Gentherm Inc (THRM) 2016 Q3 法說會逐字稿

Greetings and welcome to the Gentherm 2016 Third Quarter Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce our host, [Kevin Dorothy], Investor Relations for Gentherm. Thank you, Mr. Dorothy. You may begin.

Thank you, operator, and good morning, everyone, and thank you for joining us today. Gentherm's earnings results were released earlier this morning and a copy of the release is available at gentherm.com. Additionally, a webcast replay of today's call will be available later today on the Investor page of the Investor Relations section of Gentherm's website. During this call, representatives of the Company may make forward-looking statements within the meaning of Federal Securities Laws. Statements reflect current views with respect to future events and financial performance and actual results may materially differ. Please see the Company's SEC filings including the latest 10-K and subsequent reports for discussions of various risk factors and uncertainties underlying such forward-looking statements.

During the call, the Company may discuss non-GAAP financial measures as defined by Regulation, SEC Regulation G. Reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures are included in the Company's earnings release. On the call, we have Bud Marx, Chairman of the Board; Dan Coker, President and Chief Executive Officer; and Barry Steele, Chief Financial Officer. Management will provide a review of the results after which there will be a Q&A period.

I would now like to turn the call over to Dan. Dan?

Good morning. Thank you, Kevin, and good morning and thank you everyone for joining us today. We had a pretty solid quarter, not fantastic, but good. And before we start, I'd like to comment a couple of things that have been in the news lately. The first is the auto industry is notoriously cyclical, and those of you, who have been watching the news, know this last week that Ford Motor Company has made announcements that they are reducing production for the fourth quarter. This is a result of diminishing demand, particularly for some of their pickup trucks and SUVs. We have seen in the last 30 days, a buildup of inventory in the North American marketplace. This is very significant for us because the North American marketplace is where we generate around 50% of our revenue.

So, as we look out into the future, we see a little bit of uncertainty in our core market, the auto industry, on a global basis. In fact, Barry is going to give you some details in a minute, but several of the major auto markets have shown softening. As early as the second quarter, we saw continued signs of strength and there are economic underpinnings that would indicate that there is still strong consumer need for vehicles on a global basis, particularly here in North America. The average age of the fleet continues to be at all-time record highs. But the economic uncertainty, in this case in the US, political uncertainty, I think, has put a damper on demand for autos. The auto cycle is typically five years in length and goes up and down with its own little cycles. We have seen a very robust recovery from the 2010 global economic and auto recession, where the volumes around the world dropped to record low levels. As an example here in the US, run rates went from somewhere around 17 million units, 18 million units down to about 9 million units in a matter of months. We are not forecasting anything like that, but we do see a slowdown in the overall demand globally, specifically here in North America. Because of this, we have adjusted our outlook for next year to indicate instead of our normal 10% to 15% revenue growth, we are anticipating 5% to 10% revenue growth. So, that will be one of the things we're talking about today. We wanted to make sure that people understood where we were with that.

The second thing that's important to mention, I think, is that the competitive landscape is always very aggressive in the auto industry. There had been a couple of things in the news lately talking about competitive aspects to products that are being introduced to compete with our core product, the Climate Control Seat systems. We have seen many of these concepts. Early this year, I think it was April or May, Magna released at one of their earnings conferences, an indication that they were working on a heated and cooled seat design of their own design and that that was a product that was anticipated to be coming out sometime in the next, I think they said, five years to seven years. But it would certainly be three years to five years away from the market.

We are aware of this concept. It's also something that's very similar to a concept that is now being looked at by Lear Corporation and that has been developed by a company called Timtronics in Tucson, Arizona. These systems rely on thermal electrics for heating and cooling, but they use a completely different approach than our system that's been in the marketplace for over 50 years. We focus on convective energy, they focus on conductive thermal energy. So, we see these systems, we know what they are. We're aware of them. We also are aware that there are challenges that have yet to be overcome to introduce these and get them ready for auto production, but we are aware of them and we see them in the marketplace and our product continues to evolve and improve and become more efficient on a daily basis.

So, with all of that said, we want to make sure that we have an opportunity to get a lot of questions in and I know that Barry has a lot of details that he's dying to share with you. So, I'd like to turn the call over now to Barry, and then after Barry speaks, we'll open the floor for questions. Barry?

Thank you, Dan. Thanks to everyone for joining us today. Our revenue in the quarter grew by about 4% to $232.6 million, which was an increase of $8.8 million. This included $98 million or 5% in higher sales from our automotive segment and $14.9 million in new revenue from the company we acquired earlier this year, Cincinnati Sub-Zero or we like to call CSZ. These gains were partially offset by low revenue from Global Power Technologies or GPT, our remote power generation subsidiary that sells into the energy sector. GPT's revenues were off by $16 million. This softness was caused by large project deferrals, similar to the previous two quarters, but was more pronounced in this quarter due to the fact that a significant amount of GPT sales in 2015 came in the third quarter making for a very difficult comp.

In the automotive segment, we had double-digit revenue increases in seat heaters, steering wheel heaters, but slower growth in our climate controlled seat products. As in the prior couple of quarters, the impact of new program launches have been less significant than prior years due to a number of reasons. When we launch new programs, the amount of new revenue that we see can vary due to timing of the launch, success of the vehicle in the marketplace, [tight fill] at our customers, option application rates and our customers' decisions on marketing and pricing of option packages. The 5% growth in our automotive segment continued to outpace that part of the automotive industry where we have our greatest presence. Half of our revenue comes from the North American market, which according to IHS, grew less than 2% during the quarter. Additionally, automotive production in Europe which represents about a quarter of our automotive revenue actually declined about 2%.

Automotive production in Asia, which was much higher, nearly 23% increase for the quarter, but this growth was mainly in China, a region which produces vehicles with much lower comfort and convenience content. Most of our revenue in Asia is the customers in Japan and Korea, which also showed a decrease in production volumes.

Our preliminary revenue forecast for 2017 indicate that we will continue to see high single-digit revenue increases, but the growth will not be from the same product sources. For example, CCS growth will experience some headwind, as some of our customers, which in the past had only developed active heated and cooled climate seats for their vehicles, begin rebalancing their product offering between heated and cooled seats for their luxury cars versus lower-priced heated and ventilated seats more appropriate for their mid-range vehicles.

Other existing products will then represent a more significant part of the growth, such as the continued rapid increase in the heated steering wheel product, some recovery for GPT and some nice growth coming from CSZ's medical business, where we are expecting benefits from some product improvements, new products and a boost from a change in our sales strategy that involves hiring a direct sales force to take the place of independent product reps. In addition to these benefits, during the fourth quarter of 2017, we will see some early revenue from some of our more advanced new products such as the thermoelectric-based battery thermal management device or BTM as we call it. After 2017, new products will be the catalyst that boost our growth back to double-digit range. We are making the investments in these new products today which come in the form of capital expenditures to expand production capacity and spending on engineering and development resources, that brings me to our operating expenses, which totaled $49.3 million, which was again significantly higher than the prior year quarter, but about the same as the second quarter of this year.

About half of the increase in operating expenses, which totaled $11.8 million or 31%, came from new operating expenses from the CSZ acquisition or about $5.4 million, most of this on the SG&A line. The rest of the increase comes in the form of investments or higher development costs for many new product initiatives, some of which we have announced like the battery thermal management and electronics products, some of which we have not announced, or for overdue improvements to our business systems. About $12 million of the total operating spending is attributable to these initiatives and activities. Just to be clear, that's not the increase in the prior year, but the current rate of spending for these investments, whose benefits begin to hit the topline in 2018.

The new business systems by the way include both the human resources information system, which will help us grow and develop the talent of our team members, and a new product lifecycle management system, which is needed to increase our product design and development capacity. Both systems will also drive improvements to our efficiency and productivity of this critical function. The spending for these two infrastructure projects were about $1.3 million during the quarter, about half of this cost is for implementation and will increase during 2018, after which as the installations are completed, the cost will then decrease.

All of these investments will continue to be financed through our current operating resources. So far this year, we generated $71 million in operating cash flow, although we also spent about $50 million in capital expenditures. The capital expenditures have primarily been driven by capacity expansion for new manufacturing facilities and production equipment for some of the new products. At the end of the quarter, we had a very low level of net debt leverage with [$132 million] in cash and $142 million in outstanding debt. We also had $125 million in available borrowing capacity under our revolving credit facility, bringing our total available liquidity along with the cash to $258 million.

That's all I have, Dan.

All right, Barry. Thank you for your usual comprehensive report. Operator, if it's okay, I think we'll open the floor for questions.

Thank you. (Operator Instructions) Matt Koranda, Roth Capital Partners.

Just wanted to start off with the preliminary guidance for 2017 and wondering if you could maybe discuss the sensitivities around the 5% to 10% growth that you've guided. So, I assume that you've won most of the platforms that you're going to win at this point in the automotive segments or the X-factors mainly take rates and then adoption on the program level within those platforms. Just talk about the visibility that you have into that figure.

That's exactly right. We have pretty much won, all we're going to win for next year. The variabilities are exactly that, when the launch dates are, take rates occur and the success of these vehicles in the marketplace as Barry has pointed out. We had seen some experience during 2016. Early on in this year, we saw some program deferrals and that's another thing that hurts us in being able to pinpoint exactly what we think our revenues are going to be. Matt, as you know, we're not exactly what you would call us [SAAR] Company. We don't really directly depend upon the number of vehicles being produced in the world. We are a comfort and convenience items that is usually targeted toward the high-end and the upper-mid range vehicles. When these kind of stresses appear on the marketplace, a lot of our customers, the OEMs in particular on a global basis, tend to react in a very conservative fashion; that means they don't push to roll out new vehicles, they don't spend a lot of money adding new features to new platforms and they tend to be very shy about what they see in the future. We are seeing some of this right now from Ford Motor Company and GM as production schedules this week have been reduced for the fourth quarter and that's an indication that the demand is softening here in North America. So for us, that was enough of a trigger last week when we saw the production schedules coming from Ford and GM that we felt like we had to make sure that the market understood that 2016, 2017 are going to be bumpy years and that we have to make sure that everybody is aware of that. When we see schedules, we make sure we try to let you guys know what's going on. So, that's why we reduced our guidance from our normal 10% to 15% revenue growth down to 5% to 10%.

Matt, I think I would just add to that that it's not just the automotive business we have, we're counting on a little bit of recovery for GPT, although if you look at our range, there is some flexibility in that. And our medical business for Cincinnati Sub-Zero, there's a change we're making to put direct sales force in place. We're pretty sure that will have some good benefits fairly quickly. It will cost a little bit as the sales force will be actually on the payroll, but it will -- we think that will have pretty good benefit. And there are some other things happening in that business that will show some growth in the near term as well.

And that's an extremely good point that Barry makes about global power. A lot of our sales issues this year, our revenue issues this year have been having direct result of the weakness in the oil and gas industry where our global power unit has been struggling. In fact, as Barry pointed out in his comments, there was a $16 million quarter-to-quarter miss this year in terms of revenue and that's very significant in one quarter. And we are beginning to see new orders coming in for this division for 2017 and 2018. So, we're beginning to see some strength in that area and that brings a little bit of confidence back that area may be recovering slightly.

Just one more thing on 2017. Dan, I think you mentioned there were some launch delays that happened earlier this year. Is there anything in the guidance for 2017 envision, you guys picking up those delays or not picking up the delays, but essentially recovering those delays in 2017, are those factored into the 2017 guidance?

Yes. We believe that these programs should come back on. That's what the customers telling us right now and we've got those booked.

And then I wanted to touch on the CCS growth rate, if we could, for a second. It looked like roughly 2% year-over-year and I know you guys have kind of called out this shift over towards heated and ventilated away from heated and cooled. Is there any way to break out or just qualitatively at least talk about the growth rates relative -- the relative growth rates of heated and ventilated and heated and cooled within CCS?

Yes, there is. As we predicted for the last five, actually maybe even 10 years, the last five years for sure, there is a huge upside to the heated and ventilated business on a global basis and we see that as being a very strong driver for growth for us for the future. Heated and cooled is still, we believe, a very solid growth rate, but we believe that is going to be much more targeted towards the high-end luxury market. And we believe that the heated and ventilated systems will become much more prevalent in the mid-range vehicles. So, as Barry pointed out in his comments, many of our customers had been exclusive CCS products customers and that product goes on not only their high-end vehicles, but a lot of the mid-range vehicles. As we mentioned, with economic pressure, a lot of those customers are now looking to rationalize the product offering and we believe that they will offer both heated and cooled, and heated and ventilated systems. So, looking forward, CCS growth will moderate and we believe that the heat-vent systems will become much more prevalent and much more popular, particularly in that mid-range area, where we see a lot of increased interest and strength. The car companies are beginning to accept the concepts that we had [exposed] for years that the seat is an excellent delivery point for thermal energy inside the cabin of the car to provide increased comfort for the seat occupants or car occupants. The car companies are now beginning to work with us on concepts of being able to expand the use of heated and cooled, and heated and ventilated systems as a part of the overall HVAC strategy, something that we've been calling for years the zonal heating and cooling. And we believe that that has a lot of strength under it and in coming years, not next year or the year after, but in coming years, we think you're going to see a lot of activity where the seat systems will be integrated with the HVAC systems as well.

Matt, I would add to that, just say that it is a lower price system generally, although sometimes that amount of content we get can (inaudible) to a certain extent, but we get similar margins. So, our value add is similar and so we're able to comment about the same nice margins in that business. The other thing is that we talked about -- Dan talked about new technologies that other -- some of our customers are exploring. We have new technology, new ideas and new [specs of] systems that we'll be introducing in the future as well. So, we've always worked on CCS to make it better and we'll continue to do that.

Just a follow-up to that. I mean CCS moderates overall, but heated and ventilated is accelerating. I mean is the natural conclusion here that heated and cooled is going to be flat year-over-year in terms of growth on a go-forward basis or how do we think about sort of just the relative growth there?

Well, it's easy to say that the heated and ventilated system growth will certainly outpace the CCS systems. There are situations where CCS that are currently on mid-range vehicles will be replaced by heated and vent. So, yes, there will be pressure on the CCS growth rates and some of that will be picked up by the heat-vent systems, but there will be continued growth available in the future for us for heated and cooled, but a tremendous opportunity for heated and vent. This is one of the reasons that we acquired our partners at WET. They were the world's largest manufacturer of heating elements and the best manufacturing company that we can find in the world to help us build all of our products. We now have the best heated mat in the world and that coupled with our very specialized fans and blowers and air distribution systems had allowed us to introduce in the last couple of years, a very, very competitive heated and ventilated system that is specifically designed for vehicles where power is an issue and the mid-range vehicles always have a difficult time with their power budget. The heated and cooled seats draw quite a bit of electricity and that has to be generated someplace. Mid-range vehicles don't have that type of electrical capacities, and so having a heat-vent solution is a very big advantage for us.

Maybe just one more on the CCS front. Is there anything to sort of the idea that OEMs could potentially be de-contenting vehicles on comfort items in favor of increased connectivity. So, are you hearing anything from your OEM customers that, look, they've got a fixed dollar amount to spend and need to shift some of that spending toward more connectivity and telematics relative to some of the comfort items like the heated and cooled seats. Is there something to that thesis at all?

I don't really see or hear a lot of that type of conversation, in fact we actually see the opposite, a lot of people are asking us how we can get these types of products in future vehicles. But I don't think that's really that type of budgetary type of decision. If there was any budgetary discussion, I think it's focused on getting the mid-range vehicles, power budget and cost budget. As Barry mentioned, the heated and ventilated seat systems are several dollars cheaper per unit than the heated and cooled systems. So, I don't think it's really driven by needing to spread the money to other areas and we don't really have anybody looking to drop heated and cooled at all, but we do have people looking at adding heating and vent systems.

Just last one from me. And you guys talked about Timtronics in the prepared remarks, but just wanted to, I mean the heart of the matter just seems to be that OEMs need to -- really requiring you guys to kind of boost efficiency and lower costs here, but in particular I'm really curious as to what you guys are doing with future generations of both your heated and ventilated and heated and cooled product to drive better efficiency. Are there step changes that we can expect in the next iterations of your products that will enable you to sort of compete with the potentially lower cost solution? If that lower cost solution ever does make it to the commercial phase?

Well, the answer to that in a broad sense without sounding like Donald Trump is that we have constantly -- if spectacular things come, we've got some really big things that we're working on. Barry alluded to the amount of spending that we've had. We're putting a lot of money in R&D. We always spend a lot of money on R&D because we are a technology company, that's what we do. We're making our technologies better. And we have some concepts and ideas that we're working on that we have not talked about that I believe will greatly enhance the attractiveness of the heated and cooled seats in the marketplace. And when those get introduced, they will be quite significant and I think they will -- we will continue to prove that we are the leader in this segment and we are the technology leader by far.

A lot of the things that are being looked at and talked about today have some serious packaging issues and frankly we believe they have some serious cost issues that they have to deal with before they can even come into the marketplace. We've been in the market for 15 years, we're really good at doing this. We're very significant in terms of our strengths in terms of packaging and we're very flexible in terms of what we -- what space we need and what area we need in the seat to be able to perform well. A lot of the other ideas that you are hearing about in the market have yet to be able to be qualified to go into automotive OEM production. Many of these are cost challenges and are also very serious packaging challenges.

Just last follow-up that I have to ask in terms of -- you mentioned some of the new concepts that could potentially be very attractive and lower cost. Any sense for timing, can you put a time frame on that?

You mean for us?

Yes, for you guys?

Yes, well, you've just quoted Donald Trump, you quoted me wrong, I didn't say they were lower costs. I said that what we're trying to do is to find better solutions and that includes better technology, easier packaging, more power and we are always concerned about costs. So, we believe that those products will be in the market in the next couple of years.

Matt, maybe I could say it in a different way, we do see ways that improve the product significantly without increasing the cost, a competitive advantage I would say to other things that are being shown in the marketplace today.

Obviously, Matt has used up his quota and moved out of line.

Christopher Van Horn, FBR & Co.

So, I just wanted to -- I wanted to get into the heated seat and the heated steering wheel business because those were the highlights for us in terms of seeing the growth in the quarter. Is that new platforms rolling out or higher takeaway rates for existing customers? Could you quantify maybe the split of what you're seeing in those two businesses?

This is a combination of both. It has been a strong segment for us obviously, but we're seeing good strong take rates. I think it probably has to do with how many vehicles this product actually covers. Many, many more programs that you see in this space. So, there is strong take rate and there is some penetration in the marketplace that we'll be able to achieve and some more additions to rear seats and that sort of thing.

Steering wheel heaters have been strong for quite some time and we see that continuing for quite some time. Many, many more vehicles will have steering wheel heaters that haven't had them in the past.

And we're also seeing some recovery, a little bit of strength in the seat heater business in Europe which has been very helpful. And as Barry says, the steering wheel heater is a new product for us and we have a very interesting approach to how that product is applying to the vehicle and that has been very popular and we're getting lots of penetration and lot of support whenever we get into program. That is a very popular feature from the consumer side.

And then can you just quickly comment on the decline in other automotive, was it just a timing thing or was it maybe lower take rates kind of an adverse of what we saw in steering wheel?

Two main drivers there is in our comfort and convenience group we have a heated and cooled cup holder product. There was a program that balanced out. So that will be -- there will be a little bit of a period where we have a lower level of revenue there. But we just have a couple of new programs coming that'll be launched next year, I believe. I feel that will come back. They're also with a very small aftermarket business that we have that has tended to be a little bit up and down. So, that was a small part of that change.

And then just one final one from me. On GPT, I mean you're still booking revenues, right? And so, it's still kind of a recurring revenue type business. Is what you're seeing -- are you still booking new business in that category, is it existing customers just ordering more? And then, on that front, when you get an order in GPT, how quickly does it roll out to the revenue line? Thanks.

Well, there's a couple of factors and it's a very good question. GPT is kind of a hybrid business for us, it's a combination. They have part of their product line is what I would kind of call catalog list where they have standard products that have fairly short lean times and are typically used in like a service application for maintenance and repair type business. Another big piece of their business, which we're very excited about is what we call the custom area where the more system level approach is taken into a project, all the way up to including power management and distribution, actually vehicles and buildings that are produced, and many of these have long [lean] times. The order log that we see right now for GPT is very solid and is building. So, we're seeing strength coming back in. GPT is very much a global business, hence the name global power. They are concentrating in new markets and new areas that are bringing new demand for our services around the world. Right now -- last year, Southeast Asia was hot and we took a lot of steps to get new business there. This year, we're seeing lots of business in South America, Central America and Southeast Asia. So, the business that we see for them is, it's a lot more unusual than the typical automotive business that you see. It was very clever of us to try to diversify out of the automotive business, but we happened to be clever enough to pick the oil and gas industry at a time when the oil and gas industry collapsed. We're beginning to see strengths in the gas market and gas pricing has stabilized and gas sales and exploration is beginning to pick up. That's typically where we do the most of our business at GPT. So in answer to your question, the order log is solid, it is building and we expect to see some recovery beginning next year.

Steve Dyer, Craig-Hallum.

So, CCS has been beaten to death, I think, but just a question as it relates to margins, this mix shift from heat-cool to heat-vent, does it have any impact either positive or negative or otherwise on the margins or is that just strictly kind of a revenue headwind?

It's certainly a revenue headwind of types. But even when I say that, there is a definite price difference between heat cooled and heat ventilated product. But the lower price allows the heat vent system to sell in much more significant volume than the heat cool does in a mid-range vehicle. Those cost savings are actually very significant in terms of what we believe the mid-range customer will take. In terms of the gross margin, the percentages are very similar. We have a very simple formula about how we like to supply our products to the marketplace. Although, that said, obviously taking a similar gross profit against a lower sales number, there will be some impact on the gross profit dollars, but the gross profit margin percentages are very similar.

So, with that said, gross margins were strong again this quarter relative certainly to the last couple of quarters. Is there any change to how we should think about that in terms of a range, I think you've kind of -- if I'm not mistaken, you've said kind of the 30% to 32% range, something like that and it was nicely better than that this quarter. Anything should change there going forward?

I don't think so. Actually -- what we actually say is that our gross margin targets are in the low 30s right now and that's where we believe that we've been able to stabilize. That ebbs and flows with quarter-to-quarter based upon product mix and customer mix around the world, we happened to have a pretty good quarter this quarter. We weren't that embarrassed by last quarter. So, we think that the margins are well within our targets and they are, I would say, well within our model and there is still room for improvement. So, we're working to try to find ways to get better cost improvements pushed to our systems, so that we can continue to offer our customers' price enhancements and still be able to make a little bit of money at the end of the day ourselves.

Steve, I'd add to that, now that we have GPT recovering a little bit in 2017 and the medical business growing, you'll see some -- [in term or] outside the automotive space, we're seeing a little bit better margins. So, that will help creep things up a little bit, but not that dramatically as we look to next year.

And then lastly from me. Your guidance both for Q4, but more specifically for 2017, does that anticipate any further production cuts or is that just sort of based on what they've told you as of today?

It's -- we believe it's a wide enough range to cover everything that we've been told so far. Obviously, if there is a [cash cut-loose] event and the markets all fall the hell in a handbasket, we're not going to be within this guidance. But we believe that what we see right now that number we gave you guys of 5% to 10% for 2017 is pretty solid and should be quite attainable for us. But we are giving -- but we always give a range because we don't know exactly what's going to happen, but we believe that it's going to be -- there's going to be pressure on the automotive industry and that's going to be something that we have to make sure that as a conservative Company, we prepare not only the markets, but also our own internal businesses. We're trying to adjust spending, we're trying to adjust our capital spending, we're trying to adjust our supply chain businesses to make sure that everyone is staged and ready for what we believe is going to be a bit of a period of pressure for the auto space.

(Operator Instructions) Gary Prestopino, Barrington Research.

Just in terms of your elevated expense levels on OpEx, is that something -- and I was trying to write down as you went through your narrative, Barry, but is that something we should continue to see throughout 2017 as well?

Gary, there will be some additional costs as we get deeper into the infrastructure improvements we're making which is the software systems, the business systems.

But those are fairly insignificant.

Yes, there's $0.5 million a quarter that sort of thing. So, I think that will be fairly steady. If you see increases, they're more likely opportunities that were seizing.

So, to answer your question, it will probably be fairly steady to where we are with a little bit of slight pressure for inflation and a couple of projects that were picking up in terms of infrastructure.

All right. So as we go forward, like your OpEx was about 21% of revenues this quarter. Certainly, it shouldn't be that as high next year?

Yes, what we're saying is that the run rate should be steady. We talk about maybe just increasing limit, but not about the percentage of revenue, we're talking about the actual spend, actual dollar spend.

All right. Steady on dollars. Okay.

So, the growth should be able to drop to bottom line little bit easier.

And then could you just explain something to us, we're kind of scratching our heads here. You said the CCS business experienced year-over-year softening, impacted by customer-driven timing decisions on incorporated products into certain automotive lines. Is that -- that really deals around with the take rates, it's not that they're not putting, I mean, in your product -- in the models. It's just the take rates or is there some issue with models you thought you were going to be on or you're not on, is that -- I'm trying to understand that?

It's more, Gary, the timing of expanding within our overall platform, one model to another. Also has a timing of getting on certain packages, what you call bundles or option packages features. It's not that a car vehicle program has been canceled, that was affecting us. It's more -- these decisions the OEM has about kind of broadly expanding it within an overall platform and different nameplates and packages, and it's what the end up with the take rate [end up being].

Just for our purposes, I mean why would they, if you are dealing with like, say, Chevy Impala, and there's all sorts of different like letters denoting different models, why would they push back on that? I mean it shouldn't be more of a selling point to even have this on the lower end cars -- lower end models of existing platforms?

Actually, Gary, here's where you are confused, you're using logic, and that doesn't necessarily always apply when dealing with some of our customers. That's exactly what a normal person would do. You would definitely try to add enhancements and features to make your product more appealing during the downturn. Most of our customers tend to go the exact opposite direction. And there's a good reason for that. It's an economic reason. It costs money to add a feature to a product line. If you're going to add something, it costs millions of dollars to do the preparation work and the testing and evaluation to make sure that that new feature is going to be perfect when it rolls to your products. So, the real reason that most of these people defer is because of that cost factor or the secondary reason is because of complexity of launch. It's a very, very complicated situation when you take 25,000 to 30,000 components and you have to put them together in two-and-half minutes absolutely defect-free. So, there's a lot of work, a lot of planning and a lot of money is spent getting ready to launch vehicles. As they get into this process, sometimes they find out they've overreached and it gets very complex and they pull back a few things to make sure that everything goes smooth on the launch and then they come back and add the additional features at the -- after the, what we call, job one has launched and stabilized, then they come in and add additional features.

Thank you. There are no further questions at this time. I'd like to turn the floor back over to Mr. Coker for closing comments.

Well, thank you. I think all of those questions were very appropriate and hopefully they illuminated some of the concerns and issues that people have had. Our stock has been under a lot of pressure beginning in the early part of the year when we saw the Magna announcement that a competing technology came up. We saw additional pressure when we were announcing the investment in Timtronics, which also has a potential competitive technology. But we continue to be the strongest player in the marketplace. We continue to be the technology leader. We continue to dominate the space that we're in. It's a position we've worked very hard to achieve and we continue to invest very heavily and work very hard to continue being the best answer when any of our customers think about needing heating and cooling. The example of this and this reputation that we've achieved is the battery thermal management products, which will be rolling out as Barry said with very small revenues beginning at the end of 2017 with very good strength in 2018, 2019 and 2020, where potentially $50 million worth of additional revenue came to us because of our reputation of being able to heat and cool devices in a mobile sense. So, we believe that we're on the right path. We do believe that we see some weakness in the marketplace and that's something that we have to address. So, we have definitely adjusted our outlook for 2017 to 5% and 10%, but we still believe there's lots of good opportunities in the marketplace. We are also continuing to see strength in our diversification efforts, where we have invested in industrial business that generates power remotely. We've also invested in an industrial environmental chamber business and we have a new medical products group.

Our Electronics business, which we didn't seem to talk much about today, is one of our great stars as well. We're seeing lots of interest and we are actually winning contracts today from outside customers to support their needs with electronic control modules and specialized electronic control devices. So, we believe that all of these things combined continue to make Gentherm a strong player and a source of future growth not only in the automotive business, but also in the industrial business in heating and cooling technologies.

So, we ask everyone to please join us again in about 90 days. We'll talk about our year-end results and we'll give more color and flavor on 2017. Thank you all for coming.

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