Gentherm Inc (THRM) 2011 Q4 法說會逐字稿

Good day ladies and gentlemen and thank you for standing by. Welcome to the Amerigon Incorporated 2011 fourth-quarter and year-end 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 also being recorded today, Monday, March 12, 2012. I would now like to turn the conference over to Ms. Jill Bertotti of Allen & Caron. Please go ahead, ma'am.

Good morning and thank you everyone for joining us today for the Amerigon Inc 2011 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 the [summoning] through PR news wire 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.com or the Allen and Caron website at www.AllenCaron.com. Additional a replay of this conference call will be available via a link provided on the event page of the Investor section of 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 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 the results. The liquidity and trading price of the common stock may be negatively affected by these and other factors. Please also refer to Amerigon securities and exchange commission filings and reports, including but not limited to its form 10-K for the year ended December 31, 2011. On the call today from Amerigon we have Dan Coker president and Chief Executive Officer; Barry Steele, Chief Financial Officer; and Bud Marx, Chairman. They will provide a review of the results after which there will be a question and answer period.

I would now like to turn the call over to Dan. Good morning, Dan.

Good morning, Jill, and thank you very much. Good morning to everyone for joining us on our fourth-quarter earnings call for 2011. We believe we had a pretty good results and we are quite pleased with the events of 2011, which really have been a transformative year for Amerigon. We are quite excited about how things turned out and how things are looking in the future as well. The combination of all the positive news that we've seen, including shipping our almost nine million heated and cooled seats system, the introduction of our new heated and cooled cup holder to very good success, continued progress on our heated and cooled mattresses, and the progress we've been making with our advanced teams on our thermal electric generators, are all very positive signs and all bode well for our future.

Of course, the most transformative thing that happened with Amerigon for 2011 was the acquisition of W.E.T. The combination of these two great companies are going to be very exciting rolling forward. We are quite pleased that the full year combination of the companies, we are now about a $0.5 billion Company. All of this is quite exciting. We are going to try to stick to our format and keep our enthusiasm down and let us deal with some facts. We plan to do a very brief overview and then open the floor for questions.

I will now turn the comments over to Mr. Barry Steele, CFO.

Thank you, Dan. The fourth quarter 2011 represents the second quarter where the results of W.E.T. are included for the full period. Because this acquisition had such a dramatic affect on our statement of operations and balance sheet when compared with the prior-year, I will keep my comments limited to observations related to the sequential comparisons of the fourth quarter 2011 with the third quarter 2011.

Once again our operating results are impacted by effects that the purchase accounting for W.E.T. and other non-cash and other items. We have provided a table in the earnings release which helps show where these effects are included in the statements. Many of these effects appear in both the third quarter and fourth quarters of 2011 with two exceptions. First, amortization from the purchase accounting valuation of W.E.T.'s backlog at the acquisition date and inventory step up which increased our cost of sales in selling, general and administrative expenses by $374,000 and $1.5 million respectively, did not impact the fourth quarter since they had been fully recognized by the end of the third quarter of 2011. Second, the combined revaluation of derivatives, and net foreign currency gains and losses, which are largely non- cash impacts, and which had collectively been a decrease in our earnings of $2.3 million during the third quarter, swung to a gain during the fourth quarter of $5.3 million.

Our product revenues for the fourth quarter 2011 were $131 million which represented an increase of $5.4 million or 4.3% over the third quarter 2011 product revenue. These results represent all-time records for both Amerigon and W.E.T; $3.6 million of the increase came from Amerigon and $1.8 million came from W.E.T. The growth for Amerigon was largely driven by strong North American production volumes particularly on the Ford F-150 program, strong revenue on our new cup holder product, and new program launches. W.E.T. had also benefited from strong orders from its North American customers. Our gross margin for the fourth quarter was slightly higher than that of the third quarter due to improved margins of W.E.T., which had a better product mix during the quarter. A small portion of the improvement came from the inventory adjustment I mentioned earlier. Amerigon's gross margin was about the same during these periods.

Our operating expenses were $26.1 million during the fourth quarter 2011 representing an increase of approximately $1 million or 4% over the third quarter. This increase was primarily due to higher costs associated with management bonuses, higher legal expenses, and certain pre-integration expenses. These amounts were partially offset by the reduction in amortization of W.E.T. order backlog mentioned previously. Our adjusted EBITDA was $14 million -- $14.8 million which was $730,000 lower than that of the third quarter 2011. This reduction was primarily due to the increase in operating expenses offset partially by the higher gross margin during the quarter.

Now turning to the balance sheet, our cash which totaled [$23 million] at the end of the year, increased by $6.8 million during the fourth quarter. This was the result of decreased networking capital particularly a reduction in our outstanding accounts receivable. This accounts receivable decrease represents the normal year-end holiday shutdowns cycle. These benefits to cash were partially offset by our having used cash to redeem the second quarterly installment under our series C preferred stock totaling $9 million, and $5 million in principal payments on our term loan. After these statements, our total debt sits at $76.2 million at the end of the year.

That's all I have. Back to Dan.

All right, that's actually a very good report, Barry. Thank you very much. I'm sure you might have a question or two from the crowd. Let's go ahead operator, and open the floor for questions, please.

Absolutely. Ladies and gentlemen, we will now begin the question-and-answer session.

(Operator Instructions)

Steve Dyer with Craig-Hallum.

Good morning and congratulations on the good quarter, guys.

Good morning. Thank you.

You mentioned the cup holder business. What was the revenue run rate on that in the quarter? And was wondering if you'd be able to sort of quantify how you see the next year or two shaking out in that product line?

Well Barry can get that -- go ahead, Barry.

I'm sorry. The revenue for the cup holder program for the fourth quarter was approximately -- almost $1.8 million.

The prospects for the cup holder program -- we have as you know, two platforms today that offer the heated and cooled cup holders as options. In the next year or two, we are working with a couple of other platform teams and a couple of other OEMs. And so we should see some further expansion of that business over the next two or three years.

It's also going to be, I'd say, part of a complementary product offering that will include a cooled storage box, which we believe will be more popular than cup holder conditioning in the European market, and possibly in the Asian market, as well. So there's other things to come out of this product line. This is the first kind of missionary product, and there's other things that we'll be providing for the personal heating and cooling, particularly cooling, storage space in the automotive.

And when would you expect the first cooling box to affect revenue?

It's going to be a while yet. We're still in the early stages of product validation right now, but we're working on it.

Any sense as to the early take rates on the cup holder? Or is it too early?

It's a little early to really pinpoint it, but I'll tell you this -- the response has been much stronger than we'd anticipated, and I think much stronger than Chrysler had anticipated. It's proven to be a very popular feature.

Okay. Jumping over to the beds -- where are we on that roll out? I think Mattress Firm has, if my memory serves, has three different levels of the bed now. What is the rollout schedule look like for that, and what are your expectations?

Well, as you know, last summer we completed our market study where we expanded our presence in the Texas market, and got pretty good response; and got the input that we needed to expand the bed product portfolio from just a single bed with heated and cooled technology to a group of beds. We needed additional comfort features in the bed; we now have those three features are out, and beginning to sell fairly well and the response has been very positive to the selection.

I believe it's Matt Firm's strategy to expand the opportunity to buy heated and cooled beds line that they market under the brand YuMe, through outside of Texas now; we're looking at getting into Arizona, Georgia, Florida -- some of their other major hot-weather markets. So during 2012, I think you'll see our exposure to the market greatly increase.

Okay and --

I'd like to add on the mattress -- prior to the fourth quarter, our cumulative revenue on the bed was about $1 million. In the fourth quarter we had about $300,000 in revenue. But the interesting thing to point out is our price point went from about $1300 per unit to $700, because we're no longer selling the actual mattress. So our actual volumes has increased pretty dramatically in the fourth quarter.

Okay; and those, if I recall, have quite a bit better margins than the core business, is that right?

The margins are much more attractive, yes.

Okay. Our old friend tellurium looks like it has rolled over pretty hard relative to where it was a quarter or two ago. I'm assuming you didn't see much of a benefit of that in Q4, but any ability to sort of quantify the kind of tailwind that may provide as we go through this year?

We saw no benefit in the fourth quarter of the weakening of the cost of tellurium. We will probably not see much impact during the first quarter. You'll probably see the first reductions of material for us in the beginning of second and third quarter. As you know, we place commitments going forward to protect ourselves from -- well, actually, any kind of material or price variances. Right now, that -- the prices we are being quoted are approaching $200 per kilo; whereas at their height last year, they were in the low $400 per kilo. So we will see some improvement to our gross margin in the second half of this year for sure based on tellurium.

Okay. And then just operating expenses -- I know the fourth quarter, it sounds like there were some bonus payments in there. What should we think about, what's a good level to use going forward ex those?

Barry?

I would think that the unusual things that you see in the fourth quarter were about [$2 million]. I don't want to say that you won't necessarily see these types of things in the future, that could be replaced by different things. So I would expect that, from a run rate perspective, this is probably $1 million less going forward per quarter. But I think you should be prepared that as we investigate, combine the Company and do different things to secure a long-term benefit that we'll see some spending.

Okay. And then last question and I'll hop back in the queue. The base Amerigon business, always announced new product wins as they shipped. Is that something you plan on doing with the combined Company?

We spent quite a bit of time focusing on new product wins because it was a very clear and easy indication of success in the market for Amerigon. With W.E.T., it's a little bit broader in the marketplace and there's lots of shift in the basic business for them. So we're not going to spend as much time concentrating on every win and loss throughout the entire Company as we did in the past.

Okay, I'll hop back in the queue. Thanks, guys.

Thank you, sir.

Anthony Dean with KeyBanc Capital Markets.

Few questions here. First, on your 10% revenue growth guidance for the combined Companies, can you provide in order of magnitude, what's incorporated within that expectation related to production, pricing, content, and any other factors?

Actually we're not going to go in all the detail on that. We're reluctant to even provide guidance, because it's a tricky area. There's a lot of uncertainty in the world. And when we look at our order logs and our internal projections of the market, we see a good opportunity for us to grow our $0.5 billion business by about 10% in the full year -- first full year together, which is 2012. So we don't really want to get into nits and nats about the pluses and minuses of all of that. So I'd really rather just provide guidance on the overall, right now, of about 10% for the year. And we will provide timely guidance in each of the quarters as we go forward.

Okay, that's helpful.

And then, as it relates to the year of quarterly revenue guidance from last quarter -- Barry, can you shed some color on the delta between your top line expectations for the fourth quarter back in November, and the result you posted today? I believe you all said revenues wouldn't moderate sequentially from third to the fourth quarter, and I was just wondering what would you attribute that out-performance to, was it the pull-forward of these orders by your Asian customers? And if so, how much was it?

Probably won't give you an exact number of that, because we're not absolutely certain of the amount. But clearly it looks like there is a little bit of pull-ahead on our some of our Asian programs. The Ford F150, in particular, was a lot stronger in the fourth quarter in terms of production levels. And I think we probably have on some of our new programs, a little bit heavier pipe filling. But that goes into the concept of pull-ahead for us. But to sort of summarize it, it's largely production-driven, I think.

Got you, okay that's helpful. A few more here.

Dan, on the last conference call, you were hopeful on the full German regulatory approval. And can you just provide us an update there on what's going on, what's holding this up; and do you have any visibility as to when you potentially might get approval?

Well, yes, there is a long discussion been going on with the German system, of us being able to apply what we call the domination agreement. We have requested through the court systems in Germany permission to dominate the affairs of W.E.T., in that we believe we have greater than 75% of the shares available to the Company, and therefore qualify for the domination agreement to be put in place.

We followed two paths. The first was the lower court regulations, where you go through and have what I would consider to be a long but thorough process of hearings and appeals that we anticipated would take 1 year, 1.5 year to get through.

At the same time, you're allowed to go to the superior court and request a -- what they call fast-track hearing. In other words, they look at your case in kind of an overview summary. The Superior Court Judge looked at the case and decided that he didn't really see enough merit to issue a fast-track bench decision, and basically threw it back down to the lower court. So in the lower court now we are in the process, we will have a series of hearings and appeals. It doesn't really matter if -- how it goes, it's going to take a lot of time.

In addition to the legal proceedings that we're going, the German law also provides for us to work together with W.E.T. under what are called combination cooperation agreements. And we are currently working with the W.E.T. team to define the areas of cooperation that we would like to document and work together on. And there will be a series of these agreements that will encompass things such as product development, sales and marketing, maybe even joint ventures in certain selected markets. And also including what we currently, at Amerigon, we buy all of our products on the outside, there will be opportunities for us to examine asking W.E.T. facilities to do contract manufacturing for us.

So there are avenues of what we would call, let's say, access to success for us that are not directly related to the court activities; and we plan and intend to pursue these immediately. So that's kind of an update on the hearings.

This is Bud. Let me just add a couple of things if I could.

We had hoped we'd get a favorable ruling on the fast-track and we did not. And as a consequence, we expect that the legal proceedings might go on for while, because whoever wins in the lower courts, somebody's going to appeal. And so we've taken steps, and we believe we can realize the major benefits of having the two Companies cooperate through agreements that do not require at the outset a domination agreement. And we're pressing to achieve that over the next six months, let's say.

So what I'm really saying, is don't breathe in and breathe out on the legal part of this, because we believe we can achieve what we want to achieve in the absence of that.

Okay; that's great. I appreciate the color there.

And then my last question here -- some of the senior manufacturers -- Johnson Controls, Magna, Lears of the world, proceeding -- it seems like they've been experiencing some slight margin pressure for various reasons. And I'm just kind of curious to hear from you all -- are you seeing any incremental pressure within the supply chain there, particularly in Europe, which could obviously impact W.E.T.?

To say that we're feeling some pressure is understating the seismic event. It is a constant pressure in the auto industry to become more efficient and to pass through cost savings wherever possible to the Tier 1s and on to the OEMs. And we are a Tier 2 supplier, both as W.E.T. and as Amerigon, and we always feel these pressures. And we feel an obligation, in fact, to try to respond to make our Businesses more effective and more efficient. So, yes we are feeling pressures and we're trying to respond appropriately.

So mainly on the pricing front, it sounds like?

They only want price relief to them, but there are also other systems of trying to make ourselves more cost effective as a system. And that's something that we try to focus on as well -- not just trying to knock down the price, but knock down the overall cost of the system as well.

I think the winners in all of this are those that can create the productivity and the efficiency to pass through part of that to their customers. The guys that are going to really fall by the wayside are those that aren't able to both shore up their own business and provide a value proposition for their customers. And our track record and W.E.T.'s has been really very good at this over the last five years.

And maybe as it relates to some of that pricing pressure, would you consider it to be down low-single digits, down mid-single digits -- what are the OEMs looking for?

We don't really want to get into that. I think we've stated in the past that our goal is to try to comply with their general requirements of trying to have a couple of points each year, as we roll forward sequentially.

Very good, thank you so much.

All right. Thank you, sir.

(Operator Instructions)

Adam Brooks with Sidoti & Company.

Good morning, guys -- or maybe almost good afternoon.

Maybe you could give us a sense as far as the thermoelectric generators -- how quickly that opportunity develops and maybe where you're at right now, and where you see it going over the next five to seven years?

Well, right now we're still in the, I'd say, the mid-level stages of the product development and evaluation. We've been working on this for about five years. We've gotten some very good performance results from our prototype work and some of our developmental analysis. We began to share that last year with our two key partners, Ford Motor Company and BMW, and our sponsorship from the DOE, Department of Energy, here in the US.

We have taken a couple of, I'd say, big design leaps, particularly in the areas of the form factor of the expected product. We believe that we have a manufacturable concept right now, and we've built some early stages of that -- of the early elements of that to try to test and evaluate that to assure ourselves that we're on the right path. The market is eager for this type of solution. In fact, they are quite insistent that we continue to push forward with this. In terms of when we see it -- we will probably be another three to five years before we see any of these products in the market place. And there, they will be on very specific vehicles that are keen to have the fuel economies increased by offloading some of the pressure on the onboard generators or alternators for the vehicles.

So I think that, right now, we'd have to say that we're still in the early stages of this product, but we're quite optimistic and quite positive that we have a unique solution, and we have in an interesting solution that will add some value to the OEM level when we introduce the product.

Okay. And maybe switching to capacity real quickly -- now you've acquired W.E.T., do you see any areas, any regions of the world where you need to add capacity, and how quickly would that need to come on line?

Actually we do see some. Both Companies have been growing fairly nicely over the past few years. W.E.T. is in the stages of recovering from a bit of the general automotive depression. And we will be expanding facilities during 2012. I think our first and most appropriate responses is to expand our Asian manufacturing capability, where the Asian, particularly the Chinese market, has been growing like crazy for the past few years, and right now we need more capacity in the Asian theater. So we're going to add capacity there, and we will continue to right size our manufacturing operations as the market demand requires it.

Okay. And maybe is it possible to get an initial stab at 2012 CapEx?

Barry, you got any idea on that?

I'd prefer to defer that to our 10-K; you'll see what the 2011 amounts were, and you'll see the fourth quarter, which would be a pretty good indication for next year. Although, we do have some expansion plans in China in particular, that will bring that number up a bit.

Great, thank you.

Ailon Grushkin with Nano-Cap Growth Fund.

Yes, if I look in the 2010 Amerigon 10-K, the only competitor mentioned is W.E.T. So I'm wondering -- do you now have a monopoly in the heating and cooling and ventilated seats in the entire automotive industry? Or is there some other competitor out there?

No, we do not have a monopoly, nor do we expect to. In fact, I'd say probably the biggest competitors we have are OEM customers themselves. Several of the European companies have actually designed and supplied heated and ventilated systems. And there several other people in the marketplace who offer heated and cooled or heated and ventilated systems.

None of them have been as successful as we have. We believe our products and our costs advantages bring a value to the market that make us the number one choice. But we don't believe nor do we aspire to have a monopoly of any form.

Do you know what percentage of the global automotive market you have?

Not exactly. We know we have a very good percentage of the marketplace, but we don't know exactly. We don't track all of the details of all of the non-aligned customers. But it's a good healthy percentage.

Okay. And in terms of the total market size, do you have a figure on about what percent of the market has been penetrated thus far with the heated cooling/ventilated seats?

It's very early stages. We believe we have penetrated probably 10% of the total market -- the total potential market -- for heated/cooled and heated and vent. And we believe that market is going to be expanding pretty rapidly every year, and so we're going to have a hard time catching up with it. We are a small position now, and we believe that the overall global market is going to continue to expand in that at a very good clip.

Okay. And in terms of -- I saw that W.E.T. does heated steering wheels. Is that a growing market?

We believe that is a very high potential product. W.E.T. has spent a lot of time and a lot of effort developing a lot of good technology there, and they are one of the leaders in that area. And we believe that there's a very good market opportunity for that, particularly, obviously, in the northern climates in Europe and in North America. They're a very key-- a key part of our strategy going forward.

Can you give approximately how much in sales W.E.T. does a year off heated steering wheels? (multiple speakers)

It's about $7 million, I think, on an annual basis. $7 million to $10 million.

Yes, I think it's in the $7 million to $10 million range; and again I think is kind of an earlier stage product introduction for them.

Okay. And last question -- are we expecting any new interesting products from BSST this year, or some time next year?

Well we think all the products that were generated from our advance teams are interesting, and exciting. We do have to focus ourselves. Even at $0.5 billion, we're a small Company. And we are trying to bring focus to the two key areas that we've identified in terms of power generation systems, both industrial and automotive. And then the heating and cooling technology we're involved in some early stage programs, where we are trying to further develop the ability to expand the use of thermoelectrics and resistive heating inside the auto cabins -- auto and truck cabins -- for the future.

So we've got a lot to do just with those couple of minor things we're playing with.

Okay. And with Herman Miller -- is that product kind of fizzled out at this point? Or any new developments with them?

I'd say that, that product has pretty well peaked and gone past its prime. It was a product that we had great expectations for, and we saw a wonderfully, beautifully designed product. It was, perhaps, not as powerful as we would have all liked in its final form, but we are not ruling out taking another swing at it and seeing where we go with that. But I would say, right now, your assessment is correct that, that's a product that we attempted that didn't work out as well as we'd hoped in the market.

Okay. And any chance we may see heating and cooling airplane seats in the future?

There's a good chance you'll see it. But right now, we don't have a clear path to that market.

But we have built, I think I've said before, we've built many airplane seat prototypes for heating and cooling. A lot of us spend a lot of time sitting in those cabins, and they're never quite warm or cool enough, depending on which side of the plane you're sitting on. So we think that's a good opportunity. But there's a lot of good opportunities for delivering either heating, heating and vent, or heating and cool applications for personal comfort, including things like the bed.

Right, okay. Well, thank you so much, and you're doing the wonderful job.

We're trying.

(Operator Instructions)

Steve Dyer with Craig-Hallum.

Thanks, Barry. Just one housekeeping issue. Stock comp expense in the quarter -- could you give us that?

Steve, I don't have at my fingertips, but if you could call me back afterward, I can probably give you that.

Okay, that's fine. Thank you.

Thank you. And Management, there are no further questions in the queue at this time. Please continue.

All right, excellent.

Well, we thank everybody for joining us on our year-end call. This has been, as I said earlier, a very big and exciting year for Amerigon and for W.E.T. We have found that bringing our two Companies together are a natural alliance of strengths. Amerigon's technology slant and innovative look at the technical solutions for heating and cooling and power generation are a natural segue over to the W.E.T. systems that they have in terms of manufacturing process, design development, and product introduction worldwide, as well as their manufacturing strengths. We are very excited about the opportunities of the combination of these two Companies, and how well we think we can do in the markets that we're in today, as well as introducing new and exciting products in new and in the different markets worldwide.

We think that -- we've stated that we think we can see a good 10% growth rate for 2012. We think this -- of course, that assumes that all of the markets worldwide stay relatively stable. But we think that as a much larger, more global Company, that we can establish the 10% rate for 2012; and we reiterate that we think our targets for growth for the larger Company would be in the 10% to 15% range going forward.

So again, we're very excited about it. We think our friends at W.E.T. are going to bring a lot to the party and we're looking forward to working together. And we see a good, strong, well-financed Company positioned to go forward and grow in the future.

So thank you very much for your attention and we ask you to join us very soon for our first-quarter 2012 results. Thank you.

Ladies and gentlemen, this does conclude the Amerigon Incorporated 2011 fourth quarter and year-end results conference call. Thank you again for your participation and you may now disconnect.