Yahoo Finance Gentherm Inc (THRM) Q1 2024 Earnings Call Transcript Highlights: Navigating Challenges with ...
Revenue: Total revenues decreased by 2% year-over-year; Automotive segment revenues were $345 million, a 2% decrease from the previous year.
Net Income: Adjusted diluted earnings per share were $0.62, up from $0.49 in the previous year.
Gross Margin: Improved by over 200 basis points year-over-year through cost reductions and increased productivity.
Adjusted EBITDA: $44 million, up from $42 million in the prior year; margin rate improved by 80 basis points to 12.2%.
Free Cash Flow: Net debt increased by $24 million due to higher working capital and capital expenditures.
Market Capitalization: Not directly mentioned, but net leverage ratio was well below the target at 0.5x.
Release Date: April 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Q & A Highlights
Q: Just wanted to start with the growth outlook. It sounds like we're still expecting sort of a higher second half revenue run rate than the first half. Just wondering on a relative basis in terms of growth for the second quarter, how we're thinking about growth relative to light vehicle production. Are we still expecting to outperform sort of the light vehicle production forecast, which I think stands at sort of a low single-digit growth rate in the second quarter? A: Morning Matt, this is Phil. I'll take that one. I think the way to think about it is it will be a gradual increase in revenue for us throughout the course of the year as we kind of forecasted when we laid out our guidance. And that's driven heavily by new vehicle SOPs, based on our very strong backlog of new business awards, and also the ramp-up of programs that are just launching here early in 2024. So, pretty excited about the launches that are coming and those will gradually be phasing in, which give us a pretty strong feeling of our guidance for the remainder of the year.
Q: Okay. And then just a follow-up on that. I guess, given the reiteration of the guide, even though you guys said the first quarter was a little choppy in terms of production and what it came in relative to sort of the expectations of the forecast from some of the industry groups. No change to any of the launch schedules that you're seeing, just wondered if you could comment on sort of what you're seeing in terms of the launch environment and SOP for some of the key programs that you have in the second half? A: Well, we had a few puts and takes throughout Q1. But in general, all of the SOPs that were in our plan to launch are launching or have launched-- a few of them had a little bit of a delayed start. Those were documented by those customers, but they're back on track as far as we know it, and the remainder of the year is looking pretty much on our plan.
Q: Okay. And then maybe just one more on the margin front for Matteo. It sounded like you were suggesting that sort of the margin rate should continue. The margin rate we saw in the first quarter should continue into the second quarter. And then we see some improvement in the back half of the year - is this sort of how you're thinking about the full year? Maybe just if you could unpack for us specifically what you're seeing in EBITDA margin run rate in the second quarter. And then in terms of the second half, what are the good guys that sort of boost us in the back half of the year, maybe just a bridge on a year-over-year basis in terms of where we're getting that margin improvement from? A: Sure Matt, let me first address your question. On the second quarter specifically, I think we are starting well based on where we closed the first quarter. We're off to a good start, and particularly to highlight on the positive side, some of the acceleration that we have seen on the Fit-for-Growth side of the action. The team really did a great job of accelerating some of the projects on value engineering, so taking cost out of the bill of material as well as accelerating some of the negotiations with our sourcing partners. So, we are very pleased on where the first quarter ended - probably a little better than what we were forecasting when we had the last earnings call. As we enter the second quarter we're going to have a couple of dynamics happening. We are expecting a slight sequential increase in revenue that should obviously help us also on the margin side, continued progress on the Fit-for-Growth. But on the other side, we will have a little bit of timing on the startup costs for our new plants in Morrocco and in Monterrey, where the cost will increase sequentially in the second quarter compared to the first. So, that's why in my prepared remarks, I indicated the second quarter adjusted EBITDA margin rate to be pretty much in line with what we've seen in the first quarter.
Q: Maybe to just bridge off the last question there. Fit-for-Growth showing some nice returns in the first quarter gross margin here. Matteo, you mentioned that some things are tracking even ahead of your expectations at this point. I don't know if it'd be possible to update us just where we stand on a run rate basis, and as we move through the remainder of 2024, if there'd be any potential upside or just in general, how to frame Fit-for-Growth as an incremental contributor this year? A: Yes. So maybe let me use the first quarter as a kind of a proxy on what we are seeing. So, the 80 basis point improvement year-over-year was if I unpack this improvement you have on the positive side, gross productivity at the factories, created a margin expansion of 170 basis points. Fit-for-Growth, specifically around sourcing savings and value engineering was 160 basis points of margin expansion. And then we had a little bit of a lower freight cost, about 20 basis points. And these were offset by wage inflation, which is about 120 basis points drag. And then the annual price reductions of -- that we always see at the beginning of the year, accounted for about 80 basis points. And all in all, actually, if you look at the gross margin of the company, we were able through these actions to improve the gross margin rate compared to last year in spite of the lower revenue by more than 200 basis points. So, we are pleased really where we are on the gross margin side and what the team did.
Q: Okay. Thank you for all that detail. For my follow-up, maybe a bigger picture question, Phil, and then just be around the market reaction to your booking of the software-centric ClimateSense booking with GM. Just curious if it's changing the threshold to book with other customers, given the modularity if you've seen a competitive reaction as well? Or do you think there would be structural barriers to them? A: Not seeing any competitive reaction, but we've certainly seen growing interest from customers around the world. We're in active discussions with several of those. We've also been actively presenting demonstration vehicles with ClimateSense, and including the ClimateSense software, which is driving not only interest for the software itself, but also continuing to guide OEMs to add more content to the vehicle as they're seeing the benefit of not only the software but also more hardware content in the vehicle. So, we're really optimistic and excited. Obviously, we're getting really close to launching SOP with General Motors. And so, this will become a nice proof point for us as the vehicles hit the market, and clearly thrilled to be working with a progressive OEM like GM, who has really bought into this as a solution. And I think that was capstoned last night with our partnership award at the PACE Awards by General Motors for our ClimateSense collaboration.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
