Gentherm Inc (THRM) 2012 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Amerigon Inc. 2012 first-quarter results conference call. During today's presentation, the lines will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions).

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

Good morning, and thank you for joining us today for the Amerigon Incorporated 2012 first-quarter results conference call. Before we start this morning'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 a link provided on the events page of the Investors section of Amerigon's website.

Finally, I've been asked to make the following statement. 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 ended March 31, 2012, and 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. Management will provide a review of the results, after which there'll be a question-and-answer period.

I'd now like to turn the call over to Dan.

Yes, good morning, Jill. Thank you very much, and good morning, everyone, and Happy New Year. We have had a pretty good first quarter. There were some pretty exciting events that we saw. The revenue numbers came in pretty close to what we had projected. Actually, they were slightly stronger than projected and very much in line with our view of what the 2012 annualized forecast ought to be.

So in general, we're very pleased with the quarter. Very excited about how the consolidation between our teams is coming. We're beginning to work well together between Amerigon and W.E.T.

We also spent a little bit of time early in the quarter working on raising some capital. We believe a strong balance sheet is a very important part of any ongoing concern. And this March we closed a deal to raise about $75 million net for the Company to strengthen our balance sheet, to be able to allow us to move forward and grow our business in a comfortable and natural way.

We are going to continue our normal process. The business overview is very simple. We're going to ask Barry to review some of the detailed financial numbers, and then we will open the call for questions.

At this point, I think we'll turn it over to Barry Steele, our CFO.

Thank you, Dan. The first quarter 2012 represents the third quarter now where the results of W.E.T. are included for a full comparable period. Because this acquisition had such a dramatic effect on our statement of operations/balance sheet when compared with the prior-year first quarter, which had no results for W.E.T., I'll keep my comments limited to observations related to sequential comparisons of the first quarter 2012 with the fourth quarter of 2011.

Our product revenues for the first quarter 2012 were $129.5 million, which represented a decrease of $1.5 million or about 1% over the fourth quarter 2011 product revenue. The decrease is primarily due to lower revenues at Amerigon of $5.1 million, offset partially by high revenues for W.E.T.

The lower revenues for Amerigon are primarily attributable to lower production orders from our customers based in Japan and Korea, which pulled some orders ahead to 2011. We expect that our second-quarter revenue will return to a more normal run rate. W.E.T. benefited from strong orders from its North American customers once again during the quarter.

Our gross margin for the first quarter was slightly lower than that of the fourth quarter due to the lower revenues from Amerigon, which carry a higher gross margin than those of W.E.T., and due to the lower product mix during the quarter.

Moving to operating expenses, our operating expenses were $23.7 million during the first quarter, representing a decrease of $2.3 million or 4% over the third quarter. This decrease is primarily due to lower costs associated with management bonuses reported in the fourth quarter, lower general operating expenses, and lower R&D expenses. There is also a lower translation effect from the euro and the Canadian dollar that's impacting the SG&A line more than it impacts other lines in the financial statement.

Our adjusted EBITDA was $15.8 million, which is about $1 million higher than the fourth quarter 2011 EBITDA. This reduction was primarily due to the decrease in operating expenses, offset partially by the lower gross margin dollars during the quarter.

For a moment turning to the balance sheet, I'll just point out that our cash totals now $100.6 million at the end of the quarter. This was an increase of $76.8 million. Dan just mentioned that the major contributor to that increase is about $75.8 million in proceeds coming from the sale of 5.3 million in shares during the month of March. We plan on using these proceeds to pay redemption and dividend installment on our Series C Preferred Stock, which are due over the next six quarters, ending during the third quarter 2013. These amounts total approximately $49 million.

Now I guess we'll go back to Dan and open it up for questions.

Yes, thank you very much, Barry. We do have obligations for the Preferred C shareholders, but we also have other uses for that capital, including the normal operations of the business. So the primary reason was to make sure that we had a strong balance sheet.

Another just interesting point to bring to folks' attention -- there's usually a couple of questions about tellurium costs. We'll go ahead and talk about that up front to make sure we get that covered.

Tellurium costs have continued to slide and soften during the first quarter. We've seen an average cost in the market of about $175 per kilogram. We've seen low bids out as far as May and June in the $145 to $150 per kilogram. So we do expect in the second half of the year, if this trend continues, to see a slight improvement in the margins on the Amerigon side as we see these rather, let's say, strategic metals continuing to soften for us.

So with all of that said, with that introduction, I think we should go ahead now and open the floor to questions from the audience. Please, Operator, let's see if we have any questions.

Yes, thank you, and at this time we will be taking questions. (Operator Instructions). Michael Lew, Needham & Company.

Can you comment on the European market? How did it perform this quarter? How much of it was as a percentage of total? And also just on the demands end, did you experience any slight pause, which was the basis for a modest growth projection in 2Q?

Actually, the European market in general is in a bit of turmoil. The auto industry, in particular, in a couple of the major markets is actually in a pretty bad condition. In Italy and in France, in particular, the markets are pretty flat to off. In Germany the markets continue to be fairly strong. Part of that is dominated by their export business, but the German market itself is actually holding pretty strong.

So in the overall of how things look, I would say that the net for Europe is kind of flat to slightly off. But our revenues for W.E.T. and Amerigon, our small contribution from Amerigon, are actually pretty strong in Europe, not as strong as North America. The North American market is the leading driver for us over the revenue gains. But I'd say that right now we're kind of holding our own in Europe, and we expect that market to continue to be stable for the full 2012.

And in Asia? Still gangbusters?

Asia is growing. It's not growing the way it used to. The market projections now are somewhere between 8% and 10% of unit growth in the Chinese market. The Korean market is growing very strong. The Japanese market is beginning to come back and show signs of life. In the second quarter, we didn't see any blowout revenue numbers, but we're beginning to see some gains and some steam for the future.

Yes, and you mean in the first quarter.

In the first quarter, I'm sorry.

All right. And what were the sales for the mattresses and cup holders this quarter?

I think the sales of mattresses were in the $300,000 to $400,000 range, and I don't know exactly what the cup holders were.

About $1.5 million.

About $1.5 million in the cup holders, yes.

Got it. I realize it's still a bit early, but just given the increase in gas prices, are you experiencing any, let's say, an accelerated effort by some of your partners on the thermoelectric side, let's say like a BMW and Ford? I realize you had mentioned it was three to five years out.

Yes.

But is there a potential for an earlier commercial rollout? And the reason I bring that up is because if you look at, like, a BMW, they're introducing a next-gen carbon-fiber vehicle next year.

Yes.

But it's going forward just on the gas prices.

I would put it this way, Michael, is you would really look at it and just kind of really focus on the limiting factor here. Right now I would say that the limiting factor is not our customers' interest or the drive on their part to try to get these types of solutions to market.

We have a very engaged customer in BMW and in Ford Motor Company. We have a lot of technical work to do in order to get these solutions to the market, so it's not really is BMW or Ford or GM or anybody interested in it. They are extremely interested in solutions like this that show gains on fuel efficiency. We just have a lot of technical work that has to be done before we can say that we're confident and we're going to market in any less time than we've projected.

Okay, well, thank you.

Thank you, sir.

Steve Dyer, Craig-Hallum.

Thank you. Good morning, guys.

Sounds like we sicced the dogs on you, Steve.

Wow.

I apologize for my hounds; I've picked up.

Can you guys remind me again how you're thinking about or how we should think about cup holder and bed revenue throughout this year?

Sure. The cup holders came on last year. We wound up doing somewhere around $6 million, $7 million worth of revenue. This year we're going to see a full year of that, so the revenue should be somewhat substantially higher. I guess we started in the second quarter of last year.

Yes, it was [light] in the [first] quarter.

Very, very light activity in the first half, so we'll probably see a nice little bump in growth there. The cup holders are limited now to two platforms. We're working with other people. But we are currently shipping to two platforms at Chrysler.

The bed programs are going very nicely. We had a soft first quarter in terms of the rollout. We had only about $300,000 or $400,000 in revenue, but we're beginning to see the broader markets outside of the Texas market. We're now available in a few stores in Arizona, and in the month of May we're going to start populating stores in Georgia and in Florida. So we'll probably see the activity there pick up in the mid-summer range for this product. But we're getting very good response. We have the new generations of programs, then we have some new products coming out that have new configurations of beds that are coming out in this summer.

Great. And do the cup holders and mattresses factor into your 10% revenue guidance, or would that be added to it depending on how they shake out?

We don't really count on a lot of that revenue, but we do have some sales in our revenue projections, primarily for cup holders, because they're a little easier to predict. But in general, we don't count on big, needle-moving numbers from that product group.

Right. How many programs have you brought over to the W.E.T. production side of things, and what types of gross margin improvements do you anticipate as more and more of those get brought over?

Well, we've only really started one very big program, and that's the GMT900. We're going to have to work together a little bit more to coordinate the activity between our customers and the W.E.T. manufacturing systems and the Amerigon vendor base, so that work is going to take a little effort. It took quite a bit of effort to get the first project. We've got a little experience, we've learned some things, and now we're ready to start moving a little more steadily as these projects mature.

Okay, sounds good. And then gross margins -- what's sort of a normalized level? I know there's different puts and takes each quarter mix and so on and so forth. But I'm assuming that the normalized level's maybe a little bit higher than what we saw this quarter?

Yes, I would say that we're at the lower end of the range that you'll probably see throughout the year.

Okay. And then just lastly, Dan, you mentioned the T900. That is scheduled for a fair amount of downtime this year. Is that all, of course, factored into how you see you Q2, Q3 playing out, etc.?

Yes, it is.

Okay. Thank you very much.

Thank you, sir.

Brett Hoselton, KeyBanc Capital Markets.

Hi, this is Anthony Deem in for Brett.

Hi, Anthony.

Thanks for taking my questions. First, just to start off here, taking a look at your full-year revenue guidance of 10% growth. If we assume that moderately higher means roughly 1% to 2% growth sequentially here first quarter to second, your first-half pro forma revenue growth looks like around 7%. So that implied that guidance for revenue growth will accelerate significantly the back half of the year, roughly in the low teens.

So just given that the outlook on production doesn't really incorporate significant acceleration -- in fact, you could argue your year-over-year production environment might moderate in the back half versus the first half -- can you help us out in terms of how we should think about why the second-half growth will accelerate? Are there platforms [around] that are expected to accelerate, maybe some new program launches we should be thinking about?

Well, yes, actually, that's a very natural progression in the automotive industry. I guess I'd first point out to you that it's your number where you said the second quarter -- you've defined moderate as 1% to 2%, and in this day and time, maybe moderate is 1% to 2%. We're trying to be as conservative as possible, but we're certainly going to be above 1% to 2% in the second quarter.

We do see more activity in the second half of the year. We do have some new platforms coming on. We have some new projects launching. The second half of the year in the auto industry is always a stronger half and a growing, penetration-driven business. So we do see a much better second quarter, and we see an exciting second half of the year. So right now, based upon what we see -- this is in May of 2012 -- we still believe that our annual guidance for 2012 of being up 10% on revenue is quite reasonable.

Okay, that's helpful. And then, Dan, can you provide us with an update on the cooperation agreements with W.E.T.? Have you had the opportunity to define what areas you will work together on? Clearly, W.E.T. is working on legacy Amerigon vehicle programs, but anything else of substance we should be thinking about, and potentially can that materialize the incremental sales, in your view?

Certainly. There's a large scale of engagement that we have to consider when we're talking about cooperating under the allowances of the German law. And it entails things like working together on joint development projects; working together in trying to bring both product lines to all of the markets worldwide, so we have to have some sort of cooperative agreement in sales and marketing. We have to try to figure out a way to work together on some special markets.

As an example, we look at Asia as a big opportunity for us. We have very good strengths in Japan and in Korea, and the W.E.T. people have extremely good strengths and strong operations in China. So we have to find a way to blend all of those strengths together to come up with an operating set of scenarios that will allow us to continue to be independent companies as we continue to pursue the domination agreement under German law, but then also allows us to work together to begin to try to get some of the benefits of having the combination of the strengths of both companies.

Okay.

And that is not a simple process. It takes some time to sit down and work out the guidelines and understand what we can do together, and then work all of that language into an agreement, a contract, if you would. And then we have to distribute those guidelines to all of our associates worldwide and make sure everybody stays within the guidelines.

Any timeline on when that could occur? This year?

We're certainly working on it right now. We're beginning to pull together the structure and the framework of how these agreements should be poised. But yes, we'll certainly have them in place during 2012.

Okay. And then just on Asia, your comment, sounds like there's some good opportunity there. Any update on some of the capacity expansion plans over there potentially? And then also, as a follow-on to that, the outlook on the CapEx for the year, are the 2011 results still a good number to use for 2012?

Sure. Well, yes, actually, our Chinese facility in Langfang, China, is running pretty much running as hard as they can right now, so we've made a commitment that we would expand capacity in the Chinese operation in 2012, and that process has already begun. The typical, I think, CapEx commitment there is somewhere, Barry, you'd say around the $5 million bill?

Yes.

So this is not massive amounts of capital that are required to expand these facilities, but we do look at a growing market. We've indicated we're going to grow this year at least 10%, and we've anticipated future growth as well, so we have to prepare the physical plants and capacities to be able to keep up with what we think will be the market demand. So our first target is to expand the facilities in China. We're going to look at Europe and North America immediately following that, so probably for the next three years, four years, you'll see us investing in plant equipment at those levels. Barry, you want to give him a read on the normal CapEx?

Yes, the order of magnitude probably is $15 million, $20 million over the next couple years, per year.

Including the expansion?

Right.

Yes.

Absolutely.

Okay, that's helpful. And then just last question here, just a housekeeping item -- what percentage of your pro forma revenue is European-based?

It's about 20%.

Yes, it's a little under 25%.

Yes.

All right, thank you.

All right, thanks.

(Operator Instructions). Mark Tobin, ROTH Capital Partners.

I guess following on to the cooperation agreements, Dan, can you give us an update on the core process of it? I know there was the 8-K, but just curious if there's any updates and just to get your insights.

The teams are working together to define what projects we think are significant and important and should be addressed in priority. And then we are using those projects and we're defining what levels of cooperation are required to achieve those goals. And so that process has been going on for -- well, really, for a couple of months. And then we now are beginning to discuss that with the lawyers, particularly our German lawyers, who have to help us make sure that we sculpt this and stay in line with our overall legal obligations in the German system. Then contracts will be drawn up, and then those will be reviewed by both management teams and agreed to by the management board, and then we'll begin a process of training our people to make sure that they understand the guidelines and stipulations.

While all of this is going on, of course, we're going to continue pursuing the domination agreement process, which under German law is our ultimate goal, to be able to merge two companies together as a single legal entity. So that's our process, but during 2012 we're going to align ourselves to work together under these cooperation agreements.

Okay, and as we start to -- as we annualize the acquisition, what are the prerequisites or what's the process for acquiring that minority stake? How much legal is involved, and I guess can you give us a sense of how daunting that is as a task or not?

Well, under the German law it says that companies who acquire more than 75% of the shares of any public company will be allowed to dominate the financial affairs of the company. We currently own 76.3% of the shares of W.E.T., so mathematically, we are in position to dominate the affairs of the company.

There are challenges. They were expected challenges to that. And we have been working that process through the court. It is our intention to fully pursue our right as an investor in W.E.T. to dominate the affairs. And that may mean we'll have to go through a long process of court appeals and hearings, but we intend to do that. That's our plan. This may take us another year, a year and a half, who knows, but that's the ultimate goal is to get to the point where we can actually merge these companies together.

I think it's fair to say -- this is Bud -- that while we're going through this legal process, and we are implementing -- although nothing is signed and agreed yet, but our intention is to implement these arm's-length operating agreements, which will enable us to achieve a good deal of the synergies as we pursue our case in court, so it's not an either/or proposition.

What we have said is that that makes it a bit longer to play out in terms of getting the benefits of these arm's-length agreements, getting them in place. And then there's, I'd say, a bit more administration and cumbersomeness about how the two companies operate at arm's length as opposed to under a domination agreement. But it's our intention to go forward and to succeed, and we have every expectation, based on how the two companies see the future and see the future working together, that we'll be successful.

Okay, that's helpful. And then shifting gears -- looking at operating expense, Barry, you had mentioned that the fourth quarter of '11 had some seasonality, maybe you can characterize it, with the bonuses and so forth. Are the Q1 OpEx levels something you would consider a run rate going forward at this point?

I think what I mentioned before is that there were some unusual things in the fourth quarter. There'll be some unusual things to come still as we go through our review and dealing with synergy -- or not synergy, but just combining the businesses. For example, we have upcoming costs to implement Sarbanes-Oxley at W.E.T., so that'll be something that'll start affecting us at some point, at the order of magnitude of $500,000 or $600,000. So this looks like a pretty good run rate, I would say, but again, there'll be unusual lumps that we see over time.

Okay, that's helpful. I'll jump back in the queue. Thank you.

Adam Brooks, Sidoti & Company.

You said pro forma revenue about 20% Europe. Can you give us a breakdown of everything else, and does that kind of suggest that almost all your European exposure is the German OEMs?

A good portion of our revenue comes from the German OEMs, yes, that's correct.

About 5%, though, is coming from Land Rover Jaguar.

Right. And I guess what's the remaining -- if 20% is Europe, how much is North America, then how much is Japan, Korea, and China?

It's more or less evenly split between what we say is the Asian market versus the North American market.

The North American market has a slight edge, but the balance is split up fairly closely between North America and China, with North America being a little bit heavier.

Okay, and then if we talk a little bit about the Japan-Korea weakness, it's actually something we heard across the board with suppliers. Can you talk a little bit -- you said the normalization as far as patterns now. Was that a big thing, or is it also -- I know Inifiniti seemed to underperform. Was it also just a function of what platforms you're on over in the Japan-Korea region?

I'd say partially due to the mix, the platform mix, yes, that's a big driver.

And as far as FX, what was the impact of FX on revenue this quarter?

It's a mix of events.

We don't have that specific number, but for our European revenues, it was a decrease, probably around the order of magnitude of $1 million or $2 million.

Okay. I'll hop back in the queue. Thank you.

(Operator Instructions). Greg Weaver, Invicta Capital Management.

Hi, just a follow-up to that one. What was the FX impact on operating expense this past quarter?

It was about $500,000.

Okay. And could you give us a sense of your exposure to euros and Canadian dollars in terms of revenue and OpEx as a percent?

I don't have that broken out specifically that way either, but I can characterize SG&A about -- when we focus on just W.E.T., about 60% of their SG&A is euro-based, whereas about 10% or 15% of it is Canadian dollars; the rest is US dollars. On the top line, the largest revenue currency is US dollars. All of Amerigon revenue is in US dollars --

Worldwide.

-- worldwide. So it's about 20% euro, probably about 15% Chinese currency and the yuan, and the rest is US dollars.

Okay, great, that's helpful. And just on the -- I apologize if you might've touched on this -- the R&D grants. Any color there, and should we expect the quarterly rate you just put up in terms of R&D subsidies to continue about this level?

We're on a pretty steady basis there, Greg. We've tried to focus ourselves on some of these outside grants to make sure that they stayed directly focused on our product aspirations. So we're committing ourselves to a couple of very large and heavy programs, and those should be pretty consistent through all of 2012.

[Of course], in the thick of it, you'll notice that the reimbursements have creeped up over the last few quarters, but I think we're sort of maxed out at this point.

Great, thank you.

Adam Brooks, Sidoti & Company.

Just wanted to follow up a little bit on the geographic rates, and I think in your Q and your K it has about 14%, 15% other. Can you give us a sense what that is? Do you have any South America exposure? Or is that just other Europe because you break out Germany and I guess the Czech Republic separately?

It's kind of across the board, quite honestly.

It's everything except for direct North America-US. It's sales in Russia. It's sales in India. It's sales in South America. It's truly, literally all other.

And there is a few other European countries, but pretty small.

Okay, thank you very much.

Thank you. Ladies and gentlemen, at this time we would like to give you a final opportunity to ask questions. (Operator Instructions). And at this time I'm not showing any further questions. Please continue with any closing remarks.

All right, thank you very much, Operator, and thank you very much, everyone, for dialing in today. Again, we thought we had a pretty solid quarter for the first quarter. We do see improvements in the second quarter and certainly in the second half of this year. We also see an extended benefit from being able to work together more closely with our W.E.T. associates. We do expect to have cooperation agreements in place during 2012. And we continue to expect to pursue all legal recourse in the pursuit of the domination agreement.

We're very pleased with the response to the market for our issuance of the new shares and the raising of $75 million to allow us to have a stronger balance sheet. We believe we are now poised to take advantage of the combination of our two good companies and to continue penetrating and bringing new products to the marketplace.

We thank you again very much. We thank all of our associates, all of our vendors, all of our partners, all of our employees worldwide. And we ask you to join us again in about 90 days. Thank you very much.

Thank you, and ladies and gentlemen, that does conclude our conference call for today. Thank you for your participation. You may now disconnect.