Gentherm Incorporated (THRM) Earnings Call Transcript & Summary

Hello, and welcome to the Gentherm Incorporated 2020 Annual Meeting of Shareholders. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Ron Hundzinski, Chairman of the Board; Mr. Hundzinski, the floor is yours.

Good morning. The 2020 Annual Meeting of Shareholders of Gentherm Incorporated is hereby called to order. My name is Ron Hundzinski, and I am the Chairman of the Board and a candidate for election as a Director. It is my pleasure to welcome you to Gentherm's 2020 Annual Meeting. I would now like to introduce Phil Eyler, President and CEO. Phil will begin the formal portion of our meeting.

Thank you, Ron, and good morning, everyone. It is my pleasure to welcome all of you to our first virtual annual meeting being held as a live audio webcast. The agenda and rules of conduct for this meeting as well as the certified list of shareholders entitled to vote at this meeting are available for you to access on the virtual meeting center website. I'm pleased to introduce the current members of the Board who are all nominees for reelection at this meeting and present telephonically today: Sophie Desormière; Yvonne Hao; Ron Hundzinski; who just introduced himself; Chuck Kummeth, Byron Shaw, John Stacey and myself. I'd also like to note that Maurice Gunderson, a recently retired Board member, is also on the line. Our Board is highly -- is comprised of highly qualified and diverse leaders who are actively engaged in Gentherm's mission in delivering long-term shareholder value. It's my sincere pleasure to work with each of them. Also with us today are a number of our executive officers, including Matteo Anversa, Executive Vice President of Finance and CFO; Yijing Brentano, Senior Vice President Investor Relations; and Wayne Kauffman, Vice President, General Counsel and Secretary; and representatives of the company's prior and current independent auditors, Grant Thornton and Ernst & Young, respectively. At this meeting, you'll be asked to: one, elect the 7 Directors named in the proxy statement, each to serve for 1-year term until the 2021 annual meeting or until a successor has been duly elected and qualified, or until each such Director's earlier resignation, retirement or other termination of service; two, ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2020; three, approve, on an advisory basis, the compensation of our named executive officers; and four, approve a proposed amendment to the Gentherm Inc. 2013 equity incentive plan, to increase by 2,450,000, the maximum number of shares of common stock that may be issued pursuant to awards granted under such plan, and provide limits on the total value of annual compensation for any non-employee Director in each calendar year. The Board recommends that you vote for each nominee for Director and for the other 3 proposals. Wayne Kauffman, our Corporate Secretary, will act as Secretary of the Meeting. He has in his possession the following company documents. The certified list of shareholders entitled to vote at this meeting, and the notice of meeting, forms of proxy, proxy statement and supplemental proxy materials, together with an affidavit of mailing by ComputerShare, the company's transfer agent, of the notice of Internet availability or other proxy material to each person who is a record holder of common stock as of the close of business on April 6, 2020, the record date of this annual meeting. These materials, together with the affidavit of mailing, will be filed in the corporate records. Pursuant to the company's bylaws, Jade Larimore, a representative of ComputerShare, has been appointed inspector of election to supervise the voting, and she has signed an oath of office, which will be filed in the corporate records. I would now like to introduce Wayne Kauffman, Vice President, General Counsel and Secretary. Wayne will continue with the formal portion of our meeting.

Thank you, Phil, and good morning, everyone. A quorum is deemed to be present for this meeting, and so we are now prepared to proceed. The time is now 8:35, and the polls for all proposals are now open. If you previously voted by Internet, phone or mail, you do not need to take any additional action. Any shareholder who has logged in using your 15 digit control number and wants to vote during this meeting, or previously voted and wants to change his or her vote can now do so by using the voting buttons on the virtual meeting center website before the closing of the polls. The polls will close after the presentation of the last agenda item in the notice of the meeting, the approval of the proposed amendment to the company's 2013 equity incentive plan. If you have a question about one of the matters in the agenda to be voted on by the shareholders at this meeting, please submit your question in the field provided in the virtual meeting center website at/or before the time the matter is before the meeting for consideration. We will answer questions on matters in the agenda to be voted on by the shareholders at this meeting if received before the voting is closed. After the polls close, Phil will give a brief business update, while the inspector of election tabulates the votes following which we will announce the preliminary results of today's meeting. Following the conclusion of formal business, we will accept general questions from the shareholders or proxy holders. If you wish to ask a general question, please submit your question in the field provided in the virtual meeting center. Holders of record of common stock at the close of business on April 6, 2020, the record date for this annual meeting, are entitled to cast 1 vote per share for each matter. There is no cumulative voting. Directors are elected by a plurality of votes cast at this meeting or by proxy. All other matters require the approval of the majority of the votes cast. The first order of business is the election of 7 directors to the Board of Directors for a 1-year term. The Board presently consists of 7 directors. Directors Francois Castaing and Maurice Gunderson retired effectively immediately prior to this annual meeting. Each of the 7 Directors elected today will serve until the 2021 Annual Meeting of Shareholders or until his or her successor has been duly elected and qualified or until such Director's earlier resignation, retirement or other termination of the service. The Board of Directors has nominated 7 directors for election, Sophie Desormière, Phillip Eyler, Yvonne Hao, Ron Hundzinski, Chuck Kummeth, Byron Shaw and John Stacey. You can read a short biography of each nominee in the company's proxy statement. In renominating these 7 individuals, the Board and the Nominating and Corporate Governance Committee chose directors that the Board believes have an appropriate balance of knowledge, experience, attributes, skills and expertise as a group to ensure that the Board appropriately fulfills its oversight responsibilities and acts in the best interest of shareholders and the company. A brief description of the process undertaken by the Board and renominating our director nominees is in the company's proxy statement. The next order of business is the ratification of the Audit Committee's appointment of Ernst & Young as the company's independent registered public accounting firm for the year ending December 31, 2020. Representatives, Rebecca Merriman, partner at Grant Thornton; and Jerry Rudowsky, partner at Ernst & Young, are present at this meeting and available to respond to appropriate questions of shareholders. You can read more about this proposal in the company's proxy statement. The next order of business is the approval of the advisory vote on named executive officer compensation pursuant to the following resolution. Resolve that the company's shareholders approve, on an advisory basis, the compensation of the named executive officers as disclosed in the company's proxy statement for the 2020 annual meeting of shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including compensation discussion and analysis, the summary compensation table and other related tables and disclosure. You can read about this proposal in the company's proxy statement. The next order of business is the approval of the proposed amendment to the Gentherm Incorporated 2013 equity incentive plan. The amendment increases by 2,450,000, the maximum number of shares of common stock that may be issued pursuant to awards granted under such plan and provides limits on the total value of annual compensation for any non-employee Director in each calendar year. As no questions were received on the proposals, I hereby declare at 8:40, the polls for each proposal are now closed. I will report the results of the voting later in the meeting after tabulation has been completed by the elector -- inspector of election. While the Inspector is tabulating the votes, I would like to turn the meeting over to Phil to provide a few remarks and answer any appropriate questions from shareholders. Before Phil's statements, I want to remind the participants that we may make forward-looking statements within the meaning of the federal securities laws during this meeting. Statements reflect our current views with respect to future events and financial performance. We undertake no obligation to update them, and actual results may differ materially. For discussions of our risk factors and other risks and uncertainties underlying such forward-looking statements, as well as more information on the company's historical performance and expectations for the second quarter of 2020, please see our SEC filings included in our 2019 annual report on Form 10-K, our first quarter 2020 report or Form 10-Q, and associated earnings release. If we discuss non-GAAP financial measures as defined by the SEC Regulation G, reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures are included in our most recent earnings release or investor presentation available on our website.

Thank you, Wayne. Before I open the floor to questions, I'd like to provide a brief business update. Clearly, it's a very challenging 2020 in the midst of the COVID crisis and very challenging automotive market. But I'd like to begin with the 2019 company performance highlights and then touch on recent events. In 2019, we continued to make significant progress on our mission to transform and reposition the company to be a more lean, efficient and productive company. Our efforts, which began in 2018, have successfully refocused the company on our core operations in automotive and medical applications. We've divested noncore businesses and product lines, substantially reduced our operating costs, streamlined our manufacturing footprint and made significant progress toward improving both gross and operating margins. We faced strong macroeconomic and automotive industry headwinds in 2019. Nonetheless, we continue to outperform in automotive versus the key markets that we serve. And in our Medical business, in 2019, we achieved double-digit revenue growth through strong organic growth. Turning to the first quarter of 2020, we delivered solid financial results despite the unprecedented challenges in our markets presented by the worldwide pandemic, continued to outperform in automotive versus the key markets we serve, and achieved record quarterly revenue in our Medical business. In addition, we generated a significant increase in cash flow versus the prior year period. The COVID-19 pandemic continues to dramatically affect the global automotive industry. The company moved quickly to take actions to further improve liquidity and financial flexibility, including drawing from our revolver -- revolving credit facility, reprioritize and reducing capital expenditures, reducing discretionary operating expenses, deferring a portion of employee compensation, managing working capital and suspending share repurchases to conserve cash. Clearly, our #1 focus is on the health and well-being of our employees, and secondly, on assuring our support of our customers as we gradually ramp back up to production in the automotive market. I feel that we've positioned ourselves to weather the storm and we'll come out the other end a stronger company. Now I'll turn the meeting back over to Wayne to provide the preliminary voting results.

Thank you, Phil. We're just going to pause for a few moments while I wait for the inspector of election to tally the votes and to send those to me. So just give us a few moments. Jade Larimore, do you need a few more moments?

Apologies on the delay. I have sent the email, I'm just waiting for it to get to you.

Very good. Thank you, Jade.

Thank you.

Okay. The votes have been counted and the preliminary report of the inspector of elections has been provided to me. The inspector has certified that each of the 7 Director nominees has been reelected as a Director of the company for the term ending at the annual meeting 2021. In addition, the Audit Committee's appointment of Ernst & Young as the company's independent registered public accounting firm for 2020 has been ratified. The advisory vote on named executive officer compensation has been approved, and the amendment to the executive incentive plan has been approved. Report and certificate of the inspector of election will be filed within the minutes of this meeting. Final vote tallies will be reported in an 8-K filing in the SEC within 4 business days. You have now heard the preliminary results of the voting, and this completes the formal business to be conducted at this meeting. I declare the formal business portion of this annual meeting adjourned. I would now like to turn the meeting back to Ron and Phil, and open the meeting up to general questions submitted on the virtual meeting center website during today's meeting.

Having received no questions, the question-and-answer session is now closed. Our program for the 2020 annual meeting is now concluded. Thank you for attending. We look forward to seeing you at next year's annual meeting. Have a good day.

This concludes the meeting. You may now disconnect.