Gentherm Inc (THRM) 2014 Q2 法說會逐字稿

Greetings and welcome to the Gentherm 2014 second quarter and six month results conference call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Michael Mason. Thank you. You may begin.

Thanks, Rob. Good morning and thank you for joining us for the Gentherm Incorporated 2014 second quarter and six 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 Gentherm's results, the 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 Gentherm website at gentherm.com or the Allen & Caron Investor Relations website at allencaron.com. Additionally, a replay of the conference call will be available via a link provided on the Events page of the Investors section of Gentherm's website. Finally, I have also been asked to make the following statements.

During today's conference call, representatives of the Company may make forward-looking statements within the meaning of federal securities laws. These statements reflect current views with respect to future events and financial performance and actual results may materially differ. Please see the Gentherm Incorporated filings with the Securities and Exchange Commission including the Company's latest annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K for a discussion of various risks and uncertainties underlying any forward-looking statements. On the call today from Gentherm, we have President and Chief Executive Officer, Dan Coker; Chief Financial Officer, Barry Steele; and Chairman, Bud Marx. Management will provide a review of the results, after which there'll be a question-and-answer period.

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

Good morning, Michael, and thank you very much for that kind introduction. Barry and I are coming to you live from the NASDAQ headquarters here in New York City where it looks like most of the city is undergoing a renovation reconstruction project. But the NASDAQ folks were very kind enough to arrange a meeting room for us to be able to offer a call and once again we're very proud of our long association with NASDAQ and they've been good friends and partners of ours.

With regard to the second quarter, we were pleased with the results. We think that the continuing efforts of all 8,400 team members continue to show positive results. We have been able to achieve and now sustain a better than $200 million revenue run rate for a couple of consecutive quarters and we see that continuing into the near future. So, we're quite pleased with the results. We are likewise pleased with the results of the additional volume and the impact on our gross profits have impacted the bottom line. So, we think we had a reasonably good second quarter. It was much in line with the results you heard about in our first quarter and we're going to spend a little bit of time talking about how those results break out into detailed numbers as Barry gives you the play by play and then of course, we'll open the floor for questions from our audience.

So with no further ado, I'd like to introduce Mr. Barry Steele, CFO of Gentherm.

Thank you, Dan, and good morning. Hello, everyone. Revenue for the second quarter 2014 was up 28% to $206.2 million. This included about $8.2 million of revenue coming from Global Thermoelectric, the company we acquired on April 01, the first day of the quarter. Our revenue gains were attributable to continued strength of our Climate Control Seat product and we saw increases in all of our different regions of the business, all of our different geographic regions. Our gross margin this quarter was 29.5%. This compared to 25% in the second quarter 2013. This improvement was attributable to improved mix of our products I mentioned earlier, the higher Climate Control Seat revenue and a greater coverage of fixed cost.

We also had a positive contribution from our new electronic manufacturing facility in China as we did in the last quarter and we had some positive currency impacts in a few different markets. The Global Thermoelectric purchase accounting did result in an unfavorable increase in cost for the quarter, a one-time charge of approximately $1.3 million as we wrote off the inventory that was held on April 1 and sold that inventory. So absent that, our gross margin would have been $1.3 million higher or 63 basis points higher. Operating expenses were also higher by $4.8 million or 50%. This was partly due to the operating expenses of Global Thermoelectric, which totaled $2.4 million.

This number included another one-time purchase accounting effect as we wrote-off or amortized the backlog that was acquired on April 1. We'll see another effect for this backlog amortization in the third quarter, then we will no longer it as an expense. A favorable conversion of our higher revenue resulted in an increase in our adjusted EBITDA totaling $15.8 million or 98% and an increase in our earnings per share of $0.31 or 206%. So, now we've met an inflection point where our revenues are dropping back to the bottom line. Just one comment on the balance sheet. Our cash now has decreased since the end of the year by $11.7 million. This is primarily due to the acquisition of Global Thermoelectric on April 1.

Those are the details from the financials, Dan.

Thank you very much, Barry, for your usual deep and comprehensive review of the business. We would like to go ahead and open the floor for questions. So Rob, if you would open the lines, we'd be delighted to address any thoughts anybody has.

(Operator Instructions) Samik Chatterjee, J.P. Morgan.

This is Samik here from JP Morgan. Just wanted to touch on where the upside base in the quarter is coming from compared to sort of what you were guiding earlier for the full year and also compared to probably your expectations where your upside is coming from, is it just higher adoption of your product or is it something else?

Yes, the upside that we see, we kind of indicated that our revenues were going to be growing at a very strong pace in the first half of the year compared to the first half of 2013. We have been working very hard as a team for the past three years to get some good solid penetration increases and new market opportunities for all three of our major product lines; the heated seat, heat vent, and heat cooled. And we have been very pleased with the response by the market to the combined previous company's new product portfolio under Gentherm. So we have seen a very strong response in our what we call CCS or our heat vent, heat cool business and a very good success and strong continued growth out of our base heat and wire business.

So, all businesses are performing well and the results that you've seen beginning even in the third and fourth quarter of 2013 are the basis of what we would call the advantages of working together as a full portfolio company now with a much better global distribution and customer support network and system. We are actually able to get the word out and get in contact with more customers about more products and that has resulted in a very good uptick in really in the last two years. But in the last six to nine months, we've seen some very good results in the auto business. It takes a while to get things to come to actual revenue and we've been working very hard to get that to happen and we're very pleased that we've seen the kind of run that we've seen today.

As you probably saw, we're indicating that the second half of the year we're going to see a continued run rate in the range that we like to see. We're very pleased to have broken through that $200 million a quarter revenue and we see that continuing in the second half as well. Unfortunately for us, the comps in the second half are a little tougher because the second half of 2013, quarters three and four, were the beginning of this very good surge of new business.

And secondly, just touching on the gross margins, very impressive in terms of the gross margin in this quarter. Is that probably what the underlying business is now delivering and we should think about that, sort of any one-offs here and there in a particular quarter that's sort of what the base line business is running at?

Well, it's another very good question. We have been focusing and one of our corporate goals as a team was to achieve a 28% gross profit on a consistent basis and we feel like we've been making very good progress there and the early results indicate now that we have exceeded that 28% range, but our corporate goals are still quite clear. We like now that 28% to 30% target range and we're working very hard to keep our cost in line to be able to allow us to drive the business to this new range. We've only seen two quarters at this slightly above 28% range. As I said in the past, we like to see a solid four quarters' average result before we declare something is a hard trend. For those of you with extremely good memories, you'll recall that last year about this same time there was much hue and cry about the fact that our margins had slipped from a 26% and 27% range to 25%. We tried to explain that that was a one-time aberration, we believe that proved to be true. We also now see this current trend as being somewhat representative of the progress that the business has made and we're still targeting that 28% to 30% range now.

Just my last question here. So how should I think about the peer volume incremental margins that you're getting in the business like when I look at the performance, looks like it's ahead of what other typical auto suppliers are right now getting more towards [24%, 25%] probably higher than that and what is our driving that as well?

I'm sorry. Did you say our electronic businesses?

The incremental margins that you're converting the incremental revenues to that bottom line, that looks to be higher than what a typical automotive supplier generally generates sort of close to 30%. Can you sort of indicate what is driving that?

First, we've been fairly clear in our history that we don't necessarily consider ourselves limited to being called an automotive supplier. We are a technology supplier to a variety of markets. The largest segment of our business is the automotive marketplace and we're quite pleased to be a part of the automotive business on a worldwide basis. As to how our margins are continuing to strengthen, it's really a strong dedication to our principle that we fight hard to grow our revenues at the topline while we keep our operating expenses under control and as tight as we can to the generation of profits for the business. So we are trying very hard to grow our business by in this case 25% plus, but keep our operating expenses growing closer to the 10% to 15% range as we expand the revenue base of the Company. So, it's a part of our corporate strategy to grow the topline and maintain our operating expenses as close as we can.

Thank you. Thanks for taking my questions.

Philip Shen, Roth Capital.

This is Matt on for Phil Shen. Just wanted to start out with the Ukrainian facility. We know that your manufacturing facility's located far away from the conflict region there and that you typically ship across the Hungarian border. But could you just give us some insight into how you think about risk in that region? How do you plan for different scenarios to ensure that you can continue to supply existing customers?

In fact we do have businesses all around the world. One of our strategies is to follow our customary base wherever they are and to try to face the customer as close as we can. We also have a strategy to try to be as cost effective as possible and from time to time that puts us in places where they are considered to be developing countries. Our facility in Ukraine is one of our best facilities in the world. I was there a couple of weeks ago, had meetings with the team, toured the facility, saw some of the new improvements and new businesses that we're setting up there, and was very pleased with the progress that that team makes and continues to make. We look at the current situation not necessarily in our region. As you pointed out, the conflicts are very far from where we are, in excess of a 1,000 kilometers away to the east and has thus far been fairly limited in its scope.

Any time you have this type of unrest, there is concern. The types of measures that we tend to take in this situation are to do logistical planning to look at and try to find ways to slightly overbuild our current run rates in our existing facility plus we try to prepare and reserve capacities at our other facilities around the world in case there's any call or need to try to cover for any emergencies. Our current risk assessment is that this conflict will not boil over into our area and so our level of concern is moderate at the moment. So we have taken some measures to protect our European customers, but we still see this as still being a very good place to be and our customers are comfortable with us satisfying their demands for the European market out of our Ukrainian facility.

That's very helpful. And just as a quick follow-up to that is the fact that you have the Ukrainian production impacting your discussions with any prospective customers to any degree, I know that the current customers seem comfortable around it, but any impact from prospective customers?

Well, not really. In fact, there has been impact on our business. In fact it's kind of a unfortunate situation. Because of the stress of the conflicts in Ukraine, the Ukrainian economy and hence its currency have been under pressure and the majority of our costs coming out of our European business in terms of cost of goods is based in that local currency in terms of content. So, we've actually had some pretty good luck in terms of the gross margin improvement. Some of what you see is an impact on our European business' cost advantage because of the fact that there is a conflict in Ukraine and there is price pressure on their currency. But in terms of other customers looking at us, I don't think that there is any issue. To be honest with you, we are continuing to look around the world for additional markets and one of those markets that we see as a very early stage developing market for the auto industry is Russia. So when we look at Russia now, we do have a slightly different view of that expansion opportunity. But our current customers and the new customers that we're currently courting are not necessarily concerned about the fact that we are in Ukraine or not.

And then really quickly if I could, any way to quantify the benefit of the gross margins from the weaker Ukrainian currency?

Barry will tell that to you.

It's about little under upon $1.5 million or around 50 basis points to 1%, somewhere in that range for the quarter.

Great. Thanks, guys. I'll jump back in queue.

Steve Dyer, Craig-Hallum.

Dan, you've historically been I guess reluctant to kind of raise the gross margin bar and I understand sort of the conservatism there. But as I look at the moving parts, the higher margin CCS business is growing significantly faster than any other piece of the business, you've got the Chinese facility which will only get better as we go along here. So I mean is 29%, 30% the way to think about it plus it sounds like it was impacted by 63 bps in the quarter. I guess maybe a little more commentary on that going forward?

Any business game plan has to start with a long-term strategy. Our long-term strategy when we consolidated two different companies three years ago and we wound up with a business that had operating gross margins around 24%, we set a target for ourselves to try to achieve 28%. After three years of hard work by a lot of people, we just about hit that threshold and we might have actually because of a lot of variety of reasons been able to slip up. Now we believe we're close to stating we're a 28% gross margin company. Another couple of quarters of this type of performance and we'll be confident of saying we're in the 28% range and our new target range will be, as you've heard me talking today, in that 28% to 30% range. So those of you who are taking notes, we are not quite declaring victory but we certainly see clearing skies ahead of us on the gross margin range and there are a lot of contributing factors to that. Many of those which are the result of hard work, a couple of them are fortuitous impacts of things we can't control like the Ukrainian currency, but we still see solid fundamentals generating something in that 28% to 30% range.

Okay. And then Barry, are you able to quantify kind of the gross margin tailwind that Shenzhen provided this quarter and maybe even comparatively to last quarter?

We've not given out our operating results for individual location.

Nor do we plan to. That is essentially currently a component sourced location, we don't even manage that to a P&L in the way that we could be able to quote that to you. So, it's not something we're prepared to get into. But I would say in general we've been able to achieve our goals of being able to provide ourselves with very important sophisticated electronic control modules for all of our own internal consumption. We're beginning to hit those goals and in fact we're actually ahead of those goals slightly out of our Shenzhen facility and also now beginning to see positive impact from our new electronics venture down in Acuna. I'm heading to Acuna next week so I'll be able to say that straight, but we're in Acuna as well.

So are there more synergies I guess to come from there or have you kind of realized from an internal buy perspective kind of all the benefit that you'll see?

There's lots more volume that we can get into that facility.

Actually, the strategy of course is to provide all of our own internal components and that gets us somewhere in that $75 million to $100 million buy rate from our own facilities. So, there's a lot of room for us to go over the next two to three years as we continue to push further into the market with our own components.

Okay. And when would you expect external revenue potentially, is that kind of a 2015 news?

We haven't made any announcements on where we are, but we are now very actively engaged with outside customers as well because we believe that the fairly unique facilities and equipment and people that we put in place will be quite appealing to certain characteristics and as an example, the automotive industry where we think we'll be able to secure some pretty significant external business as well. We are being well received by the market and we have been getting very good reviews of our facilities as our automotive customers have come in and done their initial quality audits and process audits through our facilities.

Okay. Housekeeping question, Barry. You had indicated there was a one-time charge for purchase accounting in OpEx in Q2 that would repeat in Q3. How much was that exactly?

$0.5 million. We had a value of the back order for Global Thermoelectric and it was about $900,000; half of it with amortized in this quarter, half will be amortized in third quarter.

Was anything else one-time in nature that increased the operating expenses this quarter or is this just sort of the new run rate maybe less that $500,000 given Global?

You asked is there anything else that increased that. I think the main one-timer that actually is a benefit in this quarter is the currency, it continues to be good news for us. There was obviously the things we said, one-time negative things, which were primarily the purchase accounting items. But other than that, nothing significant.

So, this should sort of be the new operating expense run rate going forward?

That's correct.

Okay. And then last question and I'll hop back in the queue. Just kind of touching on the Ukraine, it sounds like chance of disruption there is very, very remote. But if I'm correct, you guys have built in 100% or so redundancy or can very quickly if you needed to in your other facilities. Is that right?

We certainly have taken steps and measures to try to bolster our ability to satisfy our European customers' needs. That includes new capital allocations and capacity allocations as we see needed in the future. So we believe we have a reasonably conservative approach to what could happen, but again based on all the information we have and I have a nearly daily call with folks about how things are going in Ukraine, but it's something that we feel comfortable with our position at the moment. The situation changes as those of you who subscribe to CNN know, things change there every day. It's not a good position for any people or economic region to be under where you have rebels or terrorists or Russian separatists or whatever you want to call them causing trouble in the region. So we are far from the conflict, we believe that we are currently in a good stable position, we have taken all rational and reasonable measures to protect our customers' flow of material, and we are continuing to monitor the situation. So, I think we're okay.

Alright. Thank you.

Gary Prestopino, Barrington Research.

I'm new to this here. But first of all, do you usually give a breakdown of the revenues by category like either seat vent, seat cooled or is that something we get out of the Q?

No, it's in the earnings release.

It's actually in the earnings release.

Okay. I must have not gotten all of my pages, I will go back and check that. And then just going back to this whole issue with the gross margin. Could you just elaborate on why a couple of quarters ago it was at 26%, 27% rate or it had dropped down, was it something to do with actual auto production or something to do internally with what you were doing?

There's three main factors, Gary. One is just simply covering fixed cost, we have much higher revenue than we did three quarters ago so that helped. Secondly, we had the benefit from the currency we mentioned. And thirdly is the mix; if you see again, the Climate Control seats has gone now and it has a higher number than we see in just automotive seat heating and it's been a help for us. So, it's a combination of things.

It is a combination. But again, I hate to keep relying and hammering on our strategy. But one of our kind of overriding strategies within the companies are to expand the availabilities of our more technologically advanced products like the Climate Control Seats and the heat vent systems over the more commoditized seat heater business and we've been quite successful at that in terms of gaining access to new customers through our new alliance with our more broadly global company and we've been quite pleased with the response to that. If you'll note in the first quarter, we said that was the first solid quarter where we had a full quarter where all of our revenues for the CCS products were higher than the traditional more commoditized heater business and that trend continued in the second quarter and we're working very hard to maintain that proportionate relationship.

This is Bud. The second part of our long-term strategy, which you talked about, is to acquire new business and grow the business and keep our operating expenses growing more slowly. So, we kind of grow into a more efficient operating model and that part is also coming home.

And then I just reiterate, mostly hear you that you said you're comfortable with the $200 million plus run rate over the next couple of quarters?

Definitely one of our key goals is to try to establish kind of a new plateau of revenue for our business. We work very hard to get in position to do that. The team is ready, we've expanded our facilities in China and in Mexico, we've added facilities in China for electronics and Mexico for our electronics businesses. We've also acquired a very good business with Global Thermoelectric out of Calgary, Canada that will also be contributing and continuing to grow as a business as we move forward. So yes, we like that $200 million run rate right now.

Okay. Thank you.

Frank DiLorenzo, Singular Research.

Good quarter. I have a question regarding your products in the automotive market. You seem to have done a good job of penetrating the mid range of the automotive space. I was wondering what your thoughts are longer term about making more inroads into the lower end of the automotive market for your products. Thanks.

Well, we have three product categories that we're focusing on in the main seat comfort business. The high-end vehicles, the more luxury or the consumer who is very keenly interested in comfort and convenience target our heat cooled and heat ventilated business. These products are very sophisticated, they are technically complex to try to deliver, and they also provide a very, very good time to comfort type of ratio in terms of cost. For the entry-level product lines, we have seen the seat heater business now migrate pretty far below the average mid-range vehicle lines.

So, we're beginning to see some of the entry-level businesses pull in the heated seat elements as a part of our business and we continue to try to work with our customers to find adaptations of those products to go down. Broadly, we also see that kind of the broader mid-range market for us will be a very kind of an ideal sweet spot for us for our heat ventilated product, which is kind of a step between the heat cooled and the basic heated business. So we don't really have a hard plan to go into the very low-level entry-level automotive market, but we do have plans to saturate and spread out as much of the upper end and mid-range market as possible and that does take us down into a little bit of the entry-level market with our heated seat product.

Okay, great. Just one other quick question. Europe seemed to be pretty strong this past quarter. Do you have any insights longer term if this is a trend that is going to continue or if this maybe is sort of a one-time thing you're seeing in the middle of the year? What are your thoughts there? Thanks.

I'm sorry, your phone kind of [blurped] on me and I didn't hear what you're --.

I apologize. My question was that Europe seemed to be pretty strong in the second quarter. I was wondering if that's temporary or you think this is the start of a more positive trend for the European space?

Thank you for repeating. I'm sorry. I have (inaudible) sometimes I listen that way as well. We've seen some very good response out of our European unit. The market is beginning to turn around there. We happen to be very strong in the German market, which has a very high concentration of global luxury car manufacturers and they are continuing to have a very good year selling their products out of Europe into North America and into Asia. Broadly throughout Europe we are also very pleased with the response of the rest of Europe to our product offerings and we're beginning to see new market penetration into some of the new areas that our alliance and our full market product assortment has allowed us to pursue in the European market in the past couple of years. So, we think that is the beginning of a kind of a longer-term trend and we do believe that the European economies are beginning to recover a bit in the automotive sector as well.

Thanks.

Rob, see any more questions?

Chris Van Horn, FBR Capital Markets.

Would you mind just giving us an update on kind of the new products strategy around kind of the steering wheel, armrests, the [chill] box? And then just kind of follow on on that, any new opportunities you're seeing for the seats maybe moving further back in the vehicle or even to the third row or maybe any other applications outside of a passenger vehicle for your seating products? Thanks very much.

Well, our strategies for new products are to try to find applications where either our existing technologies or our skills and thermal system management would be advantageous to our customers. We've taken the basic seat heating and cooling technologies and adapted that to heated and cooled cup holders. We've also adapted it to cold storage bins. We have very good customer, sales revenue right now, and new customer inspection or approval process undergoing globally for those products. We are seeing a very positive response for our new heated steering wheel product and of course as a result of the fact that we're now resident in the steering wheel area, a lot of people are asking us for a heat cooled or heat vent steering wheels so our advanced teams are working on that as well. But in general, we try to find something that we can do that would help our customers sell their products or make their products more comfortable or convenient for the consumer and that is part of our strategy to try to expand the range of products.

And then just quickly if you could, is there any new opportunity for the seats that you're thinking about, like I said maybe moving further back in the vehicle or any other applications out there for them?

That is a part of a normal kind of the cascade of technology down through the automotive world. We originally designed the seat heating ventilating and cooling systems for the front seats, but we are seeing many programs now. Forget how many it is. We have over 10 programs where we also offer the heated and cooled seats in the rear seats of many cars. The new Range Rover has all seat options available with heating and cooling in it and many of our traditional luxury and mid-range vehicles are now offering heated elements in the front and rear seats. So, that trend is very good for us. We're also continuing to look even outside of the traditional automotive market for applications for seat heating and cooling including some industrial applications and other forms of transportation. So as we continue to push into these new markets, we continue to stress not only existing technologies and product packages, but also new things as well.

Great. Thanks again.

Steve Dyer, Craig-Hallum.

Dan, can you give any commentary maybe on now that you've digested Global for a quarter here kind of what you found and sort of it did I guess $8 million and change this quarter? But any thoughts on revenue contribution from that going forward?

We actually haven't tried to digest them at all. What we've done is we've made an investment in a very good solid company that exploits thermoelectric technology and has deep relationships in the oil and gas and other industrial markets providing what we would call remote power generation. So what we found when we got there was a very good team of people. That's the number one thing. We always invest in businesses based upon what we see in terms of people. They have lots of very good solid products that have been tested and that have been delivered with extreme high levels of quality and endurance and a very tough environment. The oil and gas field businesses are notoriously difficult to survive the environment. And we see an opportunity for a business that currently is at let's say a low to mid $30 million annual run rate that has the capacity to expand with a little bit of help in terms of technology, global reach, and even perhaps a little capital investment. So we see a very good team, a very good product line, a very good market; and we think that that's going to be a good path for growth for our combined companies going forward.

That's a good segue so speaking of capital investment, it's been a CapEx heavy couple of years as you guys invest for the growth that you're experiencing. What sort of a normalized number or how do you think about the CapEx number this year and then maybe again next year, just ballpark?

I think that our current run rates, we did invest a lot of money in the former WET businesses as we came in, they were pretty tight to capacity and we had very strong growth goals in mind for all the businesses including bringing into our own manufacturing facilities some of the previously outsourced materials that we used to market for the old Amerigon site. So, we cheerfully invested in these businesses and expanded the capacities to be able to support our global strategies of growing the business at least 10% to 15% per year. So that has run our capital rate at a slightly higher than normal rate for the old Amerigon, but it's a very sustainable rate and we're quite pleased with that rate and we see somewhere between that $25 million and $30 million as a good solid rate for us.

Alright. Thanks, guys.

Eugene Fox, Cardinal Capital Management.

My questions have been answered. Thank you.

Alright, Rob. We're running a little long on time. We don't want to halt any questions. If anyone else has any additional questions, please feel free to dig through the press release and the 10-Q will be available very shortly and if anybody has any questions, we'll refer to that. Rob, any last questions?

Josh Goldberg, G2 Investment Partners.

One on the heated steering wheel, obviously 40% growth seems like you're gaining some traction there. Could you give us any visibility on do you expect that growth to continue and how big the heating steering wheel opportunity could be for you in the back half of this year and into 2015? And then I have a follow-up.

Actually, we've been working hard on kind of an innovative approach to heating steering wheels. It's been reasonably well accepted in the marketplace, we're quite pleased with the response to and adaptation of our designs. We see this as a very big opportunity for the Company. It also leads us to a heated vent or heated cooled opportunity as we go forward. So we're putting some resources into better understanding that opportunity as a business, but we see it being a big new product for us.

So, we'll continue to grow here, it's not kind of a one-time 40% grower?

We certainly hope not. I don't know that we're going to say it's going to grow 40% quarter-over-quarter, but it is an area that adds a new element of business opportunity for us and we plan to exploit it to as close to a saturation point as we can get it in the market.

Okay. And then obviously Climate Control Seats to continue to grow nicely and I assume that there's a combination of more designs where your Climate Controls Seats are installed as well as some of your seat heater designs are moving into Climate Control Seats. Can you talk a little bit about that like in terms of how much you think is coming from just open space where you're getting Climate Control Seat adoption and how much is it coming from moving from the seat heater to the CCS side?

Actually that's a very good point. Another key element of our strategy is that again we have those three basic categories; we have the basic heater element, we have the heat vent as a mid-range product, and the heat cool, actively heat cool businesses are high-end. For us and for our customers, we believe there's a natural evolution for particularly mid-range product customers that have been offering a seat heating element only. The natural transition or segue there is to move and add additional features and they can add a ventilation design to the existing seat heaters and provide a dramatic improvement in comfort and convenience to the consumer. So, we believe that over time the traditional particularly the up middle market customers will convert over from a pure seat heater over to the heat vent business. Many of the heat vent customers also likely will continue to convert over to heat cool. But heat coal is continuing to grow on its own as more and more of the high-end and luxury focused customers continue to adapt to kind of the very high-end customer comfort feature.

Assuming car sales are roughly flat even in the next year or two, you could generate growth as people migrate from heated seats to the Climate Control. I think the difference is like [2x to 3x] pricing, give or take?

Yes, that's true. We plan to continue generating some of our targeted 10% to 15% per year growth by this conversion. We're working very hard to make that happen.

Okay. One is on the tax rate, obviously a little bit higher than last year. Is there a number that you feel comfortable kind of going forward as the tax rate for the Company?

We had some extra charges in this quarter to catch up on some audits that we are working on. The actual rate is forecast closer to 27%, maybe even slightly lower.

For the year or just for the remainder of the year?

For the year.

So, it would be lower than 26% even for the rest of the next two quarters?

Yes, it will likely be a little bit lower than 27%.

Okay. Last one from me. Obviously it's been a great year for the Company and shareholders have been happy. And I don't want you to get too aggressive, but I feel like you've hit a new kind of level of growth and I know 10% to 15% is your [bogie], but it doesn't seem like you've stolen any of the growth for 2015 by having such a good 2014. So I feel like you're definitely on your way to another strong double-digit year in 2015, I just want to get your thoughts on that with some of the new products that you have and obviously the opportunity in Global Thermoelectric.

That's actually something. Growth comes in waves, you work very hard and some of the things you work on kind of come out in a very planned and orderly fashion. 2013 and 2014, we've seen lots of our hard work done in the previous three years come to fruition at kind of a very tightly focused spot. We're very happy with that. We've been able to manage that so far reasonably well even running our factories it pretty close to overheated range as we continue to have to look at our expansion plans as we go forward. We continue to think of our business as something that we want to grow 10% to 15% a year. We will not be growing our business at the 20% to 25% a year run rate that we're at today, but we still see a very good solid business and we've had a very good half year so far. We haven't had a full year, we've had a good half year and we think that year has established us at a new plateau of $200 million a quarter. That's very good for us and we want to see that solid growth of at least 10% to 15% in all segments continue for 2015, 2016 and beyond.

Got you. My last one from me if that's okay. Is there anything kind of one time that got your revenue to $206 million this quarter and then it will proceed down in the back half of the year? Usually your back half of the year is reasonably good in terms of growing sequentially?

We certainly don't see our business going down in the second half of the year. There are still some opportunities for us and we plan on as you kind of think you might have seen from our earnings release, we have indicated that we believe that we'll finish the year in excess of 20% over 2013. So, we do still see a very good solid second half and that is the basis for our going forward in 2015 and 2016.

Okay. Congratulations and thanks again.

(Operator Instructions) Jeff Bernstein, AH Lisanti.

Congratulations from me as well on a good quarter. You cautioned a little bit last quarter around Ford's F150 transition. Just wanted to hear about what the impact was if any in this quarter, what do you think it might be for next quarter?

There was essentially no impact in the second quarter. We were cautioning the fact that that might impact the third quarter and maybe the fourth quarter in a slightly different way. So, the question was we've had a very strong first quarter in the F150. That business continues to be strong, but there is a major changeover coming and it's beginning now actually. So, we will not know how that will go until they start the lines all back up at full capacity and full speed and the new product hits the market and that will be happening during the third quarter.

So far, so good.

And just with regard to Europe, I think we've talked about in the past and you alluded to this in your comments that a lot of your European business has been for the luxury exporters and actually does not end up getting purchased in Europe. Can you size that at all and has that changed much at this point?

That's a very good question and I may have misled the world here. The primary luxury car producers in Europe are concentrated in Germany and something slightly under 50% of their production gets exported. So somewhere between 50% and 60% of the products that they produce in Europe are sold and consumed in Europe. But a very healthy margin or percentage of their business goes oversea targeting China and North America in particular. And so we benefit from their brand names being very strong as a global brand as opposed to just being a European brand where they are limited to selling in the European market. There are other customers that are much more European centric, these companies are primarily in France and Italy and England. But we do have a strategy to try to increase our penetration at the non-German markets as well.

So at this point the headline European number that we see, we should probably be thinking about maybe 60% of that actually being consumed in Europe?

That would be I think a good reasonable safe number, yes.

Okay. And now you did allude to that you think you're getting some traction with some of those Italian and French manufacturers, but that has not changed things significantly at this point?

We're beginning to see some progress. So we're beginning to see some revenues from some of these markets, more significant revenues outside of Germany than we ever had in the past.

Terrific. Thanks so much.

We better be coming to the end of the call because we don't know much more.

Michael Schneider, Artisan.

Can you just update us on your progress with the German OEMs? You've laid out before that there's a big opportunity to take those mid-range customers into the actively cooled area, could you update us on that?

For us the process is gaining the confidence of the teams, working with the advanced engineering and product planning teams, and providing technical support, components, prototypes, testing that helps them see the advantages of our products over any alternatives. We have a very solid team of engineers and technical support people working with these German manufacturers, people who have in many cases 15, 20 years of experience of working with these same companies. So, our progress is we're very pleased with the response and the reception that we are receiving and we're getting more and more engaged with these teams and explaining a very broad and technical product to a bunch of very keenly technical consumers. So I'm happy with the progress, but one of my jobs is actually to worry about everything and to be sort of impatient. So I would have rather seen some more practical response, but we are making very good head roads and we have continued to build very good relationships and very good working knowledge with each of these key customer targets.

Would you expect to announce a platform win or a new OEM this year?

I'm an optimist kind of guy, I don't know that we would see any announcements this year because the typical response in the industry is our customers do not allow us to announce a decision that they've made until their product is coming to market and that process does take in many cases a couple of years to get ready. So I'm not going to tell you whether we're going to make an announcement this quarter or third quarter out, but we are working very hard try to gain that new penetration.

Let me rephrase that. Whether you announce it now, would you expect to win the platform or new OEM in Germany yet this year?

I do expect to win European contracts for all of our product lines and I don't really give the teams a time target to achieve it. I give them long-term strategies that we want to achieve and I give them whatever resource is necessary to make that happen.

Thank you.

There are no further questions at this time. Would you like to make any closing remarks?

Yes, we certainly would. We have finished the first half of a very good year. Our revenues have [grown] very, very nicely and we've had some very strong progress across the board in all segments of our business. We also have added a new team of people and a new branch of products and a new market for us with the acquisition of Global Thermoelectric, we would like to welcome them and their teams to our family. We have 8,400 people working worldwide including thousands of other people at all of our partners and vendors who help us support the business. These folks have worked very, very hard in the past few years and certainly in the last six months to achieve these results that Barry and I get the pleasure of sitting here and telling you about. So, we are very pleased and very proud of the performance and we are now challenging them to finish the year strong and get ready for 2015. So, we like to thank everyone for your time and attention and we invite you to come back in about 90 days to hear how things are going in the story of Gentherm. Thank you very much.

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.