Gentherm Incorporated Q2 FY2025 earnings call

Key Performance Highlights

• Gentherm team delivered results in line with expectations, improved adjusted EBITDA margin vs first quarter by over 100 basis points, secured over $600 million in automotive new business awards in Q2 with $1 billion YTD. Secured significant award from Ford on F-Series platform, demonstrating strategic positioning as a differentiated solutions provider.

Strategic Growth

• Pneumatic, lumbar and massage adoption rates accelerating; lumbar and massage product line projected to grow from ~$175 million in 2024 to over $300 million by 2027. Expanded strategic partnership with DUOMED to enhance European distribution for medical business. Progressed new medical product development.

Operational

• Visited 5 manufacturing sites, performed workshops, shared best practices, and standardized business processes. Global strategic footprint realignment plans on track, expected to be substantially completed by late 2026. M&A funnel developed, evaluating opportunities aligned with strategic priorities and core technology platforms.

In the second quarter, Automotive Climate and Comfort Solutions revenue increased 3.8% year-over-year or 2.5% excluding FX, while Medical revenue decreased 3.8% year-over-year or 4.8% excluding FX. Second quarter revenue overall decreased 0.2% compared to the same period last year, with foreign exchange adjusted revenues down 1.6%. Automotive Climate and Comfort Solutions outperformed actual light vehicle production in key markets by 10 basis points excluding FX, though underperformed in Asia.

• Revised revenue range to $1.43 billion to $1.5 billion. - Adjusted EBITDA margin range narrowed to 11.7% to 12.5%. - Capital expenditures range reduced to $55 million to $65 million. - Q3 expected to be roughly in line with Q2 results despite industry reports of mid-single-digit decrease in light vehicle production sequentially.

Q: Nice quarter update. Let's start on guidance since you ended with it. You mentioned Q3 expected to be similar to Q2 results despite the industry decline of mid-single digits. Is that a different -- or I guess, is that a company-specific outperformance you expect given the visibility from new launches? Or do you have a different view from an industry production standpoint than where the forecasts are at?

A: Ryan, I think, I would say it's company-specific to you. I mean we do have a number of new launches that are going to come out in the third quarter really across the regions. But also, as we look at -- as we've talked about throughout the year, we've been very consistent from a customer production schedule standpoint. So the visibility we have here in the short term solidifies our view that Q3 looks a lot like Q2 from a top line perspective and expect the P&L to follow.

Q: One thing that I think really stood out from your earnings call last quarter was the large opportunity you saw in the nonautomotive end market. So it's great to see the awards already in powersports and commercial vehicles. Thought asking questions around that. Starting with powersports, I'm recalling an award early in the pandemic for heated and cooled seats on Indian motorcycles. Is that what you're doing as well heated and cooled seats? You mentioned utility vehicles. I'm not sure -- snowmobile seems obvious candidate. And then on the commercial vehicles, are these commercial trucks? And can you remind us what, if any, business you do today in commercial trucks? And then also on some of the less obvious adjacencies, thank you for helping us with furniture being another. I hadn't thought of that, but obviously makes a lot of sense. Did you mention another end market, too? I might have missed that. And then finally, you mentioned valves. And I just want to be clear, is valves separate from these other awards? I imagine that furniture, commercial trucks, utility vehicles, whatever, that would be heated and cooled seats. Is valves somehow different? And what are you looking at potentially supplying there, if not heated and cooled seats?

A: Yes. So let me try to take those. My team will keep me honest here on the number of questions. I think I'll hit them all. So let me just start with saying, look, our alternative -- our commercial vehicle is extremely small today, almost like negligible in the company. So the commercial vehicle wins that we're talking about here are specifically thermal solutions, and there were 2 awards on commercial vehicle. One of them is actually a heavy truck, so a Class A over-the-road truck. So that's a big win for us there. And the other one is a last mile delivery van. So both commercial vehicles, both good wins, so new wins for us. The valves specifically were in the powersports platforms that was separate of any thermal and pneumatic solution. And again, that was a good win. The team engaging directly with the OEM there. The valves for us, we view valves as a separate core strategy or a separate core technology platform, right? If you think back, we said we have 4 core technology platforms. They were thermal solutions. They were pneumatic solutions. There were valves and they were air moving devices. We view valves and air moving devices as catalog parts, meaning it's a flow equation and a dimension. So we go out to the OEMs. We show the value that we can provide, the performance that we can provide, and that's how we're trying to win, and that's what the team brought home this quarter. The other end markets that we specifically mentioned were 2-wheelers. So 2-wheelers would be applicable to our thermal solutions. They would also be applicable to valves. We're in some early proof of concepts, I would say, there with 2- wheelers. And then motion furniture is anything that's not stationary. That's the doors there have opened well. The communications there have been very positive, and we're in early proof of concepts with 2 equipment manufacturers in motion furniture right now.

Q: Just on the guidance, I guess I wanted to clarify that to hit the midpoint of the guide on EBITDA, it does look like in the second half, you do need to show a little bit of EBITDA margin expansion relative to the second half of last year. Should we expect that in the third quarter? Or is that more of a fourth quarter event? Maybe just the puts and takes around that.

A: Yes. I think just to clarify what we said, I think the -- we expect the third quarter to look a lot like the second quarter did. And so it should be similar from an EBITDA margin perspective. We will see an increase as we get into the fourth quarter, and that would be where we see more of the margin expansion. But really, we've got the teams focused on incremental improvements quarter-over- quarter, how do we get better in the factories from a manufacturing and efficiency perspective. And that's really what we're pushing on to see a better second half here.