THRM - NASDAQ

Greetings, and welcome to the Gentherm Fourth Quarter and Full-Year 2024 Earnings 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 your host Gregory Blanchette, Senior Director, Investor Relations. Thank you. You may begin.

Thank you. Good morning, everyone, and thanks 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 Relations section of Gentherm's website. During this call, we will make forward-looking statements within the meaning of federal securities laws. These statements reflect our current views with respect to future events and financial performance, and actual results may differ materially. We undertake no obligation to update them, except as required by law. Please see Gentherm's earnings release and its SEC filings, including the latest 10-K and subsequent reports, for discussions of our risk factors and other significant assumptions, risks and uncertainties underlying such forward-looking statements. During the call, we will also discuss non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures are included in our earnings release and investor presentation. I would now like to introduce you to our new President and Chief Executive Officer, Bill Presley; and new Chief Financial Officer, Jon Douyard. During their comments, they will be referring to a presentation deck that we made available on the Investor section of Gentherm's website. After the prepared remarks, we'd be pleased to take your questions. And now, I'd like to turn the call over to Bill.

Thank you, Greg, and good morning, everyone. Before we cover the results of the fourth quarter, the full-year and outlook for 2025, I want to start with a few opening thoughts. First, I want to thank the Board of Directors for the opportunity to lead Gentherm. I'm honored to be selected and truly excited to lead the organization through its next phase of profitable growth. Gentherm has a proven track record of product innovation, making it a leader in the industry with unique and defensible competitive advantages. Innovation is part of the culture at Gentherm. It's in the DNA of the team. There is an entrepreneurial spirit here and the team is driven to win. When I look at Gentherm, I see a technology company. The solutions are differentiated and we innovate with a systems focused approach to offer unique value propositions to customers. During my short time here, I have been impressed at how portable and scalable the technologies are. I think this is a company that has great growth opportunities within the technology platforms and core competencies that have been developed. These strengths combine to create a unique opportunity to generate shareholder value, which I am determined to do. Over the past seven weeks, I've been meeting with the Gentherm leadership team as well as speaking with customers, suppliers, and members of the investment community. Jon and I are quickly diving deep into the product portfolio and business operations. This has given us the opportunity to ask questions, solicit feedback, and identify where some of the greatest opportunities lie. We will continue doing this, and as the year progresses, we will be transparent with you regarding our top priorities to drive revenue growth, margin expansion and cash generation. Now turning to the deck on Slide 3. I have outlined a few of my initial takeaways. When it comes to our customers, Gentherm is a partner of choice. I am very pleased that we have direct access to the OEMs and incredibly strong relationships with our Tier 1 partners. Our position as an independent provider of thermal and pneumatic solutions is a real differentiator for us. We work with over 50 global OEMs and dozens of Tier 1 manufacturers around the world and any combination of those. We develop systems oriented solutions utilizing our portfolio of innovative technologies to provide our customers real value propositions, and we have proven our technology has applications outside of the sea. This is a result of Gentherm investing in innovation through disciplined approach. Given our direct access to decision makers and our technology, we have all the tools needed to continue to drive conquest for profitable growth and outgrow our key markets over the long-term. Next, I see incremental opportunities for operational improvements throughout the business by implementing business process standardization. This isn't unusual for a company that has moved at the speed of Gentherm. There have been multiple acquisitions as well as continuing footprint relocations and significant business wins. I've experienced similar situations in which the tempo of the company has resulted in a level of business process differentiation throughout the organization. The way I've addressed this in the past is through the implementation of operating systems, where things like Fit-for-Growth fundamentally become part of the continuous improvement culture of the company. This includes benchmarking, setting standards to the ideal state, identifying and measuring gaps, and then driving process improvements. Philosophically, it sounds easy, but it takes a perpetual focus to integrate that mindset into the culture, and that is exactly what we have begun to do. Ultimately, we expect these operational improvements to result in increased margins. Further, the company has strategically positioned assets across the globe. I've had the pleasure of visiting some of our manufacturing locations, and I was impressed with our operations and facilities. That said, I do see an opportunity to become more efficient with our capital by driving more volume through our existing assets. Additionally, we have recently accelerated strategic footprint plans that will realign our production across all three regions. The plan focuses first on having our production in the best locations and then optimizing floor space usage through layout redesign. We intend to reduce our footprint by approximately 30% while maintaining the capacity necessary to support our expected growth and improve margins and cash flow generation. And lastly, Gentherm has a strong technology foundation. Its core products are scalable technology platforms. We think these industry-leading technologies can be leveraged to broader applications and customers, ultimately driving future growth. That leads me to Page 4, where I want to give some perspective on why I believe there are significant growth opportunities within our existing technology platforms. The left side of the page represents an element of Gentherm strategy that was laid out during the company's 2023 strategy update. The strategy is to extend technology leadership through things like focusing on software and electronics and a systems engineering mindset. The company has consistently and purposefully made investments into research and development, which has resulted in a strong core foundation of industry-leading technologies. This focus on innovation is a differentiator for Gentherm, really separating us from our peers. As I look at our innovative solutions, I put them into four technology platforms where we have core competency, engineering depth and competitive advantages. These platforms are Thermal Management, Air Moving Devices, Pneumatic Solutions and Valve Systems, which we have successfully deployed across the automotive and medical industries. Notably for Air Moving Devices, we utilize the same core technology for our CCS portfolio for the automotive industry as we do for our WarmAir product for the medical industry. For Thermal Management, we've taken our resistive heating technology out of the seat and applied it to the medical industry. These are just a few examples of the synergies across our technology portfolio that we have capitalized on up to this point in time. We have demonstrated the technology as portable and we believe there is further opportunity to scale. We will continue our strong R&D focus, taking a customer-centric systems oriented approach to scaling our technologies, and we will continue to leverage our proven go-to-market capabilities to gain more widespread market adoption of our innovative solutions. These industry-leading technologies are what give me confidence in our ability to accelerate profitable growth. Now on Slide 5, let me give you some examples of how Gentherm has done a phenomenal job of leveraging this foundation of strong core technology platforms to innovate next generation products and win new business awards. Over the past few years, momentum has been building as customers increasingly adopted our market-leading technology. As many of you are aware, in 2024, we announced Puls.A awards with Hyundai and Land Rover, and today I'm excited to announce that we've secured another Puls.A award with BMW in the fourth quarter. Puls.A is one of a kind as it utilizes our pneumatic technology and includes precision micro pressure bursts to deliver a pulsating massage. We have created a truly differentiated consumer experience and we are excited about the interest this technology continues to receive from multiple OEMs. Our Pneumatic Solutions products delivered 20% revenue growth in 2024. In our view, we remain in the early stages of growth as we deliver on previously awarded business and secured new conquest awards over the next several years. During 2024, we also secured an important award for General Motors for ComfortScale, our patented next generation integrated thermal lumbar and massage hardware system on the high volume full-size truck platform, including Chevrolet Silverado and GMC Sierra. In the past, each of these components was sourced separately, and now through our system oriented approach, we have integrated these functions into a single solution. This solution is a win for OEMs due to improved performance and reduced costs and a win for Gentherm through increased content per vehicle. It is a great example of our value proposition and how Gentherm is not just a leader in hardware, but an integrated systems and solutions provider. We continue to innovate many of our core products to stay ahead of our competition and provide value to our customer. Additional examples include the awards we received for CCS CompactVent and for the CCS Quiet Blower. These results demonstrate accelerating adoption of Gentherm's unique and innovative solutions, leveraging our core technologies deployed across multiple product categories. As we look ahead to 2025, we expect to see continued strong demand for Gentherm products. Already this year, we secured our first Seat Heater award with Volvo on a future platform. This conquest win is a testament to our team's growing relationship with Volvo as well as our superior technology and flexibility to support any customer globally. Awards like these will support our future growth and build upon our market leading position. Now I'd like to turn the call over to our Chief Financial Officer, Jon Douyard, to review our 2024 results and 2025 outlook. Jon?

Thanks, Bill. I want to begin by echoing some of Bill's remarks. Through the first few weeks here, it is apparent that we have a strong team, great culture, innovative technologies and a leading market position, which together make Gentherm quite compelling. In addition, the company has a strong financial foundation to support future growth plans. I look forward to partnering with Bill and the Global Gentherm team through this next phase of growth, leveraging my experience to drive additional financial rigor and engaging with many of you over the coming months. With that, let's turn to Slide 6, where I will discuss the highlights from the fourth quarter and the full-year. Our commercial momentum continued in the quarter as the team secured $640 million of Automotive New Business awards. We saw success with our Thermal Management products, where we received 13 CCS awards and eight Steering Wheel Heater awards, three of which included hands-on detection. These awards span more than a dozen OEMs and were balanced across region and powertrain. For lumbar and massage, our team won six programs across four OEMs in the quarter, including securing two new Puls.A awards with both BMW and Land Rover. It is great to see Puls.A beginning to gain significant traction. Next, I want to highlight key program launches in the quarter. It was another strong quarter of activity with 18 vehicle launches, including the start of production of several thermal solutions products on the high-volume midsized SUV platforms, the Acura ADX, and the Nissan Murano as well as the next-generation Dodge Charger and all-new electric Jeep Wagoneer S from Stellantis. In addition, we launched the thermal control unit across several in-production Stellantis vehicle platforms for both seat and steering wheel heat control. This conquest program was our first with this OEM and positioned us to successfully win the next-generation business. In our Medical segment, we delivered record financial results driven by the expansion of our global partner network. We were pleased to see the progress in this business and are optimistic about the future growth opportunities. Turning to the full-year. We secured $2.4 billion of automotive new business awards led by increased adoption and strong market acceptance of our leading innovations. We delivered record adjusted EBITDA of $183 million and expanded margin by 30 basis points compared to the prior year despite a challenging market. Lastly, Gentherm's balance sheet remains incredibly strong. We maintained net leverage of approximately 0.5 turns at year-end while making significant investments in our operations and returning $50 million to shareholders through share repurchases throughout the year. Please turn to Slide 7 for a more detailed review of the financial results. Fourth quarter revenues decreased 3.8% compared to the same period last year. Foreign exchange adjusted revenue decreased by 3.3%. Our Automotive Climate and Comfort Solutions revenue grew 1.7%, outpacing actual light vehicle production in our key markets by 130 basis points when adjusted for FX and one-time benefits for recoveries in both periods. Revenues from lumbar and massage increased 29% ex-FX as we ramped up production for the Volkswagen MQB platform, along with several Ford models. Steering Wheel Heater revenue increased by 11% ex-FX, driven by the start of production of Li Auto L6 and new launches with Honda and General Motors. Climate Control seat and seat heaters revenues decreased primarily due to lower volumes from Hyundai and Stellantis as well as some inventory corrections at the Tier 1s to account for lower OEM demand. Turning to Medical. As I mentioned, we were really pleased with the team's execution of its strategic and operational initiatives. For the fourth quarter, revenues increased 9% ex-FX compared to the same period last year, while once again improving profitability sequentially. The momentum is strong, and we will look to continue driving revenue growth and further expanding margins. Moving to profitability. We achieved $41.4 million of adjusted EBITDA in the quarter or 11.7% of sales compared to 13.4% in the fourth quarter of last year. The decline was primarily driven by product mix, higher freight costs, the impact of foreign exchange and costs related to our new plants opening in Monterrey, Mexico and Tangier, Morocco. Adjusted operating expenses were down $2.4 million versus the prior year quarter. Adjusted diluted earnings per share in the quarter was $0.29 per share compared to $0.90 per share in the fourth quarter of last year, primarily driven by unfavorable one-time tax adjustments recorded in 2024. For the full-year, revenue decreased 0.9% compared to the same period last year or 0.4% when adjusted for FX. Revenue increases from lumbar and massage and steering wheel heaters were offset by expected declines in cables, BPS and electronics. 2024 EBITDA margin expanded 30 basis points compared to the prior year, driven by strong material performance and productivity, partially offset by price reductions, wage inflation and the costs associated with the new plans. Excluding the impact of prior period tax audits, the effective tax rate was 26.9%. Moving to cash flow and the balance sheet on Slide 8. For the year, we generated $110 million of cash flow from operating activities while deploying $65 million to net capital expenditures. In addition, we returned $50 million to shareholders in the form of share repurchases, leaving $120 million under our current authorization. We ended the year with a net leverage ratio of 0.5 turns and ample available liquidity of $414 million. Overall, Gentherm has been a solid cash generator and our balance sheet remains strong. That said, in the spirit of continuous improvement, opportunities remain. Going forward, we will have a renewed focus on working capital and will be a key part of the operating system that Bill discussed earlier. In my past, I have leveraged daily management and war room approaches to drive down working capital with solid results, and I look forward to seeing progress here at Gentherm. To ensure focus, we are evaluating leadership objectives as well as our incentive plans to drive cash flow as a key business priority going forward. We believe we are well positioned to generate increased levels of cash flow over time, which will allow us to efficiently deploy capital and drive shareholder value. Now let me turn to Slide 9 for our outlook. Gentherm revenue has consistently outgrown light vehicle production in our key markets, and we expect that to continue in 2025 despite an uncertain environment. 2025 revenue is expected to be between $1.4 billion and $1.5 billion, up approximately 2% when excluding a $35 million year-over-year FX headwind. According to S&P Global Mobility's mid-February 2025 report, actual light vehicle production in our key markets is expected to decrease roughly 1% for the year. So we anticipate this maybe optimistic based on discussions with customers regarding near-term conditions. We expect adjusted EBITDA margin for 2025 to be in the range of 12% to 13%. At the midpoint, we expect favorable material savings and productivity actions to more than offset inflation and annual pricing. However, we will experience headwinds related to the impact of footprint changes. As Bill mentioned earlier, the team has been evaluating scenarios to strategically realign our operations. After review, we are accelerating these moves in an effort to drive improved long-term profitability. In the short-term, we will see an increase in one-time costs as well as some disruption in production, both impacting margins in the year. We are taking action across the globe. In North America, we will be consolidating two facilities in Monterrey. In Europe, we recently made the decision to close our location in the Czech Republic and consolidate production into other facilities in the region. In Asia, we announced that we will be transferring production from one of our facilities in Shanghai to Tianjin. When our optimization plan is complete, we expect to reduce our footprint by approximately 30% while maintaining the required capacity for growth as we optimize the existing floor space. Despite the near-term headwinds associated with these footprint actions, they will play a significant role in our margin expansion over time. Without these actions, we would have expected margin expansion of at least 50 basis points year-over-year. As we think about the quarterly cadence, we expect second half revenue to be stronger than the first half based on a lower first quarter. Additionally, as is typical, we expect a sequentially lower first quarter adjusted EBITDA margin, driven by the impact of contractual price downs with improvement through the remainder of the year as we execute supplier cost improvements and productivity actions. At this time, we have not factored in any assumptions to account for potential changes to tariffs as there is not enough certainty with regard to implementation or timing. Capital expenditures are expected to be in the range of $70 million to $80 million. 2025 CapEx remains higher than what we would consider typical as we continue investing in the capital required to support our increased level of awards and footprint optimization. Despite challenging markets in the near-term, we remain excited about the long-term growth prospects for Gentherm. This company remains uniquely positioned to outperform. We are exploring additional opportunities for growth, taking quick and decisive actions to drive margin improvement and focusing on generating cash flow through an investment cycle. And with that, I will hand it back to Bill for a few closing remarks.

Thanks, Jon. To close, I want to reiterate our excitement for the future here. We recognize the near-term view in the automotive industry looks challenging. However, we remain confident in the long-term growth opportunities at Gentherm. We are acting with urgency on a few key priorities. First, we have market-leading technologies where there is opportunity to scale. We are focused on leveraging our platforms to accelerate profitable growth. Operationally, we are implementing business process standardization across the company to drive efficiency in all aspects of the business, which will translate into higher margins. And lastly, we are accelerating strategic plans that will realign our manufacturing locations across all three regions. This will optimize our footprint for improved margins and cash flow generation. I'm very optimistic about the future of the company and look forward to leading Gentherm's next phase of growth. As the year progresses, we look forward to keeping you apprised of our key priorities and progress. And with that, I will turn the call back to the operator to begin the Q&A session.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] The first question is from Matt Koranda from ROTH Capital Partners. Please go ahead.

Hey, guys. Good morning. Maybe, Bill, to start with you, I wanted to see if – well, you laid out some of the basics with respect to your views on Gentherm, but are there any ways to think about your top two priorities in the seat over the next couple of quarters?

Yes. Thanks for the question. Good morning. Yes, I'll be very clear on my top two priorities, right? Number one is if you think back to the slide that showed the technology platforms, right, we kind of break that down. We broke that down into thermal pneumatic valve systems and air moving devices. Those technologies are platforms. Those technologies are core competencies. So while we think about those in terms of system design, those core competencies have large application outside of the seat. Sometimes I'm worried that we're often thought about too much of just being in the seat ecosystem. And we've proven that those technologies can scale outside of the seat. The same technology that's used for thermal solutions in the seat is used in other places in the vehicle. That same thermal technology is used in medical. The heart of a pneumatic system and a valve system, the heart of a thermal system is many times an air moving device. So my point in saying that is priority number one is as Jon and I have been deep into the product portfolio and the platforms, and we're aggressively working to identify opportunities that can scale those core technology platforms. That's number one, because the product is the lifeblood of the company. Number two goes back to the standardization of the operating systems. And really, what we're trying to do is put more standard hours per square foot or through our equipment in our floor space, right? And that will go through scaling those products, but we're in the process of, again, standardizing our business processes, and I'll just give you some examples, such that we are gapping our totally effective equipment production to what's theoretically possible and trying to close that gap. So instead of buying more assets down the road, we're just maximizing utilization of the assets, putting gap plans in place that close theoretical shop floor or direct labor efficiency to what's possible. And then again, tying our manufacturing operating plan to our supply chain plan so that our manufacturing operating plans actually consider the impact on net working capital. So really, those two things, and I'll just summarize and come back to scaling the product and putting more product through our existing assets and increasing our efficient use of our assets such that we're expanding margins and generating cash by lowering net working capital.

Very helpful. Thank you for that. And then just on the footprint reduction that you mentioned in the prepared remarks, I think you said 30% reduction in footprint while maintaining sort of the capacity that you have already. Is there any way maybe, Jon, to hang numbers on the savings that could be associated with that and how that flows through over time?

Yes. I think – I mean, Matt, when you look at it, certainly some headwinds this year. We expect roughly 50-plus basis points, as we indicated in terms of impact just in terms of one-time expenses and inefficiencies that will run through the P&L this year. I think as you look at the out years or where the benefits are, not something I would necessarily want to put a number to right now, but we certainly view this as a critical piece of the equation that will get us to the mid to high single-digit EBITDA numbers – teens EBITDA numbers here over time. And so we'll come back on a more holistic sort of view as to what that looks like. But I think the important thing for us is we wanted to take quick action to be able to reposition the footprint, get rid of some of the inefficiencies or incremental cost that's in the system and really leverage the capacity that we have to Bill's point earlier.

Okay. Fair enough. And then maybe just last one, if I could ask on the 2025 outlook. You mentioned, obviously, there's an S&P production forecast down a point or so. It sounded like you guys were more downbeat in terms of your expectations. So what's factored into your assumptions for industry production that's built into the guide? And then I think there's only a little bit of outgrowth, I would assume, implied. Historically, I guess, Gentherm has outgrown the industry north of 500 basis points. Is that still the case this year? What's the right way to think about outgrowth relative to your industry assumptions for 2025?

Yes. I mean I think to your point, the IHS report down roughly a point. We expect that to be maybe a point to rich or so in that range. I think as you look at it from an overall company perspective, we're up 2% when you exclude FX. And so I mean that's how we're thinking about it. I think the other sort of context just on the overall environment, both from a macro perspective and in autos is just the uncertainty that exists as well. And so not really in a position at this point to be forward, if you will, with the guide given the broader environment.

Okay. I'll take the rest of mine offline. Thanks guys.

Thanks, Matt.

The next question is from Luke Junk from Baird. Please go ahead.

Good morning. Thanks for taking the questions. Maybe I'll continue on that line of questioning and just hoping to unpack the flat revenue assumption at the midpoint. Like you said, it implies a few points outgrowth. From a product standpoint, should we think of that mostly being driven by the pneumatic part of the portfolio? Or are there other key growth contributors we should be considering this year? Thank you.

Hey, good morning, Luke. It's Bill Presley. Good to talk to you again. I would say, if you think of Climate, our CCS portfolio, and I put the CCS portfolio and the seat heaters together, that is actually showing growth year-over-year. The pneumatics are showing healthy growth year-over-year and steering wheel heaters are showing some modest growth year-over-year. So I would say when it comes back to our core portfolio, all of those in what we would call automotive climate and comfort solutions, that performance versus IHS is mid single digits at a minimum is what we think. So that's growing pretty well. We had talked in the past about proactively and consciously shedding some portfolio. So the battery performance system reductions is still pulling us down. And then we're kind of just treading water on the automotive cable. So if you think about our, again, I go back to our core climate and comfort solutions and automotive, growing as we would expect it to. And what we're seeing is just pull down from some of those things that have been previously specified last year that we would be pruning from the portfolio. Again, the things like battery performance solutions and contract manufacturing electronics.

Got it. Thank you for that. And then second, Bill, you mentioned business process standardization several times in your remarks and as one of your two main focus areas. Can you maybe just help provide a little more context on where you found the organization in this regard? And should we understand these as growing pains for still young-ish companies, the result of some of the recent M&A? Or is it really more all of the above of all those things contributing?

Yes. Luke, I think you're reading it right. What I mean is, if you ask my perception, we're exactly where I would expect it to be. I spent the last 15-plus years in a couple of pretty hardcore operating companies that were established companies, long legacy companies that had very strong operating systems, right? When you think about Gentherm companies 30 years old, there’s been growth through mergers and acquisitions. There’s been some divestitures like we've talked about in the past. There’s been some stuff that we're pruning. So the company is exactly kind of where you think it would be for a company of this maturity. You roll in Alfmeier. I'll take Alfmeier as an example. They have a different SAP structure than, say, legacy Gentherm. You look at how certain footprint moves have happened or certain businesses have been one of the regions and then some of the volumes have dropped off. So all of those are kind of need to be knitted together. And I go back to it's where I expected it to be. I'll use my experience from the past, and we will standardize those operating systems such that they're linked to supply chain, they're linked to net working capital that we build manufacturing operating plans that maximize utilization of plant, property and equipment while driving down net working capital. And I think that with Jon's background and financial rigor and the tools and processes that he's put in place there and his proven track record that we're where we expect to be, but we're very confident in the path forward. And I would say the nice thing about the scale of Gentherm is we think we have the ability to get there in a relatively quick fashion.

Thank you. And then last question for me, just where Fit-for-Growth 2.0 fits into all of this fully recognize your comment ability you want to move this more towards sort of a cultural view for the organization, not something that's more discrete. But in the near-term, am I hearing it right that some of the things that were in place from a gross margin standpoint are going to be adders in 2025 and then kind of clicking beyond 2025, should we see maybe some evolution of what was outlined as the prior approach for Fit-for-Growth? Thank you.

Yes. Luke, I think you read it correctly. I mean I think we view it certainly as sort of cultural or part of the business system as we move forward. And I think when you look at the success of Fit-for-Growth historically, I think it's put a relatively impressive focus on things like material performance. A number of the footprint actions that we have accelerated – talked about accelerating here are a result of the work the team has done. And so there's some pillars there that we look to continue to build off of. I don't – where I think you'll see a difference is talking about specific targets as it relates to Fit-for-Growth from Bill and I. But it is – we plan to sort of institutionalize that into the company, and we view that as a mechanism and a muscle that we can leverage to expand margins here over time.

Got it. I'll leave it there. Thank you.

Thanks, Luke.

[Operator Instructions] The next question is from Ryan Brickman from JPMorgan. Please go ahead.

Hi. Thanks for taking my questions. I just wanted to follow-up on some of the comments around footprint optimization, including how you go about during this process of approaching like balancing supply chain and cost optimization on the one hand, manufacturing optimization with, on the other hand, like redundancy, resiliency or maybe tariff risk mitigation. And while I don't think you have any facilities in Canada, can you just remind us again what your exposure might be in terms of what you source from Mexico into the U.S. and what early planning you might be doing or conversations you might be having with customers to try to go about best managing that potential risk?

Yes. I'll take the first part and then, Jon, I don't know if you can jump in here if there's something to add. But yes, our risk lies primarily with Mexico, Ryan, I think you've read that correctly. We currently have five plants in Mexico that ship servicing the North American market. Just on the footprint piece, that region is one of the regions where we will be consolidating plants, and that's a known play out there. With regard to tariffs, we don't know what's going to happen. So proactively, what we've been doing with the customers is we've been telling them what we view the Gentherm impact to be to them once tariffs are enacted or whenever tariffs are enacted. We're trying to work proactively with the customer so that they can give us options on whether they want us to pre-stage inventory in other areas, whether they want to pull ahead inventory. At the end of the day, what we want to make sure of is that our production assumptions are tied to their production assumptions such that the flow of goods continues. With regard to what happens to tariffs, don't know. We just want to have absolute complete clarity with our customers. We want to make sure they're aware of the impacts because ultimately, those are costs that Gentherm can absorb, and they'll become part of the cost that will need to be recovered from the customer. Jon, anything you want to add?

I mean I think just as you think about the footprint of the company, I think very strategically positioned in China for China, in Asia to support the rest of the region. We've got Mexico. We've got – opened Morocco last year and have some strategic sites throughout Europe as well. I think as we look at the inefficiencies that you touched on in terms of the plant moves, I mean, our view is on Morocco, as an example, the decision has been made. We're going to Morocco. We're very excited about the opportunity there. How do we get there faster so that you can eliminate some of the additional fixed cost or inefficiency that exists in the rest of the business. So that's really where our planning has been focused.

Okay. That's very helpful. Thank you. And then just lastly, I'd be curious if in the new management's initial strategy review here, how you might be thinking about approaches to capital allocation, what your general approach might be toward M&A versus buyback, et cetera? And then how that general approach could perhaps be swayed by current market conditions, either in terms of what multiples you might be asked to pay in the medical or automotive space versus also the price and multiple that your own stock trades at currently? Thank you.

Yes. Fair question, Ryan. I think I would say a couple of things. I think, one, we're fortunate to have a strong balance sheet and a company that can generate cash flow and has proven the ability to do that. I think we're also fortunate that we are confident in an organic growth story that we don't necessarily need to do M&A to grow. And so I think that's a good foundation to be starting from. When you look at it historically, I think funding organic growth has been the key priority, followed by opportunistic M&A and then share repurchase in the absence of that. I think in the early days here, that framework remains consistent. I think as we look at it, we're looking to build out the M&A funnel and reevaluate that. We've got a bit of elevated CapEx and investment this year as we manage through these transitions and preparing for future growth. And certainly, as we look at where the value of the company is now, there's a dislocation between where we think that is in the future and where it sits today. And so as we balance those things here, certainly want a more certain operating environment or visibility in terms of some of the things like tariffs and other things and the impact that may have on the industry. But we will continue to balance those. And I would say it remains in that order in terms of funding organic growth, opportunistic M&A and then repurchasing where appropriate.

Thank you.

Thanks, Ryan.

The next question is from Ryan Sigdahl from Craig-Hallum Capital Group. Please go ahead.

Good morning, guys. This is Matthew Raab on for Ryan. Two questions here. And they're both sort of bigger picture questions. How do you view the awards backlog for 2025? The focus of the slide deck here, at least early on, you're talking about strong demand for therm solutions and creating other applications for the tech that you guys have. How quickly could those new applications come to market and then be put into the backlog?

Yes. I will just – I'll start and then, Jon, you can jump in here. I will say that when you look at – let's talk core automotive first, it looks pretty strong for us in 2025 again. 2024 was a good year. 2025 looks to be at a similar level just with the quoting activity that we see. What Jon and I, I'll go back to, have been focused on, and you touched on it is where else can we read the technology across. Again, we view it as a platform. We view it as a core competency. I'm just going to go back to the medical piece as an example. For us, the – what we use in the thermal blankets is the same technology literally that we use in the steering wheels that we use in the seats. It's a form factor. So uses the same equipment, uses the same processes, uses the same core technology. So for us, I go back to it's scalable technology. What Jon and I are aggressively doing right now is working with the team to identify where we could scale that technology. Optimistic we'll spend the next six months planning out what I call strategic conquest. You probably saw the word conquest in my portion a lot, which is targeted things we're going after that utilize the core technology of the platforms. So I would expect that within the next six months to seven months, we have a very hard core line of conquests. And I would say – I would expect that next year, we're rolling those into our actual booking targets.

Okay.

Jon, anything you want to add? Yes, go ahead please.

Okay. And then switching over to China. How do you view the Chinese domestic market? Do you plan to take a more aggressive stance there and kind of shift that revenue backlog mix up over time?

Yes, let me take that. So I think you're spot on there. If you look at us historically in the China market, we've been 80% the multinational joint ventures, 20% domestic Chinese. We've been taking an aggressive approach to shift that mix within the next year, that mix will be 40% domestic Chinese OEMs. And we continue to try to fill our booking funnel in the China market to more accurately represent the mix of manufacturers in the market. So that is a proactive strategy that we're actually using. So ultimately, we would like to see our mix relevant to the mix in the market. And one of the things we actually like about the China market is the development cycles are much faster in China. So that's an opportunity as we win there to build up the backlog quicker by focusing on the Chinese domestic OEMs. And the one thing that we're hoping, honestly, I made a trip to China last year. I was impressed with the quality. I was impressed with the technology, the bits and the finish. They've come a long way in the 10 years I've been traveling back and forth. So we do expect that they're going to start penetrating other markets in EMEA and in North America, and we'd like to be a partner of choice with whoever comes across because we do have a global footprint and global capability.

Okay, great. That's it for me. Thank you.