your components. So I think that's really all I should say.

Okay. Thanks, Dan.

You're welcome.

(Operator Instructions) Your next question comes from Jerry Heffernan. Please state your company name followed by your question.

This is Jerry Heffernan with Lord Abbett. Good morning, gentlemen, how are you today?

Fine, Jerry, thank you. How are you?

Good, doing well, thanks. So much for all the good work you guys have done here. I have a question regarding your capital. I was wondering if--we've gone through a lot of what the business is currently working towards in regards to new model introductions and some of the things that are being done in the special tech area and stuff.

But through all of that, I'm not really seeing anything that is where I would recognize it and say, boy, it looks like they're going to have any large capital requirements going forward. There's certainly nothing that would exceed certain cash flows. Am I missing anything?

No, I'd say actually, we don't foresee any huge capital requirements, but we do want to be very conservative in our financial planning and make sure that we have all the resources necessary to take care of any opportunity should it reveal itself, be that a potential acquisition or the securing of a technology stream that we may need, or in fact to gear up and get into production for a new particular type of product or technology application.

So we are kind of conservative, and we do like to keep our cards and our cash close to our pockets.

Fair enough. Certainly in this day and age, it's an understandable mindset. Does the Company--forgive me for not knowing this--but do you currently have a share buyback established? Not that you are buying back shares, but do you have one established?

We do have authorization from the Board under certain circumstances to exercise a stock buyback program.

Okay, but that has not been acted on, correct?

We did act on it earlier this year, and we bought about 1 million shares.

Late last year.

Oh, sorry, late last year. Barry's just corrected me. This year's been a bit of a fog for me here. But late last year, we did buy about 1 million shares. We've achieved our early goals on that, and we have basically been just watching the market and following the guidelines of the Board.

Okay. So should we get into another rocky period as far as just the equity markets are concerned, you would be poised and ready?

We believe we are in position to take advantage of any opportunity that presents itself.

That's great. Thank you very much.

Thanks, Jerry.

We have a follow-up question from Steve Dyer. Please go ahead.

Thank you. This is it, I promise. Barry, I thought it was interesting, your comment that production is still running below sales, just because I think that there's a perception that there was this big inventory rebuild in Q3 to backfill Cash for Clunkers or what-have-you. So by all, I guess consensus, the sales rate probably ticks higher from here? I don't think anybody presumes it's going back to nine on the SAAR. If that's the case, we should see production continue to trend higher each quarter? Am I thinking about that correctly, or is that too simplistic?

I think it's correct directionally. How much of an impact it will have from one quarter to the next is a little bit murky for us at this point.

Okay. And then one more income, or balance sheet question, I guess I should say. I know there's not a lot of interest to be had on cash sitting on your balance sheet right now, but you were actually at a negative, a slight negative this quarter. Can you give us any indication where the assets are and how safe they are, what they're earning, that sort of thing?

They're earning almost nothing because we're primarily--actually, exclusively in money markets today. That may change a little bit for the fourth quarter as we try to get a little bit more aggressive on our cash portfolio. But I wouldn't see, wouldn't be predicting anything significant unless interest rates started to rebound.

Let me add something to that. When Barry says, "get a little more aggressive," we're not looking at getting into what I'll call securities with risk. But given our cash balances, we might ladder them a little bit to pick up some yield, because it's pretty clear that we're not going to have to spend $25 million all at once.

Sure, okay, understood. Thanks, guys.

There appear to be no further questions. Please continue with any other points you wish to raise.

Well, thank you very much, Christine. And thanks everybody for signing on and listening to our story. We had a record revenue in the third quarter. We believe the fourth quarter's going to be strong. We've been able to return to profitability. We'd love to finish this year at least at breakeven, and on the bottom line, to try to get out of 2009 and get into 2010.

We've had a lot of exciting new platforms and programs awarded to us in 2009 for the 2010 model years. They are all up and running. And we all hope, certainly, that the market appreciates the effort that Ford Motor Company and Chrysler and all of our other partners have put forth to improve the quality and get very marketable products out into the global marketplace.

We're very excited about what we see in terms of the activities with our advanced technology teams. We're very pleased with, as Bud has mentioned, how the ZT Plus program has launched and how well the teams are working together and how much progress has been made in such a short period of time. And we look forward to 2010. And we think we see a very good year coming, and we certainly hope and pray that there's a good, solid, stable, global economy and things level out a little bit and we're all allowed to get back to normal. Normal for us is good, solid growth and a profitable company.

So, again, we thank you for attending the third quarter earnings call, and we ask you to join us again in about 90 days. Thank you all.

Thanks, guys.

This concludes the Amerigon, Incorporated 2009 third quarter and nine-month results conference call. Thank you for participating. You may now disconnect.