Brian Sponheimer

Brian Sponheimer inquired about discussions with potential new North American customers, focusing on product offerings and the sales cycle timeline. He also asked if the high-profile Tesla door handle issue, though not involving Strattec, impacts the company's technology perspective on future platforms or reinforces the need for mechanical locking mechanisms.

Answer

CEO Jennifer Slater explained that Strattec is focusing on access products and digital key technology, noting the long automotive sales cycle, with the earliest new platform launches expected in 2029. She stated that the Tesla issue does not impact Strattec's future door handle plans but reinforces the continued need for secondary mechanical locking mechanisms, which strengthens Strattec's product offerings to customers.

Brian Sponheimer asked about the ongoing conversations with potential new North American customers, the products being discussed, and the expected timeline for these new engagements. He also inquired if a recent high-profile door handle issue with another automaker would impact STRATTEC's technology plans for prospective platforms with similar proximity handle mechanisms.

Answer

CEO Jennifer Slater explained that discussions with new customers focus on access products and digital key technology, with a long sales cycle meaning the earliest launches would be 2029 or later. She noted that once specified, products are on platforms for 5-7 years. Regarding the door handle issue, Slater stated it does not impact STRATTEC's future door handle plans but reinforces the continued need for secondary mechanical locking mechanisms, which strengthens the company's product offerings.

Brian Sponheimer questioned the strategy behind holding a substantial cash balance, asking about the appropriate cushion and plans for excess cash. He also inquired about the growth of digital key fobs versus the potential decline of physical fobs, the possibility of subscription revenue, and the repeatability of the quarter's strong earnings performance in fiscal 2026 and 2027.

Answer

President and CEO Jennifer Slater explained the large cash position provides stability amid market uncertainty, allowing the team to focus on the transformation before considering shareholder distributions. She noted that market studies show continued demand for physical key fobs alongside digital ones and that OEM customers currently control subscription revenue opportunities. Both Slater and CFO Matthew Pauli emphasized that future performance is highly dependent on North American production volumes, which are projected to soften, making the recent quarter's earnings level a challenge to repeat consistently.

Brian Sponheimer inquired about Modine's M&A pipeline for non-data center Climate businesses, specifically outside the data center set, given the recent acquisitions of L.B. White and Climate by Design. He also asked for color on what the M&A pipeline looked like prior to the engagement with Gentherm.

Answer

Neil Brinker, CEO, acknowledged the recent HVAC acquisitions (CDI, AbsolutAire, L.B. White) and stated that Modine continues to cultivate an M&A funnel for higher-margin businesses outside data centers, focusing on evolving their HVAC portfolio. Mick Lucareli, EVP and CFO, mentioned that some M&A discussions were paused due to the accelerated Gentherm project but can be relaunched. He characterized the HVAC M&A space as having a funnel of privately owned, fragmented businesses in the $50 million-$100 million revenue sweet spot.

Brian Sponheimer inquired about Modine's M&A pipeline outside of data centers, specifically for the Climate Solutions' HVAC business, given the pro forma leverage post-Gentherm transaction. He also asked for color on what the M&A pipeline looked like prior to engaging with Gentherm.

Answer

Neil Brinker, CEO, Modine Manufacturing Company, confirmed that Modine continues to cultivate an M&A funnel for higher-margin businesses within the HVAC segment, even while focusing on the Gentherm project. Mick Lucareli, EVP and CFO, Modine Manufacturing Company, added that some M&A discussions were paused due to the accelerated Gentherm deal, but there is an active funnel of privately owned, fragmented HVAC businesses in the $50 million-$100 million revenue range that discussions can be relaunched with.

Brian Sponheimer asked about the long-term strategic vision, questioning at what point of scale for the data center and broader Climate Solutions businesses the company might consider another strategic separation.

Answer

President & CEO Neil Brinker acknowledged that as the company's portfolio continues to transform through growth, acquisitions, and divestitures, they will have to re-evaluate the business structure. He confirmed that this strategic review is a normal part of their annual 80/20 process and will be looked at going forward.

Brian Sponheimer of Gabelli Funds inquired about the potential competitive impact of Toyota taking Toyota Industries private and whether current profitability pressures could hinder Hyster-Yale's ability to invest in technology like autonomous lift trucks.

Answer

President & CEO Rajiv Prasad responded that he does not expect the Toyota transaction to create a short-to-medium term market dynamic, viewing it as part of a broader trend in Japan for corporate restructuring. On technology investment, Mr. Prasad affirmed the company's commitment, highlighting the recent launch of automated solutions. CFO Scott Minder added that capital expenditures remain above depreciation and amortization, demonstrating continued investment in technology and efficiency.

Brian Sponheimer from Gabelli Funds asked for commentary on Toyota Industries' move to go private and its competitive implications, and whether current profitability challenges hinder investment in autonomous vehicle technology.

Answer

President & CEO Rajiv Prasad suggested Toyota's move is part of a broader trend in Japan for corporate restructuring and doesn't anticipate short-term market dynamic changes. On technology investment, Prasad affirmed that development of automated solutions is proceeding. SVP, CFO & Treasurer Scott Minder supported this, noting that capital expenditures continue to exceed depreciation, signaling ongoing investment in the company's future.

Brian Sponheimer asked for clarification on the company's exposure to China within its fastener business and any necessary mitigation efforts related to tariffs.

Answer

Executive Patrick Fogarty explained that Park-Ohio's direct exposure to China is minimal. He noted that following the implementation of tariffs a few years ago, the company proactively localized its supply chain, moving sourcing to other countries and back to the U.S. The primary Asian sourcing for fasteners now comes from Taiwan, where the company is working with suppliers and customers to manage costs.

Brian Sponheimer of Gabelli Asset Management asked about the potential impact of reinstituting 100% bonus depreciation on orders and queried what level of interest rate change would be needed to shift the market from restrictive to beneficial.

Answer

CEO Jaco van der Merwe stated that reinstituting 100% bonus depreciation would be a 'great win,' particularly for the company's smaller customers. On interest rates, he offered a counterpoint, suggesting that customers are adapting to the higher rate environment. He believes the increasing age of equipment is forcing customers to begin replacing machinery regardless of rates, as evidenced by strong sales conversions in December and January.

Brian Sponheimer inquired about Herc's tax policy 'wish list,' such as the return of bonus depreciation, and asked if the conclusion of the election has changed local market quoting activity.

Answer

CFO W. Humphrey identified bonus depreciation as the top item on their tax policy wish list. CEO Lawrence Silber stated that local market activity has not yet picked up and will likely require interest rate cuts from the Fed to stimulate new project investments, regardless of election clarity.

Brian Sponheimer asked about the sustainability of the strong 17.4% EBITDA margin amid top-line softness, questioning if it represents a new, higher floor for profitability, and also inquired about pricing pressure from automakers.

Answer

President and CEO Olivier Rabiller attributed the strong margin to long-term, structural efforts to improve the company's cost position and operational flexibility, rather than a one-time event. He stated that while raw material deflation provided a minor boost, the primary driver was sustained work on efficiency. Regarding pricing, Rabiller acknowledged that pressure from automakers is constant but has not fundamentally changed, and Garrett's ability to deliver performance and support helps navigate this environment.

Asked about the sustainability of the high EBITDA margin, whether the company is now structurally more profitable, and the outlook on pricing pressure from automotive customers.

Answer

The strong profitability is a result of long-term, continuous structural efforts to improve cost position and flexibility, not just a one-quarter effort. This includes making factories more flexible and reducing fixed costs. While deflation pass-through provided a minor boost, the core improvements are sustainable. Regarding pricing, pressure from customers is a constant in the industry and hasn't fundamentally changed. Garrett's ability to bring performance and value helps in these negotiations.