Gentherm - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered product revenues of $375.1M (+3.2% q/q, -0.2% y/y) with adjusted EBITDA margin at 12.2% (vs 11.1% in Q1), and GAAP diluted EPS of $0.02 impacted by $18.9M net unrealized FX losses; adjusted diluted EPS was $0.54.
• Against S&P Global consensus, revenue was a clear beat ($375.1M vs $363.4M*), while EPS modestly missed ($0.54 vs $0.582*); EBITDA was slightly above consensus on an adjusted basis though consensus tracks EBITDA differently*.
• Full-year guidance narrowed: product revenue range lifted at the midpoint ($1.43B–$1.5B), adjusted EBITDA margin range tightened to 11.7%–12.5%, and capex reduced to $55M–$65M.
• Commercial momentum remains robust: $620M of new automotive awards in Q2 (>$1B YTD), including full comfort solutions across Ford’s next-gen F-Series; liquidity rose to $416M; net leverage ~0.5x; $10M buyback executed.
• Near-term stock catalysts: revenue beat and raised midpoint, Ford F-Series content win, and Q4 margin expansion focus; watch FX volatility and tariff recovery timing (≈15 bps margin headwind).

What Went Well and What Went Wrong

What Went Well

• Secured $620M of new awards in Q2 (>$1B YTD), highlighted by Ford’s next-gen F-Series platform; “full comfort solution provider” content spanning heat, ventilation, lumbar, and massage across F-150/F-250/F-350.
• Automotive Climate and Comfort Solutions (A&CS) revenue +3.8% y/y (or +2.5% ex-FX), outperforming S&P Global’s LV production by 10 bps in relevant markets; strength in North America/Europe.
• Strategic adjacency wins (commercial vehicles thermal solutions; valves in power sports) and China mix shifting toward domestic OEMs; “launch of steering wheel heat with hands-on detection” at Xiaomi and Ram 1500 thermal control unit.

Management quote: “We secured all of the heat, ventilation, lumbar, and massage systems on Ford's next generation F-150, F-250, and F-350 platforms, making us the full comfort solution provider on one of the most significant platforms in the market.”

What Went Wrong

• Gross margin fell 180 bps y/y to 23.9% due to higher material costs (unfavorable mix), higher labor, and footprint realignment expenses; adjusted EBITDA margin declined y/y to 12.2%.
• GAAP net income dropped to $0.5M (from $18.9M y/y) driven by net unrealized FX losses of $18.9M; GAAP diluted EPS $0.02 vs $0.60 y/y.
• Asia weighed on performance; underexposure to China domestic OEMs (being addressed), while tariff pass-through timing and dilution added ~15 bps headwind to margins.

Transcript

Speaker 3

Greetings and welcome to Gentherm's second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Gregory Blanchette, Senior Director of Investor Relations. Please go ahead.

Speaker 0

Thank you and good morning, everyone. 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. On the call with me today are Bill Presley, President, Chief Executive Officer, and John Douyard, Chief Financial Officer. During their comments, they will be referring to a presentation deck that we've made available on the investor section of Gentherm's website. After the prepared remarks, we'd be pleased to take your questions. Now, I'd like to turn the call over to Bill.

Speaker 2

Thank you, Greg, and good morning, everyone. I want to start on slide three, the few key performance highlights for the second quarter. The Gentherm team delivered results in line with our expectations in a highly dynamic environment. We improved adjusted EBITDA margin performance versus the first quarter by more than 100 basis points and achieved another strong quarter of automotive new business awards with over $600 million secured in Q2 and $1 billion year to date. This keeps us on track for another robust year. We received a significant award from Ford on their F-Series platform, and I would like to use this as an example of how Gentherm is strategically positioned as a differentiated solutions provider. We have industry-leading technology and strong customer relationships, which position us well for this highly contested award.

We secured all of the heat, ventilation, lumbar, and massage systems on Ford's next generation F-150, F-250, and F-350 platforms, making us the full comfort solution provider on one of the most significant platforms in the market. The F-Series truck platform is the number one volume vehicle in North America and is in the top five globally. This reinforces that Gentherm thermal and pneumatic products are not just focused on the luxury vehicle segment, but they are becoming the customer standard and applicable to large volume platforms. Additionally, it's important to note that Gentherm was awarded the program prior to the selection of a tier one seat supplier, demonstrating the strength of our commercial approach, which is built around direct OEM engagement. Our products are an essential component in the OEM product planning process, and we work closely with them to deliver capability and value to the end user.

I am grateful to the team for securing the significant new business award. We continue to innovate thermal and pneumatic solutions that allow us to create a highly desirable value-added feature for the market. Turning to revenue, in the second quarter, automotive climate and comfort solutions outperformed actual light vehicle production in our key markets by 10 basis points, excluding FX. While we are not pleased with the overall result, we did have strong outperformance in North America and Europe, weighed down by underperformance in Asia, where our share does not currently represent the market. We recognize the importance of shifting our customer mix and are actively tailoring our pursuit maps to close the gap in Asia. To demonstrate progress, we have made to proactively grow our business with Chinese domestic OEMs.

If you look at our awards year to date, 70% of our Chinese awards were with Chinese domestic OEMs compared to 50% over the last two years. As a result of the team's efforts, historically in China, our customer revenue mix was about 80/20 in favor of the global OEMs, and we expect next year to be closer to 60/40. It remains a key strategic priority for us to shift our China customer mix toward domestic OEMs to be more closely aligned to the overall market. Operationally, we are laying the necessary foundation for driving improved operational and financial performance, which will allow us to strategically deploy capital. Now on to slide four for an update of our progress against our strategic priorities. We are committed to driving strategic profitable growth and confident in the growth trajectory of our core automotive business. Pneumatic, lumbar, and massage adoption rates are accelerating.

In 2024, the product line grew more than 20% from the prior year, and year to date, we've grown more than 15%. We expect that trend to continue. We project that our lumbar and massage product line will grow from approximately $175 million in 2024 to well over $300 million by 2027. Growth will be driven by increasing adoption and recent awards that have not yet gone into production. These include GM's full-size truck platform, a Hyundai vehicle with Pulsea technology, as well as multiple domestic Chinese OEMs, including Leapmotor. Separately, we are executing on our strategy to expand into near adjacent markets and are gaining momentum.

Over the first half of the year, our global team has engaged with over 30 customers across a variety of end markets, and the feedback has been overwhelmingly positive as customers are now expecting the same comfort solutions as those in the light vehicle market. We demonstrated quick progress and secured five new awards in the quarter, including two new commercial vehicle programs with our thermal management solutions and three valve awards for power sports platforms. These wins validate that our products have broader application, and we see additional early opportunities in these markets, as well as two-wheelers and motion furniture. I am impressed with our team's ability to quickly pivot beyond the light vehicle market, and we do believe this is just the beginning. Second, we continue to position the medical business for future growth.

We announced an expanded strategic partnership with DuoMed to enhance European distribution, increasing market access for our existing product portfolio, and we progressed our work on new medical product development and expect announcements in the coming quarters. Operationally, I spent time with the leadership team in five of our manufacturing sites during the quarter, performing workshops, sharing best practices, and standardizing business processes. In my visits, I have observed best-in-class capabilities and will drive these across the company as part of a standardized company operating system. Our global strategic footprint realignment plans remain on track and expect to be substantially completed with our announced plans in late 2026, as previously communicated. M&A is an important component of our capital allocation strategy. We have progressed the M&A funnel development and are evaluating opportunities aligned with our strategic priorities and core technology platforms.

I will turn the call over to John to review second quarter highlights and results. John?

Speaker 0

Thanks, Bill. Please turn to slide five. For the second quarter, we secured $620 million of automotive new business awards. A few highlights include that Ford F-Series program, which, as Bill mentioned, is an important strategic win that secures our content on the highest volume platform in North America for the next decade. Our technology leadership was further reinforced as we secured additional Pulsea awards on four vehicles with JLR and BMW as they scale the technology across their platforms. Pulsea, our proprietary pulsating massage system, is gaining traction, and its performance remains unmatched in the market. With increasing momentum among OEMs, we expect this innovation to drive profitable incremental growth of our lumbar massage comfort solutions business for years to come. We are also winning in China with Chinese domestic OEMs, including BYD, Great Wall, and Leapmotor.

These awards will drive incremental growth in China, resulting in a shift of our customer mix over time to be more aligned with the overall Chinese market. To that end, we launched nine new programs in the quarter, including several programs with Chinese domestic OEMs highlighted by the launch of a steering wheel heat with hands-on detection program with Xiaomi on the YU7, which is expected to become one of the highest volume vehicles in China over the next several years. Additionally, as mentioned earlier in the year, we won a thermal control unit program across several Stellantis vehicle platforms for both seat and steering wheel heat control, and in the quarter, we were excited to launch on the Ram 1500. Please turn to slide six for a more detailed review of the second quarter financial results. Second quarter revenue decreased 0.2% compared to the same period last year.

Foreign exchange adjusted revenues decreased 1.6%. Automotive climate and comfort solutions revenue increased 3.8% year over year, or 2.5% ex-FX, which partially offset planned revenue decreases from previously discussed strategic exits. Medical revenue decreased 3.8% year over year, or 4.8% excluding the impact of FX. Turning to profitability, we delivered $45.9 million of adjusted EBITDA in the quarter, or 12.2% of sales compared to 13.3% in the second quarter of last year. The decrease was primarily driven by higher material costs, which includes unfavorable product mix, as well as higher labor costs and expenses related to our footprint realignment. As we discussed previously, we experienced timing disconnects between tariff expense and recovery, as well as dilution from the pass-through revenue, which collectively impacted margins by approximately 15 basis points in the quarter. Overall, our team has done a nice job of running the playbook to mitigate tariff exposure.

Adjusted diluted earnings per share in the quarter were $0.54 per share compared to $0.66 per share in the second quarter of last year. Our balance sheet remains strong, and we have generated $32 million of operating cash flow year to date. We repurchased $10 million of shares in the second quarter and will continue to balance repurchases with other strategic priorities moving forward. Overall net debt stood at $81 million, while our net leverage ratio remained flat at 0.5 turns. Our available liquidity was $416 million at the end of the quarter, an increase of $15 million from the prior year. Please turn to slide seven for a discussion on our guidance for the remainder of the year. Overall, sentiment has improved since April. We continue to diligently monitor the market, including industry reports, as well as customer production schedules, which have remained relatively stable throughout the entire year.

Based on the latest available information, we have updated our guidance and increased the revenue midpoint. We now expect revenue to be in the range of $1.43 billion to $1.5 billion. On EBITDA, given our results year to date, increased clarity on the impact of tariffs based on what is in place today, as well as the expectation of improved performance in the second half, we have narrowed the adjusted EBITDA margin range to 11.7% to 12.5%. On capital expenditures, we are reducing our expected range to $55 million to $65 million to reflect the focus on optimizing the utilization of current plant and equipment while also scrutinizing new projects. As we think about the cadence for the remainder of the year, we expect third quarter overall results to be roughly in line with the second quarter, despite industry reports suggesting a mid-single-digit decrease in light vehicle production sequentially.

In closing, we remain on track to deliver our financial commitments for the year while positioning the company to drive shareholder value over the long term. With that, I will hand it back to Bill for closing remarks.

Speaker 2

Thanks, John. I want to wrap up on slide eight, reiterating our belief that Gentherm is uniquely positioned for long-term value creation. We remain focused on driving profitable growth of our innovative and differentiated core technology platforms. In a short time, we have proven these are scalable and portable to adjacent markets. Next, we are committed to driving margin expansion through continuous improvement and have a clear path with our strategic footprint realignment and focused efforts on the margin profile of the lumbar and massage comfort solutions business. Lastly, we are operating from a strong financial position. We remain flexible and opportunistic with our capital allocation priorities to drive shareholder value. In conclusion, we are acting with a sense of urgency on the execution of our long-term strategic priorities to deliver enhanced shareholder returns. With that, I will turn the call back to the operator to begin the Q&A session.

Speaker 3

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Your first question comes from Ryan Sigdahl with Craig Hallum. Please go ahead.

Hey, good morning, guys. Nice quarter and update.

Speaker 2

Morning, Ryan.

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 is that a company-specific outperformance they 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?

Speaker 0

Thanks, Ryan. I think I would say it's a company-specific view. I mean, we do have a number of new launches that are going to come out in the third quarter, really across the regions. Also, as we look at, as we've talked about throughout the year, we've been very consistent from a customer production schedule standpoint. 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.

Very good. Just switching over to Ford. Nice to see that new F-Series. Full comfort solutions portfolio on Ford F-Series. I guess, can you compare and contrast how that compares to, because you guys had a lot of content on the previous or the current F-Series, but what's new, what's different, current versus the next gen?

Speaker 2

Yeah, for us, Ryan, this is Bill. That was a continuation, really, of our current platform. Similar content as the previous F-Series. It just solidifies the desire of the customer to have our features because of the value that it provides to the end user. Significant for us because of our strong relationships with the customer, because of our innovative product line, we're able to work with the customer while they're doing their product planning and be sourced into the product before they've even chosen the seat supplier.

Yeah, and certainly nice to have that extension with a core customer, especially given some of the noise in the market. Last question from me, then I'll turn it over to the others, just on the adjacencies. I believe you called out three power sports platforms that you have awards. Maybe you can expand on that, who the OEMs are, what the content provided, et cetera.

I can't expand on who the OEM is. I'll tell you that they're UTV-style vehicles, and it just proves the thesis that our valves really being a, what I call a catalog component, read across to other industries. Our teams have been out there calling directly on those other end markets to provide our solutions. We're very positive on what we think we can do there. We're just building the channel, but we think this is a great opportunity for us in the future.

Just to clarify, you said single OEM with three platforms?

Yep.

Great. Thanks, guys. Good luck.

Thanks, Ryan.

Speaker 3

Next question, Ryan Brinkman with JPMorgan. Please go ahead.

Hi, thanks for taking my question. One thing that I think really stood out from your earnings call last quarter was the large opportunity you saw in the non-automotive end market. It's great to see the awards already in power sports and commercial vehicles. I'm about to ask some questions around that. Starting with power sports, I'm calling it 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. I think snowmobile seems an obvious candidate. On the commercial vehicles, are these commercial trucks? Can you remind us what, if any, business you do today in commercial trucks? 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. Finally, you mentioned valves. 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 valve somehow different? What are you looking at potentially supplying there, if not heated and cooled seats?

Speaker 2

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. Let me just start with saying, look, our alternative, our commercial vehicle is extremely small today, almost negligible in the company. The commercial vehicle wins that we're talking about here are specifically thermal solutions. There were two awards on commercial vehicle. One of them is actually a heavy truck. I'll take class A over-the-road truck. That's a big win for us there. The other one is a last-mile delivery van. Both commercial vehicles, both good wins. New wins for us. The valve specifically were on the power sports platforms. That was separate of any thermal and pneumatic solution. 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 four core technology platforms. There were thermal solutions, there were pneumatic solutions, there were valves, and there were air-moving devices. We view valves and air-moving devices as catalog parts, meaning it's a flow equation and a dimension. 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. That's what the team brought home this quarter. The other end markets that we specifically mentioned were two-wheelers. Two-wheelers would be applicable to our thermal solutions. They would be also applicable to valves. We're in some early proof of concepts, I would say, there with two-wheelers. Motion furniture is anything that's not stationary. The doors there have opened well.

The communications there have been very positive, and we're in early proof of concepts with two equipment manufacturers in motion furniture right now.

Speaker 0

I would just add, Ryan, I think we did talk about this on the last call. This is us taking current product lines and opening up to existing markets. Minimal investment. We're not offering really new products, but tailoring them and looking for opportunities to just add to our adjacent markets.

Speaker 2

Yeah, I think super good point to clarify. Right, Ryan, these are not us creating a bespoke solution for a unique market. This is us scaling our core platform technologies and components. Utilizing literally the same plant, property, and equipment that we have today out there, pushing what our teams on the thermal and pneumatic side would call standard kits, and pushing on the valves what our teams would call catalog parts.

Okay, very helpful. Thank you. Just lastly, on the EBITDA margin change in the guide, obviously some good fashion year to date. You're a little bit better than consensus here in the quarter. I'm just curious if you can comment on that. I understand it's a little bit of a narrowing, but kind of midpoint down slightly. I'm just curious if tariffs have influenced that at all. You're one of just a handful of suppliers to have reported Q1 earnings before the April 29 U.S.M.C.A. compliant part exemption from tariffs. Is there maybe less pass-through of zero margin tariff costs, or what are the puts and takes there on, not a big change, but puts and takes on the full year margin revision, please?

Yeah, let me start on tariffs, Ryan. I mean, I think we talked in the quarter about being about a 15 basis point headwind. I would say generally the tariffs have played out exactly as we have expected in terms of the cost incurred, as well as our ability to pass through and recover. There is also the timing difference between when we do incur the expense and when we do recover it from the customer. That's really the headwind that we're seeing here. That will fluctuate month to month in terms of the magnitude just based on goods movements. I think we've got better clarity, certainly better clarity today than we did in April, just on the fact that we've been living through it now for a couple of months.

As we, you know, that is a piece of narrowing the EBITDA guidance range as well as having additional clarity on what the tariff impact is overall. I think the other piece to that is you look at the first half of the year where 11.7% of EBITDA, adjusted EBITDA year to date. We did see sequential improvement from Q1 to Q2. We expect the second half to be in the same range or a little bit better. As you look at that math, it really sort of narrows it around that low 12% range.

Okay, very helpful. Thank you.

Speaker 3

Once again, if you would like to ask a question, please press star one on your telephone keypad. Next question comes from Matt Caranda with Roth Tactical Partners. Please go ahead.

Hey guys, good morning. Just on the guidance, I guess I wanted to clarify to hit the midpoint of the guide on EBITDA, it doesn't 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. Do we expect that in the third quarter, or is that more of a fourth quarter event, and maybe just the puts and takes around that?

Speaker 1

I think just to clarify what we said, we expect the second or third quarter to look a lot like the second quarter did, 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. 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? That's really what we're pushing on to see a better second half here.

Okay, the fourth quarter improvement comes mostly from a mix improvement, or is that a vendor negotiation thing? What are the kind of buckets where you see the improvement coming from?

No, I would say it's operationally.

Okay, got it. I was curious on Asia. You mentioned one of the reasons for the underperformance relative to production is kind of lower exposure to the China domestic OEMs. I guess that would suggest that it's going to take time to close the gap on outperforming China production. Maybe can you speak to that and how long it may take before you're consistently outperforming production in China over time?

Speaker 2

Yeah, I would say if you look at our revenue, you know, what we've been winning, we'd say by next year, we're at that 60/40 customer split, so 60% global, 40% domestic. That starts improving actually for us next year. Matt, the Chinese OEMs, their development cycles are much faster. When we win programs, we can often add revenue anywhere from six to 18 months. As I said in my comments, for the first half of the year, the team's done a phenomenal job. 70% of the wins in China have been with Chinese domestic OEMs. If you project that out, we're quickly shifting toward what I would say is the mix in the market there. Our plan is to represent the market there sometime in the next 18 to 24 months.

Okay, that's great to hear. Maybe just last quick one. The adjacent market revenue, it's exciting to kind of hear all of the potential adjacent market products that you could be in. Maybe I missed it, maybe you covered it, but just in terms of cycle time for that, I would assume that's much faster than the typical automotive program in terms of, you know, sort of when to launch. Could you touch on that really quickly?

Yeah, I think you're spot on. It's surprisingly much faster. Like I said, we're working on proof of concepts now, you know, and these industries and the parts that we're showing them, the components we're showing them, because they're already available, you know, their launch times are their to market times they talk about in terms of less than a year.

Okay, excellent. I'll leave it there. Thanks.

Thanks, Matt.

Speaker 3

Thank you. This does conclude today's teleconference. We thank you for your participation. You may now disconnect your lines.