Gentherm Inc (THRM) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Amerigon, 2010 third quarter and nine-month results conference call.

During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions)

This conference is being recorded today, Wednesday, October 27th, 2010.

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

Good morning, and thank you for joining us today for the Amerigon, Incorporated, third quarter, 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 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, 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 the period ending September 30th, 2010, and its Form 10-K for the year ended December 31st, 2009.

On the call today from Amerigon we have Dan Coker, President and CEO, Barry Steele, Chief Financial Officer, and Bud Marx, Chairman. 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 you, Dan. Good morning.

Thank you, Jill, and good morning, everybody, and thank you for joining us again for our third quarter earning results for 2010. We had a pretty eventful quarter for us. We broke a pretty big revenue record for us. The first time we've achieved $30 million of revenue in a single quarter, and we're all very pleased with that. And we think that that shows a lot of hard work on a lot of peoples' part to get us to that scale. It also clearly puts us in a position to be better than $100 million in revenue for the full year 2010. So we're quite excited about that. Breaking $100 million in revenue is a goal that we've had for a while. And now that we've achieved the -- or at least we look like we're in a position to achieve that for 2010, we're pretty pleased.

We've had a pretty exciting period in the third quarter. The markets continue to show slow signs of growth worldwide. The US market is beginning to come back probably a little slower than all of us would prefer. But the numbers for this year look like the North American SAAR will be somewhere in the 11.5 range, and next year looks like it's going to be a little bit stronger than that - all assumptions based upon economic activity stabilizing, which right now is not a pretty good bet.

But we're going to follow the same pattern we have had in the past. We're going to speak to Barry. He's going to give us a few of the details. We'll speak to Bud, who will talk to us a little bit about the advanced development team's activity, then we'll open the floor for questions.

With that comment, I would like to introduce Barry Steele, our CFO. Barry.

Thank you, Dan. The 2010 third quarter for Amerigon's $30.5 million in product revenue. That's about a $12 million or 65% increase from the prior year's $18.4 million. And sequentially it's about a $1.7 million increase or about 6%.

This is primarily driven by new product program launches. We have launched a number of new programs since last year. We also see greater production levels in the industry, in the automotive industry. In North America, for example, our growth -- the production growth was about 26% since the third quarter last year. We also saw our first quarter with about $250,000 in revenue on our new heat and cooled mattress.

Our gross margin for the third quarter was 29%. That compares to 25% for the prior year and 30% for the -- from the prior quarter, the second quarter of this year. The increase over the prior year is primarily driven by product mix, better improved product mix, and lower material costs, primarily thermo -- or excuse me -- Tellurium, as well as the decrease slightly from the prior quarter is represented by product mix.

We also have a little -- slighter increased cost due to some exposure to the Japanese yen [of] some of our purchases of components on certain programs. And so given the strength in the yen over the quarter that we did not have hedged, there was some decrease in our margin from that.

Our net R&D spending for the third quarter 2010 was $2.3 million. This is an increase of about $854,000, or 60%, from the prior year, and a decrease of about $560-some thousand, or 20%, from the prior quarter. The increases are primarily represented by ZT Plus, our advanced materials program that we began contributing complete -- 100% to when we bought our share back in the first quarter of this year. That has a greater amount of spending on our P&L.

The decrease from the prior quarter is some rationalization in the R&D spending. However, I will point out that it's probably the lower end of the range in the R&D spending level. We'll probably see some increases as we continue through time in the fourth quarter and beyond.

Selling, general, and administrative expenses was about flat for the prior year at $2.5 million. Excuse me. About $500,000 increase from the prior year, flat from the prior quarter. The increase is primarily related to advanced, what I'll call selling activities. We're expanding our reach in Europe, Korea, and China, for programs that we see potentially coming there. We do expect that with our new European office that opened October 1st, and some of the efforts we're trying to put in place for expanded outreach in China, we'll see some increase in SG&A as we go on through the next few quarters.

Our earnings per share was $0.12 for the third quarter. That's a $0.07 increase from the prior year and a $0.02 increase from the second quarter of this year.

The only -- the last thing I'd like to point out is that our cash and short-term investment resources are -- now stand at $35.4 million. That's a $7 million increase from the beginning of the year. The operating cash flow's been very positive and we've been able to continue to strengthen the balance sheet.

And that's what I have.

Okay. Thank you very much, Barry. That's actually quite a bit. This is our fifth record quarter in a year on the revenue -- sorry -- revenue quarter in a row. And it's quite exciting for all of us to be able to report these results to you.

With that, we'd like to see if Bud can give us some comments about how things are going on the advanced development projects.

Well, good morning, everyone. It's good to be back on the Dan and Barry show. I was in the air for the last couple of earnings conferences, so the airlines don't let you participate despite the priority.

Well, I think the big news to talk about was the retirement of Lon Bell, which will be effective at the end of the year. We're still discussing all the bits and pieces. But we are, I think, very fortunate to be able to secure Lon's services as a consultant for us for at least a year and likely beyond that because his contributions are unique and we want continuity.

At the same time, anticipating that this would come because Lon has reached a magical age that I attained a couple of years ago, he and Dan and the rest of the group have been putting in place very capable people to fill in behind and continue the development work that's so important for our future.

So I think Barry's characterized the R&D spending appropriately because we are seeing some opportunities that we think might be very advantageous.

And a word on the whole R&D side. This has taken longer than we had expected. And I know that that seems like we've been at this for years without result. But we look at this carefully and have concluded that this is appropriate and useful and potentially very beneficial for the future of the company. And we're [bending] every effort to achieve the results that [can be] be achieved, given the rate of spending.

So that's my report from southern California, which has not been sunny. I'll turn it back to Dan.

Thanks for the weather report out there, Bud. We've taken a little bit more time in our intro than I would have liked. So we'll go ahead, operator, and open the floor to questions so we can get the input from our investment community.

Thank you, sir. (Operator Instructions) Our first question is from the line of Rick Hoss with Roth Capital Partners. Please go ahead.

Hi. Good morning, gentlemen.

Good morning, Rick.

First, Barry. BSST expense net, do you have that number?

It's $1.32 million.

And then as far as the SG&A line goes with the anticipation of the European office, should we think about that as, on an annual basis, incrementally maybe $500,000?

It will probably -- Barry, I haven't got the budgets directly in front of me. But I'm guess it will run someplace -- we have -- we're planning to put a team of probably three to four people in place. We've got three full-time people now and one person working as a consultant with us. So we're not at the full run rate yet.

But I would guess -- Barry, would you guess somewhere around $800,000?

Yes, that would be what I would say. Couple hundred grand a quarter is what I would guess at this point.

Okay. Thank you.

Okay. And then on the gross margin, some -- you talked about some product mix in there. Is the product mix, are we talking about an increased contribution from, say a heated ventilated? Or are you still selling those at approximately the same sort of margin profiles [as whole] CCS?

They're about the same margin as the regular business is.

Okay. So should we expect kind of a flat gross margin then on a sequential basis or how should we look at that?

I think that it will be potentially flat. But I think that depending on some various factors, it could be slightly up. I would probably view more slightly up than slightly down, I guess, at this point.

Okay. Good. And then last question. It looks like ASBs were above $70. Is that contribution from the mattress product? Or how would you explain that?

Yes, I would explain that as being -- we've shown in our release the CCS unit. And there are -- so there is some revenue in there if you're taking the top line. You're not getting exact [part] number.

Right. Okay. That makes sense. Okay. Thank you, gentlemen.

(Operator Instructions) The next question is from the line of Steve Dyer with Craig-Hallum. Please go ahead.

Thank you. Good morning, guys.

Good morning.

Morning, Steve.

Just with respect to the bed, wondering if you're willing or able to quantify sort of the -- what it meant to the quarter and maybe hazard a guess looking out as to sort of what your expectations are either from a sales perspective or profitability.

I think Barry pointed out that we've had a couple of hundred thousand dollars of revenue in the third quarter, and that's very, very early revenue that we've had basically just setting up the mattress firm retail outlets in the city of Austin, Texas and some very, very small preliminary work in the Dallas area, which was the Texas State Fair is held in Dallas and is quite a big deal. And the Matt Firm people introduced the exclusive heated and cooled bed at the show with great response.

In terms of how that predicts anything, it's really very, very early in the game. We do expect the margins on the bed to be slightly better than the automotive margins. And we think there's room for additional growth in that as we get into the production of these devices and get a little bit more efficient as we go through. Obviously we're talking like hundreds of beds here not hundreds of thousands like we're making in our other operations.

As that rolls forward, it's going to take us some time to push this into the marketplace. The Matt Firm people are excellent at marketing and retailing a product. We selected them specifically because of the strength and skill that they have. They have the ability to be able to go out and tell the story about what this exciting new product will do for people in a way that the consumers will relate to - something, frankly, that Amerigon's not very good at. We don't understand the consumer mind. We understand more of an industrial market. So that's why we specifically went after a very strong retail partner that could come in and bring that strength to the team. They will be rolling these products out through their major metropolitan areas between now and by the end of the year. We hope to have most of the major metropolitan areas covered. And then they'll begin their advertising program to begin bringing in the customers.

Our expectations are modest at the moment. We think that it will probably take about three years to get this product fully available in the Mattress Firm stores nationwide and in a position to where we can firmly say that, okay, this thing looks like it's going to be good or not. But we see that building over a three-year period. It'll start slow next year in 2011, which will be our first year of being available in all 600 stores that Matt Firm has, and we'll see where it goes.

But we're pretty positive and we're encouraged by the early response we got over these first couple of hundred beds.

Okay. Very helpful. And then do you have any incremental costs associated with that, whether it be marketing, advertising? Anything going forward? Or are they bearing most of that?

No, that's actually -- I guess it's maybe a little bit unique in the mattress business. But the relationship we have is that they are responsible for the sales and distribution of the product.

Okay. And then you'd mentioned kind of some currency issues in the quarter, and I don't think you had a hedge in place this quarter. Is that something you're looking at going forward or are you going to kind of fly without that for a while?

We actually do have some hedges in place for the fourth quarter, but that's as far as we're hedging out at this point.

Okay. And then just hopping over to the auto side of the business. What is your sense, Dan, on sort of inventory with the automakers in the channel on some of your key platforms? Are you feeling comfortable with that or -- I know we've been very under stocked for the better part of a year now. How are you thinking -- how are you feeling right now?

I think that the inventories on most of the vehicles are pretty solid right now. I think they've got sufficient stock to their desire. They're not stocked to the levels they have been in the past. But they do have a good working inventory in most vehicles. Some of the popular items, popular lines like -- well, I won't specifically say. But some of the items are still pretty tight on inventory. And I think the car companies have learned their lesson that building inventory way ahead of demand is a very dangerous path and that they're all keeping their inventories under tighter control.

But I think that vehicles are available. And I don't think you're going to see any more inventory build and I don't think you're going to see any drop off because their -- they've got excess inventory.

Okay. Great. And then last question for now. What percentage of your revenue would you say is coming from heated and ventilated? I'm just trying to gauge how significant a part of the business that is.

Barry, I'd say less than 10%. What would you say?

It's probably about 15, actually.

Oh, okay. Good.

All right. Very helpful. Thank you, guys.

Thanks.

The next question is from the line of Tyson Bauer with Wealth Monitors. Please go ahead.

Good morning, gentlemen.

Good morning, Tyson.

Hi, Tyson.

A couple of quick questions. I'm testing the memory here. But didn't Dr. Bell have a special 15% ownership in BSST and future rights to cash flow? How is that going to play out? Will he retain that additional ownership or are you looking to buy him out? What's the thoughts there?

I should probably handle that. It's -- we're a little bit previous on this because we haven't worked out all the details. But it is our intention to buy out Dr. Bell's interest and to be able to work to, let's say find greater efficiency in the combination between BSST and Amerigon. So if all goes according to plan, we will have purchased that interest by the end of the year.

Which then would give us an idea of how you see evaluation of the total entity, which will be nice. Couple of other quick questions. The location in Europe, the new location, is that solely for the purpose of the automobile sector or do you have other intentions? And what are your expectations on getting to that German market which you had difficulties in the past?

Well, our location is in Augsburg, Germany, which is basically kind of in the middle of a triangle between where Audi, Mercedes, Porsche, and BMW are all headquartered. So we chose that specifically because it's a good area. It's got a lot of good people. It's a technical area. They've got a lot of good automotive expertise in the local region and it's very easily accessible to all of Europe and all of the major markets that we want to participate in.

We specifically chose Germany as our site for our center of attention for the European market because that's -- the German auto manufacturers are key to the auto industry worldwide and certainly to the European market.

As I mentioned, we've already hired three German engineers who have experience in the automotive and industrial markets. And it's our intention to use that as a contact bridge to make direct contact with the auto and industrial market from that headquarters and base. So this is a real serious commitment on Amerigon's part to introduce our products and our services and our technologies to the broader European market and to really focus on developing long-term relationships with all of our German partners.

And obviously to try to get acceptance in that area.

Yes.

Ford has commented early, some of the larger dealerships that we've talked to in the country, luxury lines have a nice, strong outlook going forward. Are you also seeing that? And does that kind of give you a little more confidence going into next year, that the product lines and models that you're on has a reasonably better outlook than maybe in general?

Yes, I'd say that that's a pattern we've picked up. As the markets come back, the higher end models have come back a little stronger than the mid-range and entry level. And we do expect that trend to continue over not just next year, but the next three years.

Okay. And the last question. With new models coming in at the staggered introduction dates, when should we start to see production increases for some of those new models that you will be coming on for those that are being introduced late December, January, those kind of time tables?

Yes. As you know, the market typically picks up in the third quarter for us for new models. Next year will probably be pretty much like that. There's a couple of models that'll be introduced early in the year that'll be significant for us. So we're looking for a little bit of an aberration to the normal third quarter jump. But I think you'll see a pretty typical pattern overall.

All right. Thanks a lot, gentlemen.

Thank you, Tyson.

Your next question is from the line of Matt Mishan with KeyBanc. Please go ahead.

All right. Good morning, guys.

Good morning, Mr. Mishan.

You guys have -- Amerigon is significantly outperforming light vehicle production on the top line. And my question for you is if you're growing at 65% and light vehicle production in the quarter, off the top of my head, I guess, was growing somewhere in the area of 25% or 30%, what is the difference there? Is it new business growth? Is it product mix? How do you basket that difference?

The answer's yes to all of those.

It's mainly that we're introducing new product on top of the industry growth, so our penetration is increasing.

It's actually penetration growth is what we're really getting at, Matt. We're not just a market basket where we're 10 vehicles in the entry level, 10 vehicles in the mid-market, 10 vehicles in the high-end market. We're concentrated mostly on the high-end market and the upper middle range. And those markets are doing very well and we're making significant penetration into the marketplace, both in the high-end and the upper mid-range. That's been a very big driver for us, is that we're working our way down into the middle market sectors where the volumes are significantly higher.

So as the market is coming back 15, 20, 25%, we're getting into some very, I'd say growth-oriented for us. We're used to dealing in smaller run rates for an annualized vehicle for a high-end platform. And when we get on something like the F-150 or the F-250 vehicle lines where the, literally, the lines generate a million vehicles a year, the opportunities for us are greatly increased.

So it's been part of our strategy to try to broaden our breadth and outpace the market. So it's, as we said earlier, it's yes to all those. The market's coming back a little bit and that's helpful. And we're increasing our penetration rates into specific target areas.

As I look out to 2011 and 2012, and I'm assuming at least on the automotive side you have pretty good visibility into the platforms you're on and the associated volumes that you're going to see there, if I assume that light vehicle production is just flat, I mean, how much do you outperform just based upon your new business growth and your increased penetration, how -- by what percentage do you outperform light vehicle production in 2011, 2012.

I don't --

We've tried to resist making forecasts that far in advance, Matt. We have said that we expect to grow in the range of 20% to 25% a year. And that would account for both industry growth and penetration growth and entry into new markets. And I think that's probably as specific as we want to be at this time, wouldn't you say, Dan?

Yes, I --

Maybe even more specific.

Yes, we should not fall for the terms of the Mishan in this case. We're not going to commit ourselves to a forecast and projection. Right now, to be honest with you, you mentioned that the market is stable and growing. I would submit to you that the market's not stable. It is growing. It's not long-term stable as far as we see. And we really are hesitant to commit to a specific set of numbers that we see as hard numbers for next year. There's still a lot of uncertainty in the world.

All right. That's very fair. And I apologize if you guys have already talked about -- I'm sure you already have. I jumped on the call a little bit late. Can you discuss a little bit about why the, despite the increase in sales, the gross margin 3Q from 2Q came down a little?

Barry took that earlier, and I think he can handle it quickly.

Yes. That's primarily mix, a slight decrease in mix from those two points in time, as well as the yen impact, it was a little higher in Q3. Quite a bit higher, actually.

Okay. So Tellurium was fairly stable and seems to be hanging around that what, that $200 per kilo range?

Yes, that --

Our cost on Tellurium has been -- improved slightly from Q3 last year, and that's only because we had price decrease during the quarter. But pretty -- actually flat, actually, compared to Q2.

And then just one question --

One point on all this issue of margins. I think we have to say that what we're seeing is a period of rather pronounced dollar weakness that might actually continue for a while. And similar to the issues we've encountered on Tellurium, when we see a problem that affects our margins, we take a look at it and begin to develop solutions that are fundamental and long term but they take awhile to put into place.

So I think you can see us beginning to chew on this issue of what's the implication of dollar weakness for us over the next two to three years and what are the right strategies to deal with it. But if it's going to be a pronounced problem, we're going to have to figure that out.

Okay. And just on Tellurium and, obviously, we've all been hearing rumors about rare earth and China not wanting to export that. What are your suppliers of Tellurium or your contract manufacturers who are acquiring the Tellurium telling you about the supply? And have they seen any kind of price increases over the past week or two?

Actually what we're seeing, as you know already, most of our suppliers are in China and so they are Chinese source. And so the Chinese government has been -- [a] restrictive trade policy on the rare earth metals themselves. What we're actually doing is taking the Chinese rare earth and we're fabricating it into product in China and exporting that. So I think that's the type of relationship that China actually likes. But we've not seen any specific swings or changes in availability of material or costing of material or any restrictions at all from any government entities worldwide that are dealing with us.

It's fair to observe, Dan, that technically Tellurium is not a rare earth. So it's not been included in what the Chinese were doing, vis-à-vis the Japanese or even in a broader market. But the broad issue that Dan addressed and the way he addressed it I think is correct.

Okay. Great. That's very, very helpful. And just lastly on the -- on your lawsuit and your litigation with W.E.T., can you give us an update on where you're at with that?

In process. There's, you know, the legal process in America is painstakingly accurate and thorough.

All right. Thank you much. Thank you very much, Dan, Barry, Bud.

All right. Thanks.

The next question is from the line of Jeff Osher with Herbst Capital. Please go ahead.

Thanks for taking my questions. Any more color you can provide around -- not to beat a dead horse -- but maybe if you can quantify the change sequentially in gross margins what was related to mix versus yen? Just I think that'd be helpful.

Barry?

I would say they're about equal to each other.

Okay. Okay. So roughly 65 [BEPS] a piece. Now, that'll normalize in Q4?

It'll probably be improved I think Q4 --

Yes. Hey, guys, don't suck us in to talking about margins in the future because that's one variable too much.

Okay. Okay. Well, then the variable that you guys were talking about, Bud, the 20% to 25% annual growth, that's a fair thing to plug into our models now for '11, I assume?

Well, now, don't pin me down. What we said is over a period of the next two to three years, as we can see in the future, that that number looks achievable. But we haven't given a specific forecast for 2011 and don't intend to today. So, [smoke] that forecast at your peril.

Fair enough. One other one on the Mattress Firm sell-in. If they have 580 locations, how do we think about the number of unit stock per location? I think, Dan, you'd mentioned we're talking about 100 beds so far. How do we think about the sell-in that occurred? I know there was very minimal impact to the September quarter, given it was a September launch. But how do we think about the impact on a sell-in basis for revenue and gross profitability?

Well, they actually -- I don't think they plan to stock all 600 stores with a warehouse full of it. They do service their individual stores by central warehouse locations. So there will be a line fill, if you would, for the balance of this year. But we're not expecting thousands and thousands of beds to be rolling out of our supply chain. What we are expecting them is to do a very orderly planned rollout as they hit all the major markets in their area from Arizona to Atlanta, as they fill up the availability and begin to introduce this product into their stores.

So we're not looking for a huge spike in activity in the fourth quarter. We're looking for a nice, gradual, steady, slow plan as they plop into Dallas and Houston and Atlanta and all the other major markets.

Great. Great. Great. Thanks for taking my questions, guys.

Yes, sir. Thank you, sir.

Next question is from the line of Walter Ramsley with Walrus Partners. Please go ahead.

Thanks. Congratulations, another great quarter. Got a couple of questions. Out of the, let's say 1.2 million units that were shipped through the nine months, can you give us a rough idea of how many were shipped to cars that took it as standard equipment as opposed to options?

Wow. I can't do that off the top of my head. Barry, you might be able to, but.

It's something we can calculate. I would say about 20% or 30%.

Okay. Well, that's pretty high. Good.

But that's a pretty wild guess, though.

Oh, okay. And do you have an idea of how many went to what you might call cars as opposed to SUVs?

That I do have. For the quarter discretely, passenger cars was about 40, low 40%, and then SUVs and pickups as a general category was the rest.

Okay. Okay. The take rates on the options portion, any obvious changes there or still about the same?

It has been a slight drop in that, in that we've added now the pickup truck lines, a fairly significant piece of our business. And those take rates are significantly less than kind of the high-end vehicle lines where we're seeing mid-80s as a take rate and now we're seeing in some of the truck lines, you know, I don't -- 25%, 40% range. So it has fallen off a little bit from kind of an average of the low 70s. But we haven't done that calculation lately. Barry, that might be something good for us to look at again since we've had kind of a major swing.

Thank you.

As we look at it, we haven't seen any real significant changes on a vehicle-by-vehicle basis. It's been pretty (inaudible).

Okay.

That's correct.

So on that subject it's fair to say that the F-150 and F-250 have two elements to them - one are work trucks which probably are the luxury loaded and a more what I'll call utilitarian, and then there's the urban cowboy. And I would bet that the split of those two markets, if you looked at urban cowboy only, which we rally can't, that the take rates would be very high consistent with what we're seeing on the other high-end vehicles.

Okay. That makes sense.

And I would concur that's probably a good bet.

Okay. Now, the 15% buyout or whatever that is with Dr. Bell, if that goes through, will that be the end of the non-controlling interest line on the income statement?

Yes. We will own 100% of all shares and there'll be no external calls, barring something I can't foresee.

Well, yes. Right. That's right.

But that would extinguish the minority.

Okay. And are you going to have to go back and restate the previous quarters for the current year on that? Or how are you going to handle that?

I don't think that --

Good question. I haven't got a clue. Barry, do you know?

Yes. I don't think that would be required because you would see the information there and you would -- you maybe could be able to discern what it would be in current quarters, but you wouldn't have a change in the financial statement.

So the earnings would stay the same for the first three quarters? Is that what you're saying?

That's correct. It would -- my understanding would be that is correct, yes.

Okay. And just kind of one last one. I don't know if you can answer it or not. But you mentioned some of these new potential products that are being worked on. What is stationary temperature management? Is that keeping my stationery cool or what is that?

Well stationary temperature management would basically be fixed HVAC systems to a home or to an office.

Oh, okay.

As opposed to mobile air conditioning systems which are transportation related.

Okay. Now, out of any of those that were mentioned, anything likely to contribute to revenues next year?

Well, we certainly hope so. Not that we're willing to predict at the moment. We've been focusing a lot of effort on the development of advanced HVAC systems and power generation for a few years. And I would say at this point we don't see anything happening in a significant way in 2011.

And when do you think it might become a significant piece of the business?

Well, we're famous for saying in three to five years. But I would say that it's going to be a couple years before we see significant revenue from those areas.

Okay. And then I guess just one last thing. You're moving off to Germany. Can you just kind of tell us what the lay of the land is from a competitive standpoint? I mean, I understood that the Germans sort of had their own version of this technology. What's the game plan?

Well, the game plan is to introduce them to a better working, better performing, more efficient design. The major, I think, obstacle that we have in the European market in particular and also in the German market is overcoming that market's kind of temperate climate. They -- there has been a reluctance in the broad German and European market to accept active cooling as being a critical feature that adds comfort to vehicle lines. And we've not done a very good job of communicating the additional ancillary benefits of having a intimate delivery system in a vehicle to be able to very quickly and very effectively add or subtract temperature from the occupants' thermal comfort zones. And that's something that is becoming quite a appealing feature as the world turns to more efficient methods of transportation and seeking more efficient vehicles.

Adding heated and cool seats, actively heated and cool seats improves the response time to the vehicle when the person needs to add heat or cool. And that will be, I think, our big selling point in the European market is that they will eventually, hopefully, with our German partners' assistance over there, they will see that there are some very significant advantages to having actively heated and cool seats.

The competition, as you pointed out, we do have one competitor in the world who is the primary seat heater manufacturer. And they do have -- they are German and they do have a, I'd say a comparable product in their line. And they are also in the marketplace trying to convince the customers of the advantages of this product.

So I think we have a tough road to go to convince the market that the product is a good thing and to convince them that we are the best supplier. But I believe that we've been able to do that in the broader global markets in North America and Asia in particular. And I believe that we'll have similar successes in Europe, particularly now that we've focused more of our attention and resources on achieving that goal.

Thank you very much. Congratulations again.

Okay. Thanks a lot.

The next question is from the line of Ailon Grushkin with Nano-Cap Growth Funds. Please go ahead.

Good morning. Another great quarter, guys.

Good morning. Thank you.

My question is, what is ZT Plus? What should we expect coming out of ZT Plus? I guess you're kind of working on advanced materials or -- what does that mean to us in the next three years or so?

Maybe I'll take that one. ZT Plus' mission is to develop materials with enhanced performance that we can then take advantage of with, I'd say exclusivity or with preferred position compared with other people that are working in this same arena. And we are working first on high temperature materials because the properties of those materials have been enhanced ahead of those for heating and cooling. So we're seeing at high temperature significant improvement in material performance. We have to translate that into material that's usable for stuff beyond lab samples. And that's the purpose of ZT Plus. And we also have to develop the heating and cooling material that addresses our principal developed markets which are immediately available.

And those are the two tasks and that's what we expect to achieve over the next couple of years.

So ZT Plus would be trying to maybe, I don't know, replace Tellurium in a thermoelectric device?

Well, in some versions actually that's true. But in the heating and cooling world, its principal mission is to enhance the performance of Tellurium with (inaudible) of other materials and with the different ways of arraying the atoms, literally, within the material matrix. So those are the two missions.

Okay. So, and then from the BSST side, would the cooling cup holders, would that be something developed within BSST or is that completely, I guess an Ameri -- I'm not sure of the structure of the company. I guess you have three subsidiaries almost now.

Yes. And we'll probably be simplifying some of that structure. You can think of Amerigon as having been the development arm for products that are automotives and for products that are readily transferrable from our existing technology into product. The BSST mission is to develop product that is more advanced. But I think we'll actually see those two missions merge over time.

Okay. Is ZT Plus housed in the same facility?

They are seven minutes away in Azusa in a very nice separate facility that is purpose -- engineered and built for the material development we're talking about.

Okay. Is there any thought to ever maybe put some heating and cooling seats in airlines?

I'll leave that to you, Dan.

Yes, thank you. That's, actually, yes, we have looked at that in the past and we've actually made several airline seat prototypes in the past five years. Actually, we've worked with a couple of people to try to find a way to get into that. That market is a little bit murky to us. We don't really understand that. But we do have kind of a basic relationship with a couple of the main guys that supply -- particularly our focus has been on the business class and first class and private aviation seating structures which we see as a pretty attractive marketplace, particularly in an age when the airlines themselves are trying to find ways to differentiate between the coach class and the business class seating price structures.

Okay. So it's not something -- you have no deal signed yet or --

Yes, we have nothing signed yet. And it's a little bit of an enigma for us in that we go to the seat guys and they say great idea. We've actually even been to what I would call the OEMs, the Boeings and people like that and they say great idea. We go to the airline operators and they say great idea. So we can't find the guy who makes the decision in all of this as to whether we should outfit a vehicle and see how it looks. Or, as they say, an airframe and see how it looks.

So we're going to -- we actually had a person working on our staff trying to understand and decipher that and we got sidetracked with an exciting new project in the bedding area. So we're going to be putting some focus back on that again and see if we can't figure that out, because I think that's a good viable opportunity for us.

Okay. And now in terms --

I've never actually been on a flight where I was either warm or cool enough and I take a lot of flights, so.

Have to agree. In terms of the bed, if I live here on the east coast, how do I get one of these?

Mattressfirm.com, I would recommend. No. We are looking at how we broaden the distribution nationally for this product line. Our initial focus is getting a clear, concentrated effort in the warmer climates of the country. Not saying that the upper east coast is not a beautiful place to live. A bit of our strength here is being able to providing cool, dry air to the sleep environment in the warmer climates. So that's our main purpose and push right now. But we will be coming to a store near you soon.

Okay. Great. And lastly, so the originally Sealy has nothing to do with this anymore?

That's correct, the original Sealy program basically extinguished when the Sealy people were acquired by an investment group and they basically decided that this was a project that they didn't want to pursue.

Okay. Great. Thank you so much.

All right. Thank you, sir.

(Operator Instructions) Our next question is a follow-up from the line of Steve Dyer with Craig-Hallum. Please go ahead.

Thanks. Just housekeeping. Barry, we keep talking about a 37.5% tax rate in every quarter. I don't think you guys have actually been there since '06. Is that still a number we should use from a modeling perspective or should we go lower?

Well, we've been 37%. So, yes, I think splitting hairs between 37% and 37.5%. But that is a good range for us.

Okay. Good enough. Thank you.

All right.

And I am showing that there are no further questions at this time. Please continue.

Okay. Well, I think we pretty much beat that horse as far as we can. That's about all we know. So I think that the quarter we'll go ahead and sum up and say that I think that the third quarter 2010 was a historic quarter from a revenue standpoint, the introduction of a new bedding product and introduction to the marketplace. We also have -- we're saddened to hear that Dr. Bell has decided that he's going to relax and enjoy his life a little bit more. But he has committed to continuing to work with us and particularly focusing on helping our advanced teams work through some rather complex issues that we all still struggle with in the thermoelectric industry.

But in general, it's been a good quarter. We feel like this is going to be a good year and we're excited about getting at 2011 and the challenges that that has for us.

But we certainly appreciate everyone's attendance today and we ask you to join us again in about 90 days as we review the fourth quarter and our year-end results for 2010. Thank you very much. Good-bye.

Ladies and gentlemen --

Thanks, guys.

-- this concludes our conference call. You may now disconnect. Thank you for your participation.