Gentherm Inc (THRM) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Amerigon, Incorporated 2009 fourth quarter and year-end results conference call. (Operator Instructions).

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

Good morning, and thank you everyone for joining us today for the Amerigon fourth quarter and year-end 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 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 release, you may download a copy from either the Amerigon website at www.amerigon, 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 the Amerigon's website.

Finally, I have 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 it's 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 effect it's results.

The liquidity and trading price of it's common stock may be negatively affected by these and other factors. Please also refer to Amerigon's Securities and Exchange Commission filings and reports, including but not limited to it's Form 10-K for the year ended December 31, 2009. 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 results after which there will be a question and answer period. And now, I would now like to turn the call over the Dan. Good morning, Dan.

Good morning, Jill. And thank you to everyone for dialing in and listening to our story. We had a pretty exciting fourth quarter which ended up a very exciting 2009. For us the results were mostly positive. We had some pretty good news on revenue side, compared to some of our neighbors here in the automotive industry. And we have seen the continued effort we've been putting forth on keeping our costs down, show up as improvement in our margin lines.

We will continue to follow our strategy of trying to have very brief comments, and open the floor for questions as quickly as possible. But we were very pleased that the year wound up at about 4% off the 2008 run rates, while the rest of the industry did suffer much more significant drops in unit volume and in revenue dollars. So we think Amerigon fared the storm reasonably well. And we think, at least in the short term, we see looking forward it looks like we're fairly stable, and ready to move into hopefully a recovery period for the global automotive industry, and some of our other industrial applications. So at this point, I'm really going just turn it over to Barry who is going to give you a summary, a brief summary, Barry, of the financial presentation. And then we'll open the floor for some questions. Barry?

Thank you, Dan, good morning. Revenue for fourth quarter 2009 was $21.6 million. This was significant increase over both the prior year and the prior quarter, a 68% increase over last year's $12.8 million in revenue, and 17% increase over the third quarter which had revenue of $18.4 million. This growth is completely attributable to new program launches. There were seven new programs that we had this year, that we did not have last year. There are also two additional programs that expanded into rear seat applications. Production levels in the marketplace, in the markets that we are active in the were relatively flat, compared to the prior year, but increased over the third quarter.

Our gross profit margin showed some improvement this quarter. We had gross profit percentage of 29%. That compares to 22% for the prior year, and 25% for the prior quarter, the third quarter. This benefit comes from a couple of actions. First, we are now seeing a full quarter's impact of some moderation in our cost of tellurium, which is a major component for thermal electric devices. We have not gotten back to the historical levels, but we have seen some decrease that has now finally translated to our results. The TE market continues to be fairly flat. Our product mix also, was slightly favorable for the quarter. Moving on, net R&D spending for the fourth quarter was $982,000, compared to the prior year of just over a $1 million dollars, and the prior quarter of $886,000.

I should point out that some of this decrease that we see from the prior year is attributable to -- I would call absorption of cost for our advance material program into a new joint venture called ZT Plus. You will see that we have reclassed some of the costs for ZT Plus. It is an equity venture, and we're recording 50% of those costs on our P&L, and those are reclassed in the "other" part of our P&L. We expect that some of that absorption will offset -- be offset by some higher spending in R&D in the coming quarters. Selling, general, and administrative costs for the fourth quarter was $2.5 million. That compares to $1 million for the prior year, and just over $2 million for the prior quarter.

The increase for the year, year-over-year, was a couple reasons. One, we have provided a reserve for a product liability lawsuit that is on going with a competitor. We also, in the prior year, in the fourth quarter, we showed -- we reversed our accrual for management bonuses. Our management team did not get a bonus for 2008. And that was a net swing year-over-year of about $900,000. Finally, I'll point out that our cash reserves increased for the year. We have now between our cash investments and our short-term investments, $28.4 million in cash reserves compared to the $25.3 million that we ended 2008 with. That's an increase of about $3 million. That's about all I have, Dan.

Okay, Barry, thank you very much. Very briefly, we'd like to hear from our West Coast team, which is today represented by Bud Marx. A quick update, if you wouldn't mind, Bud, on how things are going with our Advanced Technology team.

Well, I can report the sun is shining, so all of you on the East Coast, we have condolences for you. But things are going, I think quite well up in Irwindale and in Azusa, which is about ten minutes away from Irwindale, home of our new joint venture with 5N Plus. We occupied that building, staffed it, and equipped it in quite short time. And I can report that the program is up and running. And they're working on producing the advanced materials that we have developed with Ohio State and with Northwestern. So things in that area are going well.

On the BSST front, we are proceeding with our fifth phase of the power generation from waste heat program with the Department of Energy. The objective of this is to install prototypes in both the Ford and BMW vehicles in the first half of this year. And we're also beginning work on the DOE-sponsored heating and cooling program. Again, with Ford and BMW and other partners. So I would say we're in good shape to start the year.

Excellent. Alright, with that general overview of the operations for the fourth quarter and the few comments on the full-year 2009, operator Josh, I think we'd like to open the floor for questions.

Thank you, sir.

(Operator Instructions).

Our first question comes from the line of Rick Hoss with Roth Capital Partners. Please go ahead.

Good morning. As far as tellurium goes how successful were you guys in reducing the actual amount required in new iterations of your TE devices?

Some of the current -- this is Dan Coker. Some of the current designs we have in place show some pretty significant drops in the amount of tellurium used in each individual unit.

So, assuming -- looking at this quarter, and excluding the favorable product mix, and assuming more of a normalized type of product mix, when could we see gross margins improve to 30 and beyond? Is that a component of revenue, or how do we look at that?

There are certainly contributing factors from both sides. The big part of it, of course has been our cost reduction efforts to try to keep costs in line, and get material content as low as possible as we move forward. And of course, another piece is the amount of volume that's coming back up, which allows us to better absorb our operating costs. As you probably heard during the last four quarters, ever since the volume disappeared during late 2008, and stayed pretty flat in the first half of 2009, we have been preaching that our target is to get back to 30%. The fourth quarter's numbers of 29% was a bit of a surprise to us. It was a little bit higher than we were expecting. And there are some contributing factors in there, that are -- we would consider generally nonrecurring. And there was also some favorable mix gain in that area.

So we don't see 30% coming up any time in the immediate future, but we are, as we have said, we're on a path to get back to 30% as quickly as possible. And it takes time to get that done, and we're on that path. If you look at our progress during the past couple of quarters, we've been steadily inching away, and getting back closer and closer. I think we're making reasonable progress. And I think we're doing a good job and our vendors are doing a good job of working through that particular problem. And we're addressing it as our number one issue, frankly.

And Barry, BSST expenses net for the quarter, do you have that number available?

Yes, I do. It was, net, $982,000.

982k, okay. And then, Dan, outlook for new penetrations. Is this your normal sort of 3 to 5 or 4 to 6, or how would you view fiscal 2010 as far as new platform announcements?

I think you're going see something very similar to 2008. I think we saw seven or so new platforms in 2008, with a couple of expansions in existing platforms to include rear seats. So I think you are going to see a similar pattern in 2010. We'll see another six to eight new platforms sign up. Plus later in the year we're expecting to launch our heated and cooled cup holder product. It would be very late in the year. It would be late in the fourth quarter.

Okay. Last question from me, and I will step back in line here, Dan, do you have an appreciation for the take rates for, say, the Taurus Limited? I've seemed to see a lot of these on the road, and they seem to be very well received. I guess looking at from a total Taurus sales standpoint, how much of those would you guess would be Limiteds?

I don't know what the Limited number. I think it's actually a pretty healthy number. But I don't have that information. I will try to look it up and get it for you, though.

Thanks for your insight.

And our next question comes from the line of Steve Dyer with Craig-Hallum Capital. Please go ahead.

Thank you. Very nice quarter, guys. Can you, it looks like the charge for WET was about $0.5 million, can you detail that a little bit more? Is that in the ballpark?

That's what it was.

Yes, that is what we provided. It's not actually a charge. We're putting a reserve in place for activities necessary to defend our patents and our position. So we felt it prudent and conservative to, since we took that action during the fourth quarter, to make that provision for the future.

And your expectation is that that provision will last you for generally how long, would you say?

Until it expires. I think it probably will certainly will cover all the expected expenses during 2010 for sure.

Okay. And then in your prepared remarks, you made comment to some of the R&D savings through ZT Plus, maybe being redeployed back in the business. How should we think about the net R&D run rate as we go forward here in 2010?

Well, part of our R&D expenses that we've been spending on the area that we're investing in the material area, which has now become our ZT Plus through a partnership. That's actually a very good opportunity for us now to turn our attention from developing the raw materials. And now we're going to be focusing our team on developing the actual product. The product needs to be completely packaged and ready and tested and evaluated. So I would suspect that we've now freed up some money that will be able to expand our product development activities, and get a little bit more into, as Bud is famous for saying, get more interest the D and away from the R in this area.

So I don't think you are going to see a significant drop at all in our R&D expense for the full-year of 2010. And, in fact, I'm hopeful that we'll actually be able to spend more money, if we can get cooperative and happy smiling customers lined up. That is our intent, is to find customers, particularly for our power generation program for which these materials at ZT Plus is developing will be deployed. So kind of the recent run rate of the last quarter or two, is that a decent number to use, maybe ticking up a little bit going forward? I would tick it up a little bit, yes.

Did you have any non auto revenue in the quarter?

Very little.

Can you give us kind of a status update of the cell tower application? And maybe where Sealy is sitting with their thoughts on the bed as well?

Well the cell towers have been very quiet. The economic malaise that has covered the world, has pretty much flattened most of our non-auto activities. Although I wouldn't be surprised to see some activity kicking up a little bit later this summer, on the heated and cooled bed.

Okay. And then two quick final questions. What is your sort of your domestic -- your North American SAAR expectation for this year? What are you kind of thinking on a planning basis?

In our plans, we used about $12 million for the North American SAAR run rate. So we're kind of in the middle of the range of what most people are looking at. I try to point out, when people ask me that question, they say, wow, that's up about 20%, 25% over last year. But we try to point out, if you take the average ten year demand rate in North America, which was between $16 million to $18 million, jumping up to 12.5% three years ago would have been considered a horrible depression in the North American auto industry. So we see basically kind of a modest return, kind of a slow and steady return of people to the auto market.

Okay. Then finally, how should we think about the cup holder? Will that be a meaningful contributor in the second half of the year, or is that going to be very, very small numbers?

It will be very small numbers initially. In fact, will probably remain small numbers, until we get some other platforms signed up and going.

And when would you expect that?

I expect that immediately. But unfortunately I think the time will probably be in 2011 and 2012.

Okay. Great. Nice job, guys, thanks.

Thank you, sir.

Thank you. Our next question comes from the line of Tyson Bauer with Wealth Monitors Incorporated. Please go ahead.

Good morning, gentlemen, and nice quarter.

Thank you, Tyson.

Can we look at the 300,000 units that you were able to deliver in Q4 as kind of the baseline as we enter into 2010? We kind of last couple of years, gotten away from our typical seasonal pattern as things have been in flux. Do we get back to that pattern in 2010?

I think it's going to be a re-establishment of kind of a new baseline. But yes, that we're certainly hoping these run rates hold. And we expect if the market holds true, we expect to see some new vehicles coming in in the second half. So I think you are going to see pretty much that same base rate, and then you are going to add on to that in the second half for a few new vehicles.

In Q2, we won't have our -- it's always been in flux -- so we may be down slightly or up, depending on flow through on production rates.

Exactly, yeah. The big flux in these instances, or the inventory levels usually, that the customers are maintaining, as they start looking into the next model year. Almost all the customers worldwide have very, very little inventory. And I think that's actually probably pretty healthy for the industry. But does it limit the choices consumers can make when they go out shopping for a car. But the industry I think is not addicted to the build and discount plan, that we perfected here in North America for so many years.

Does that help you in your stabilizing your units delivered because we don't have that one-two quarter honeymoon period on the new platforms?

I think it does help us, being able to really look at the real data, and not have to have that inventory variable swinging wildly through our numbers.

Was there one new vehicle platform that was more meaningful, than any of the others, that we need to pay closer attention to?

I wouldn't say that in this past year that any one single platform was a game changer for us. As I think we've mentioned in the past, we try to go after at least one major platform a year. And then as many others as we can get. And really, last year, we saw our strongest participant was the F-150 pickup line.

Okay. In regards to the W ET filing their own patent lawsuit against yourself, it was implied in their press release that they have been in negotiation with Amerigon for a period prior to these lawsuits coming about. Are you able to make any legal comments regarding what those settlement talks were, and how that failed, and what kind of bleed rate we should expect going forward?

No, certainly this is active litigation. We're not prepared to discuss in any way. But I can tell you we did have discussions between the two parties about both parties' position. They came into the market with a product. We evaluated their variations in their product. And we felt like there were some areas of conflict. They came back, and said that they felt there were also areas of conflict. So we've decided that in America, there's a beautiful system of resolving these disputes. And it involves people in long black robes and powdered white wigs, so we're going to go have somebody else come help us work that out.

Sounds good. Thanks a lot, Dan.

Thank you, sir.

Thank you. And our next question comes from the line of Brett Hoselton with Keybanc. Please go ahead.

Good afternoon. It's Matt in for Brett.

Hi, Matt.

Hi, how are you? I wanted to follow up on some of the comments earlier on the amount of content, the tellurium content, in the CCS product. Are those new designs in production now, or are we waiting for them to come on line, in later this year or next year?

There are a few in line now, and there will be more coming in line as we introduce new product and vehicles in the future.

Well then, what percentage of the platforms, or what percentage of the units right now are you shipping the newer designs with the lower content?

A very low percentage.

Very low percentage. So there's -- so going forward, there's an -- there's a larger opportunity to improve the content then.

I believe there is definite opportunities for us to save money in many areas, and that's one of the significant ones, yes.

I also wanted to elaborate on your comment -- you saw flat volumes on your existing vehicles. So to say that your growth was entirely organic -- as far as like new platforms go, is that correct?

Most of the vehicles that we had been on stayed relatively stable. And most of the jump was on new platforms.

That's a good amount of growth, organic-wise. Can you elaborate a little further on the SG&A and the breakout? I believe I heard it was $900,000 in compensation and bonuses and about $500,000 or $600,000 in the reserve for WET.

Thats when we look at the delta from the prior year, it's about $900,000 in bonus, and about $500,000 in the -- the major components for this reserve.

So as we look at the first quarter, I mean, obviously you're not going to -- you're running at much higher volumes. You're running the sales at a much higher level, but it seems as if you X out those two, SG&A didn't really change that much fourth quarter-over-quarter.

Your run rate has been about $2 million, maybe $2.2 million, that in range. It's fluctuated. I would say that there's been, in the fourth quarter, no increase associated with the higher revenue levels.

Okay. So you will be able to leverage the SG&A pretty good going forward?

That's correct. Although there are some initiatives that we will be looking at expanding from a marketing perspective, a few things we're looking at, and maybe there will be some higher costs in the coming quarters.

Okay, so just bump up the SG&A a little bit, as you go forward from the $10 million run rate.

I would say that's prudent.

You guys did -- you gave guidance on sales, which directionally, at least, but no margin guidance on the gross margin side. Where -- you said there was some nonrecurring items in there. Is it safe to assume that the gross comes down a little bit in the first quarter?

It's highly likely, that at least a point or so may shave off. There was some extraordinary year-end adjustments in things that happened in mix,that probably won't happen again in the first quarter. As we said all along, we don't actually -- don't get into specific quarter-to-quarter guidance, but we have given guidance on an annual basis all along. We started out the year with margins in the low 20s. We advised you guys that we were looking to get back to the 30s, as quickly as possible. But we also said that wouldn't be immediate, it would it take us a lot of work and a lot of time and a lot of effort to get that road back toward that path of 30. And I think we've made reasonable progress on that during the four quarters of 2009. We're not going to give up in 2010. We are going to keep pushing. We are going to keep trying to keep costs down, and try to keep our margins as high as possible.

Thank you. Lastly, the share buyback I believe was October of 2008. You guys authorized the share buyback. So any thoughts on bringing that back in now, that volumes have stabilized here and you still have -- and the cash looks pretty good?

No, actually what we saw in late 2008 was remarkable opportunity where our share price was, I would say a significant bargain. And we felt like that was an excellent investment for us to try to take some shares in, and we did that. We think the shares are fairly priced now. And we believe that we may have future needs for our cash hoard. And we're hanging on to that as tightly as we cap, being basically cowardly conservatives.

Okay, thank you very much. And nice quarter.

(Operator Instructions).

Our next question comes from line of Ailon Grushkin with Nano-Cap Growth Funds. Please go ahead.

Hi, guys. Wonderful quarter. You're doing a great job over there.

It's hard to tell in all this snow.

Well, at least you're not on the East Coast. So your partner on the ZT Plus project, 5N PLus, made comments that they believe the joint venture could generate in excess of $60 million in revenue within three to four years.

That would be delightful.

I was wondering how you felt about that. And by them making that comment is that a split? Would you also possibly see a revenue like that coming into the Company, since you're still recording it on your balance sheets?

Maybe I can speak to that. This is Bud. The comments that they made referred to a business plan, that we had developed as a basis for the joint venture. And so it does stretch out into the 2014, 2015 kind of time frame. And it would be a combined impact. So this is not half of what is anticipated, but sort of the full boat, assuming we're successful.

Okay. And can you speak to what -- I know you said power generation. Can you give a little more specifics, what specifically that means, what types of industries?

Yes, I can give you a couple of examples that we're working on. One that's, I'd say, very much front and center in terms of our effort. First of all, there's been a DOE program for some years, that's now in Phase V to use waste heat from the exhaust, and turn into it electricity that you then funnel into the electrically driven accessories. And the objective is to achieve between 5% and 10% fuel economy. The European sealed 2 laws that are coming into place, as they really press to make their share of the contribution to reducing carbon in the atmosphere, really begin to press large European vehicles in the 2012 through 2020 period. And so there's a lot of incentive, as opposed to paying fines for vehicles incur too much CO2, for essentially improving fuel economy by capturing the waste heat from the exhaust. So there is a very significant effort underway in Europe. And we are working to be part of that.

That's one I think very good example. Probably the best one. So these are attempts to stop wasting heat that otherwise just goes into the atmosphere, and turn it into pathways that avoid he creating more carbon. And another very obvious opportunity is to capture waste heat from industrial processes like smelting or other heavy heat generators. And again turn that into electricity for power generation.

Okay. And do you expect that some of these new materials you're developing will eventually find its way into your heating and cooling seat devices?

We do. The first materials to come are in power generation, just because it's easier to construct these materials, and to develop them for -- to work at medium to high temperatures. But we have a very active interest in developing the materials for heating and cooling, because there are obviously very large markets waiting as we become successful at that. But it's a kind of a one-two step.

Got it. Now, the Chinese market seems to be enormous for cars. But I haven't heard much coming out of you guys of any penetration into that market. I don't know if these cars are really, really cheap, and that they would never need a heating and cooling seat.

The bulk of the cars being produced and sold in China, are what we would consider to be an entry level vehicle, in most of the western world. So they don't have a lot of the comfort and convenience features that are expected in many of the European and western North American markets. But we actually do have a few vehicles that are being actively sold in the market over there. And we have a couple of new vehicles being planned to be produced in China in the future. So we're very much aware of the Chinese market.

Barry mentioned a little earlier, that some of our SG&A monies may be increasing as we raise our focus a bit, and look a little bit more thoroughly throughout the market. Several of you have chided us over the years for not being more successful in Europe. We certainly have long-term plans as we told you in the past for Europe. And this could be a good time for us to move into both Europe and China in the next few years.

And don't forget India. Those are markets that we're not in, but we're looking carefully at.

Got it. Last question, which is probably not too important, but is the new Aston Martin Rapide, does that use your heating and cooling seats?

Not that I'm aware, but they haven't delivered mine yet, so I'll check it when it arrives.

All right, thank you so much.

Thank you.

(Operator Instructions).

And we have a follow-up question from the line of Brett Hoselton with Keybanc. Please go ahead.

One quick question for you guys. I think before we talked about non auto making up 10% of revenue by 2012. Is that still achievable?

At some point in time, it certainly is. But I don't know if you guys got the news over in Cleveland, there's been a gigantic global recession that's thrown a lot of our timing off on a lot of these problems. And we can't get any traction on any of these things, while everybody is retrenching. So it is still certainly one of our goals, is to diversify a significant portion of our revenue, out of our basic automotive market base. And we are actively pursuing that and, again, I think you'll see some evidence of renewed effort in that area this summer.

Okay, great. Thank you very much.

Thanks, guys.

And management, we have no further questions at this time. Please continue with any further remarks.

all right. Well, I think we've taken up enough of these good people's time today. I think we ended up 2009 on a positive note. Unfortunately, we started it on a bit of a sour note with the rest of the world. Things are getting a little bit better, and it looks like 2010 could very possibly be the start of a slow recovery. An Amerigon is poised and positioned to take advantage of that.

We were financially stable enough to survive one of the worst economic down turns that the global automotive industry has seen. And we believe we're now fully positioned to take advantage of growth and expansion as the market returns. We are actively pursuing advanced technology opportunities. We're also pursuing new product activities and new market penetrations, including China, Europe, and as Bud wants to go to India. So we thank you very much for your time and your attention. And we would very much like to ask to you come back in about 90 days, and talk to us about how the first quarter of 2010 has progressed. That's it. Thank you very much.

Ladies and gentlemen, this concludes the Amerigon 2009 fourth quarter and year-end results conference call. Thank you for your participation, and you may now disconnect.