Gentherm Incorporated Q1 FY2026 earnings call

• GenTherm team demonstrated strong execution in Q1, with efforts to improve operating system, seen in changes in operations across locations, increased factory floor space occupation and efficiency, and adoption of tools for financial rigor. • Initiated organizational realignment to reduce spans and layers for increased agility and focus on internal improvements and growth platforms. • Secured $395 million of automotive new business awards, with robust pursuit pipeline. • Made progress on organic growth initiatives, including key announcements with KUKA Home and new medical product Thermafix. • Officially launched and began supplying production parts to KUKA Home, and selected by a leading North American furniture brand for climate and comfort products. • Announced FDA 510 submission for Thermafix system in medical business. • Announced agreement to combine with Modine Performance Technologies, with work underway for integration, including establishment of integration management office and holding kickoff integration summit, and received HSR clearance.

Product revenues for the quarter were $394 million, a quarterly record. Automotive climate and comfort solutions revenue increased 13.6% year-over-year, or 9.8% XFX. Lumbar and massage comfort solutions grew 33% year over year. Revenue excluding foreign currency translation increased 7.2%. Adjusted EBITDA was $49.3 million, or 12.5% of sales, up from 11.1% in the first quarter of last year. Cash flow improved by $8 million year over year. CapEx purchases were $5.6 million, down $9.2 million year over year. Net leverage was 0.2 turns, and liquidity was $456 million.

• Maintaining full-year guidance with revenue between $1.5 and $1.6 billion (approximately 3% growth). • Adjusted EBITDA expected to be in range of $175 to $195 million (midpoint margin ~12%). • Revenue profile expected to be fairly even throughout year, but margins depressed in Q2 and Q3 due to inflationary impacts ($20 million incremental costs) and depletion of inventory bank bills. • Adjusted free cash flow estimate between $80 and $100 million, CapEx in range of $45 to $55 million (≈3% of sales).

• Macro and geopolitical environment has changed significantly, creating economic uncertainty. • Headwinds emerging globally, including direct cost increases in logistics (lane disruptions, fuel surcharges) and cost increases of petrochemicals and other materials due to processing-related costs. • Uncertainty in recovery of inflationary costs through commercial and operational initiatives.

Q: Morning, everyone. I guess I'll just start off with a question about the $20 million incremental costs you talked about. Can you just maybe provide us a little more color on how much of that passes through contractually to customers versus what you've got to go out and renegotiate versus potentially methods that you can offset that internally?

A: contractually, we're not on a simulator or escalator with any customers, just because the scale of what we buy in any one product isn't large enough to be meaningful to them. So we'll have to go out, Nathan, and we'll have to work through recovery mechanisms with the customers on all of that. And so you expect the cost to hit pretty much immediately, and it'll take a couple quarters to catch up with that pricing?

Q: Yeah, timing-wise, we expect the costs to start hitting in Q2. So, you know, we think Q2 is going to be a definition of recovery mechanisms with the customers that we agree to. And then there'll just be that timing disconnect where they'll start flowing in Q3, Q4.

Q: I guess my second question then, I'm going to ask one about the internal operating structure changes. You know, I think those are kind of important things to highlight. You talked about reducing spans and layers. to increase focus. Can you maybe just provide a little more color on what you're doing there, how you think that catalyzes, you know, either whether it's growth or it's margin expansion or it's both, just more color around those changes and how you think they improve the business, please.

A: Yep, absolutely. So it's intended, first of all, to do a couple things, as we mentioned, and I'll get into some quick detail for you, Nathan. A lot of, if you remember, John and I both started at the same day last year, right? So we took a year to thoughtfully understand the plumbing of the organization and how things were running. And one of the big messages we got from the Braun organization was there's too many hoops, there's too many barriers, we're not moving fast enough, we're not making decisions fast enough. So we went through an organizational realignment, and we realigned it really based on So we segmented out valves as a business unit. So now we have climate comfort valves and medicals as a business unit within GenTherm Technologies. And over top of that, we'll have a very lean corporate structure. So that was intended to put focus on high growth opportunities. That was intended to drive continual improvement on key initiatives. So we're more aligned functionally now as opposed to a complicated matrix across regions. And we did, we do expect that that will have cost benefits, but it primarily was to segment the business, to focus on high growth opportunities, to continue to push the operational improvements and the sustainability there. For the year, though, it will, an annual run rate will be about 10 million-ish better on the OBVX, and, you know, we expect half of that to hit this year.

Q: Hey, good morning, Bill, John. I want to start with the outperformance versus the light vehicle production. This is as strong as we've seen in many years here, which was nice. Curious when I look to guidance, so 14.0 performance in Q1, you're guiding to five points on the year. It implies a pretty meaningful increase. deceleration kind of throughout the rest of the year versus the industry. Curious if you could elaborate on what the outperformance in Q1 was, why that's going to decelerate, anything from a one-time production orders, et cetera, standpoint.

A: Yeah, we wouldn't point to anything from a one-time perspective, and we really did see strength across all products, all regions. We pointed to China in particular. There was some outperformance there based on some launches that we did in the fourth quarter for some of the domestic OEMs that continued to show strength through the first quarter. As we look at the balance of the year, we certainly do not expect to outperform in the teens range. We'd expect it to moderate, I think, at the top end of our guidance and could push into that high single-digit range, but there's nothing in terms of Q1 outperforming, other than really just broad growth across regions and products.

Q: And GM earlier this week, I guess, is suspending its next-gen electric truck program that was set to launch or start in 2028. Curious how much of Therm's award backlog was from this program. Do you think you can offset that from a shift with more volume back to the ice programs? Just curious, kind of net positive, neutral, negative. How do you guys think about that?

A: Yeah, overall, we just think it's neutral for us, Ryan. We've also won the ice content for the platforms. So we just anticipate and, you know, based on everything we're seeing, the ice volumes will compensate for the EV losses.

Q: Maybe just a quick clarification, and then I'll hop back into Q. But the $20 million of cost increase, is that a gross number or was that net of mitigation?

A: That's a gross number and our best view of annualized impact or annual impact based on what we see today.

Q: Hey, guys. Good morning. Not to be the divorce here with the $20 million on incremental costs that you highlighted, but I guess I was curious, how much of that is incremental shipping versus material cost inflation that you're factoring in? And then on the pricing front, is it all offset via pricing or are there operating efficiencies that you think you'll offset the $20 million with as well?

A: As you look at it, certainly a big piece of it is freight related. I'd say maybe a third of it with the rest coming from commodities. And it's commodities that Bill or the product that Bill called out specifically, but it's also incremental processing costs. And so there's the downstream impact from increased petroleum prices. I think as we look at it, our mechanism from a recovery perspective will primarily be from the from recovery with the customer. He did point to the fact that some of the $5 million benefit that Bill talked about from the realignment will likely help offset pieces of that as well and will continue to push operationally. But we've got our teams focused on commercial recovery at this point.

Q: Okay, that makes sense. And then curious to hear a little bit more about the furniture market opportunity and how it's developed this year, I guess, just given the announcements around KUKA and the incremental wins that you highlighted. Have those catalyzed more discussions for you in any way to characterize the opportunity funnel and how that contributes to 27 revenue?

A: Yeah, I mean, we'll start, and again, we like the furniture business matches of the just super quick time to revenue that the industry has accepted and really bought into our standard methodology, our standard kit methodology. So we're getting good scale there on our assets with little to no investment. So we expect by 28 that that's clipping somewhere between 50 and 100 million. So, you know, you can... probably draw a line between now and then to figure out where 27 is. But, you know, we expect that to add one or two points of growth at accretive margins in the coming years.