Gentherm Incorporated (THRM) Earnings Call Transcript & Summary

Great. And thank you for joining us for this session. I'm Ryan Brinkman, the U.S. automotive equity research analyst at JPMorgan. Very happy to have Phil Eyler, President and Chief Executive Officer of Gentherm as well as Matteo Anversa, Executive Vice President of Finance, Chief Financial Officer and Treasurer Gentherm. Phil is going to take you through a couple of slides, and then we'll encage in some discussions.

Great. Thanks, Ryan. We're honored and excited to be here today, and it's certainly an interesting time in the automotive sector. So lots to talk about. I just want to take a few minutes and give a little bit of an overview of Gentherm, some of the latest happenings with the company and hopefully frame up some of the discussion we'll have on the fireside. So let me just start really quickly with kind of the Gentherm investment thesis. First of all, Gentherm is a company that is really a pure-play leader in thermal and pneumatic comfort and management in the space. We are the global leader. We have a strong market share position in the space. And we're really excited about the space that we operate in. We believe it's at the epicenter of some very important trends, especially in the automotive industry, around health, wellness, comfort and energy efficiency, especially as it relates to the interior experience in the vehicle. And as a company that provides a human-centric thermal and massage and lumbar solutions and many others. We're very focused on the consumer, the passengers, the drivers. And we think this is a huge opportunity for car companies to differentiate over time. And we're laser-focused. We stay very laser-focused in that space because we believe we have the opportunity to wind, to command significant market share and to drive outsized margins in our space. Number 2 is that the automotive market, albeit very dynamic these days and difficult to predict is a large market. And if you look at our products, the thermal products and the pneumatic products, the penetration is actually quite low with a lot of opportunity to grow within the space. So we have a unique growth story, we believe, in -- especially in our automotive business. If you look at penetration, for example, of one of our core products, which is climate-controlled seats both heating and cooling of the seats. Current penetration is around 10% to 12% of global production, have that technology. We see that growing to about 24%, 25% by 2030. So some nice tailwinds in terms of growth. That's a pretty high content product just as an example. And as I said, consumer demand for this product continues to increase, both in penetration rates, adoption of new vehicles in content, more seats are being added, more internal solutions, more electronics and more software, which we'll talk about. Number 3 is really around innovation. Gentherm is a company that was founded on innovation that focuses on staying a generation or at least 2, 1 or at least 2 generations ahead of our competition, both in the hardware, and we'll talk about the anchor to our future in a few minutes, which is really around systems. And then finally, if you look at our business, we're really proud of our consistent execution around our strategy, which is 2-pronged. One is focused growth. I mentioned that we are laser-focused in our spaces, and we don't get distracted. We really target our investments in those areas of high return where we're experts. And then secondly is around driving margin expansion and cash flow expansion. We have a clear path to high teens EBITDA over time. We're executing on that, and we're proud of our disciplined approach to capital allocation, and we can talk more about that in a second. So what makes us confident in the growth of the company, really, in automotive, it's a long-cycle business. And you have to win business today that's going to launch in 2 years from now or even more. And we've been winning business at a record pace in the company. You look at 2023, we won $2.6 billion in lifetime awards by far, a record for the company. Our previous record was $1.8 billion. So really proud of that. We're at $1.2 billion halfway through 2024. So great momentum. And we -- and we're winning at a very high rate versus competition. The last several quarters, about 80% win rate across our portfolio in terms of dollar opportunities. We believe we're absolutely well positioned, and we're building that backlog of business for strong growth. Let me just talk about some of the core areas, and we'll dive into these more in the Q&A. Of course, expanding our core thermal business, that's where the company started. We're a market share leader there. I mentioned the Climate Control Seats. We have about 60% market share in Climate Control Seats, steering wheel -- heated steering wheel and hands-on detection. We have about 60% market share globally. And then on the, let's call it, more mature product, the seat heating, we've got about 40% market share. So we think we're doing really well in the thermal side of the business, and we continue to win at a high rate. We're expanding in Asia. That's a really big vector for us, growing with Chinese domestic OEMs, especially the EV players. And then we're really excited about Japan. We just announced the launch of the Toyota Tacoma and the Toyota Camry, which is -- if you know our company, Toyos a pretty small revenue stream as of now and looking to grow that. Obviously, the pneumatic side of the business, we acquired Alfmeier a couple of years ago, a small German company focused on pneumatic massage and lumbar technology. That acquisition has been a huge success for us. We're winning at a record pace on pneumatics. We have about 30% market share in that space now, and I believe that's going to be growing pretty significantly. And we'll talk about some of the wins there, but we've had 9 Conquest wins since the time of the acquisition as we've taken that technology to Gentherm's great customer portfolio. And we just want a breakthrough new technology called Puls.A, which will be the industry's first pulsating massage, and that will be with Hyundai on the Genesis platform. As we've combined thermal and pneumatic, we see a great opportunity to combine these systems. There's a big demand from the OEMs that they want to see this combination of thermal and pneumatic working together seamlessly, and I'll talk more about that in a bit, but that puts us in a prime position. Increasing vehicle content, one area that a lot of people don't know about Gentherm is we manufacture all of our own electronics. We design our own electronics, and we implement our own software for our products. That's really helping us to expand ourselves into not just a component provider, but a system provider. And we think that's really a key connection to our future. I'll talk about that a couple of those technology in just a second. And then from that, starting to differentiate with software. In fact, we just announced a few quarters ago, our first ever software award with General Motors. So software-only for Climate Sense. So Climate Sense in the future will be on virtually all General Motors vehicles. Last thing about differentiation for Gentherm is we have a very differentiated business model, which is that of an independent partnership model. So we can work with any OEM around the world. We currently have 50-plus customers, and we can work also with 30-plus seat manufacturers and any combination thereof. We really think that positions us in a very unique way, and our customers are letting us know that that's very attractive to them. I'll talk quickly about the innovations. I think Ryan will talk about this in a second. But Climate Sense is our unique microclimate solution driven by the science of the human body. We actually design an algorithm that controls the heating and cooling of the human body to minimize the use of power in the vehicle and maximize the comfort of the driver and passenger. The next platform is WellSense, which is a software-driven solution that provides health and wellness solutions for passengers. So think about special treatments for lower back pain with massage and heating and cooling, alertness routines, relaxation, especially if you're driving in New York. This is a great technology to have to kind of chill out on your drive home. So we -- we can talk more about that fits perfectly into the software-defined vehicle. Our idea is that we would create routines that can be sold to consumers over time in their ownership of the vehicle. And the last one I would talk about is comfort scale. This one is more of a hardware-driven system. And obviously, in the past, the business model is to sell the blower, the CCS product, the heater mat, the lumbar, the massage and the electronics as separate devices. We've created a platform called Comfort Scale, which basically consolidates these into one device and can deliver that to the OEMs or the seat manufacturers in their plants, drastically reducing labor. And as you know, labor is becoming a bigger and bigger factor. Our customers are very excited about this. So this combination of technologies, we believe, will really help us increase content per vehicle over time and stay in front edge with proprietary solutions. On that Comfort Scale, I want to give you a hot off the press piece of news. We've talked in the past about our remarkable relationship with General Motors. In fact, we've announced, if you look at the left side of this slide, component wins with CCS with heat, with climate sense software, ECUs, massage and lumbar on the truck platform that's coming. That's the Sierra and the Silverado. Obviously, for us, it's the largest platform in our portfolio, one of the largest for General Motors. So we've already won all those components. And when I announced that we have -- we're converting all of that into full comfort scale award. So will be our first comfort scale award, and we believe the first of its kind on the market, which basically will integrate lumbar, massage, heating, CCS, all into these consolidated devices. So excited about that. And obviously, we can dive more in the Q&A. And with that, I will turn it over to you, Ryan.

Great. Thank you. Maybe just one place to start because I have gotten some questions over the past couple of days quite a press release on Tuesday that Matteo will be CFO through September 1, and then he'll go on to a larger cap company in an industry that's hopefully less stressful larger tech. Gotten questions from really mostly Logitech investors. What kind of CFO is Mateo and I really associate you with the fit for growth initiatives. But I want to get filled the credit because he came in and branded that in 2018. And what a good branding, I think, because there were so many irons in the fire previously and not a lot of discipline around the operating expense before you came because it was like the skunkworks type company. And I think your message to the team and to the investors was we're going to cut, we're going to focus, but that's not going to hurt us. It's going to help us to grow because we'll have that new focus. So you started that program. But Matteo, you were driving it, especially as it evolved into Fit-for-Growth 2.0. So you got a CFO who knows how to instill operating expense discipline, also been there for a lot of footprint optimization, a lot of baptism by fire with all the change in the auto industry since you joined, probably more than you bargained for. And so they said, "Well, that sounds really impressive, but do he know anything about the electronics industry?" Well, actually, Gentherm has a printed circuit board business. They do -- they don't do as much of the new automotive electronics are, but they do their automotive electronics and the wire and sensor business. And I said he knows a hell of a lot more about semiconductors than we did 4 years ago and ever hoped to know. So anyways, maybe just talk a little bit about the departure and Phil, maybe what we should think about next in the CFO role.

Okay. I start?

Yes, sure.

So first of all, a very tough decision for me, being 5.5 years with the company. We went through a lot. I think you named a few COVID crisis and so and so forth. Ukraine yes. So -- but really, what I missed the most is, for sure, the relationship with Phil and the team has been actually the person that work the most in my career. So very tough decision, particularly considering that I really think that the Bridas are ahead for Gentherm. And Phil just talked about the award that we just secured with GM. This is going to be a game changer for the company. Logitech is slightly bigger -- it's a bigger company, and it's a new space for me. So it's a way to grow my -- continue to grow my career. Tough to say no. And also personally, quite frankly, it's a good time for me to transition to a different part of the country. So a very tough decision. I will miss the team tremendously, but that's what's behind it. No more than that.

Yes. Obviously, we'll miss Matteo, who's been a great partner for me over these years. But he has positioned us quite well for this transition. His team across all disciplines and all BUs is very strong. So we won't miss a beat. We've kicked off a search already, and I'm actually quite confident that will attract a great candidate. We're -- I think we're a very unique company in the space. We have a great story and a great mission, and I think people are going to be pretty attractive to that. And we've seen that pretty consistently on most of the positions that we've filled in the company. So I'm certainly going to miss him, but confident, extremely confident in the future of the company.

Absolutely. Maybe one point on Fit for Growth, just to clarify. This is really a cross-functional initiative across the company led by a senior -- very senior person is a gentle and supported by a very high-level people that really drive the execution of the different work streams. So that this is not going to get impacted at all. The execution will continue with no change.

Great. First question here, apart from the CFO transition is on the evolving expectations for battery electric vehicles for years, the pace of adoption, it seems like it could only surprise to the upside. Now it's starting to surprise to the downside. S&P Global Mobility at the start of the year was expecting 32% growth in global EV production this year. Now they only expect 10%. What in your view accounts for the significant expectations reset into this slower growth near term cause you to think any differently about the medium or long-term trajectory? And what do you think the implications are for Gentherm?

Well, I'll start there with the implications long term. We're pretty agnostic when it comes to our product line. Virtually none of our products are designed explicitly for EV. So they're products that can be integrated in whatever kind of vehicle with any kind of powertrain. So I think long term, how that balances out, the consumer demand for our product is there. It's really a consumer experience-driven demand behind it. So we feel good about the long-term leveling off of this. Obviously, in the short term, it's been dynamic. And if you look at most of the new vehicle designs and awards over the last 2 to 3 years, maybe even 4 years, they've been EV focused. So that definitely puts a little bit of a constraint on, I'd say, all suppliers in the space, but especially those who are winning a lot of business with EVs. And it certainly is having an effect on us with delayed launches and a little bit lower volumes for the launches of the EVs. So that's -- I'd say it's kind of where Gentherm is positioned that. We do expect to see ICE volumes pick up to replace some of that over time. When it comes to EVs, we're absolutely believers in EVs in our company. We think that's the future. I think, obviously, the constraints on the consumer are playing a big factor in this. High interest rates are leading to the high cost of ownership of vehicles. Hopefully, that will ease in the near term. I think there's also a little bit of a media hype. I think the media hype was probably too much on the upside and the price too much on the downside right now, personally. And consumers tend to follow that a little bit. So hopefully, that can get corrected. Those who have driven and own an EV, I mean, it's a fantastic experience. It really is. So I think it's going to come back. Just in general, I think the demand in the whole market is challenged as well. As you know, we keep seeing outlook drop and orders drop throughout the year. think there's -- personally believe there's a pretty hefty amount of pent-up demand in the market that's going to pop. And I think we'll see probably -- who knows when it happens, but a little surge in demand and then maybe it will come down a little and level off. I think it will level off a little bit higher than it is right now.

Yes. And Phil, I'm just bringing up your transcript here from July 31, and it looks like you said on comfort scale, our fully qualified integrated solution is an advanced commercial discussions with several customers and we expect awards in the very near future. So by very near future, you meant the very, very near future. And we just missed that cutoff because when you go on the call, you give us the dollar amount and is obviously GM truck program is basically, I think, tied with -- actually since you come to SUVs basically probably the largest program in North America. So what does that mean for lifetime revenue or...

Well, that's a Q3 forward. So we'll talk about it in the next earnings. But, well, we already had all the components. And it's really now the trust that GM has given us to integrate the whole package, and there are some -- there's some added content for sure.

Is the margin thing do? Or what -- is it a margin thing?

It's margin, added content and the assembly process and logistics as well. So we're really going to control how this whole thing comes together.

Nice. Another question relates to another big theme apart from EVs, which is tremendous growth of the domestic Chinese automakers, right? They were quick to embrace electrification. Their quality and design have significantly improved, and they're introducing models ofttimes twice the rate of their global peers, incorporating the latest technologies. BID was, I think, 13 largest automaker in China 5 years ago. Now they're the biggest. And collectively, they've gone from about 35% share pre-pandemic to 55% this year, small outside of China, but with big ambitions. How do you see this trend evolving? And many of the suppliers we cover are still under levered to these quickly growing automakers? What is your exposure? And can you describe any actions you might be taking to try to better position the company to benefit from their growth.

Well, I think just starting off at a high level, our company is -- we have a dedicated team in China. With our local product development, customer support, manufacturing plants, the whole thing. So it's really a support for the China market, which puts us in a great position, whether that's the domestic OEM or international OEM. Right now, China represents about 14% of our sales worldwide and about 2/3 of that is still with the global OEMs and 1/3 is with domestic OEMs, but rising. Our approach has been to be very focused and selective within that -- the fast-growing space of many, many, many start-up companies and more mature. And I think that's been really successful for us so far. We've looked for partners that we think are going to be reliable and here to stay, but also who have a vision for consumer experience, have a similar mindset that we have. And so we focused on. Great Wall has been a great customer for us. Lee Auto is a very fast-growing customer for us. They've had a couple of hiccups, but still growing rapidly. BYD for a few vehicles. If you look at their portfolio, you have to be kind of selective there and a handful of others, but pretty selective, we're not chasing everything. And I think that's prudent. We don't want to get stuck with a startup that leads you in the cold, if you will. So I think that approach is working well. If you look at last quarter, we actually grew in line with the market. in China, and that was because of the fast growth with those domestic OEMs, offsetting pretty significant declines with some of the global OEMs.

I'm trying to figure out how I can import Xiaomi SU7, they're sanctioned, right? But for men's, Panamera, is gorgeous. Maybe next on Alfmeier. It's been a couple of years now since you brought in the lumbar and massage capabilities. Maybe just review the ways that this has benefited the company. There were some cost synergies. Those seem to be not the primary benefit, right? You've gotten a lot of revenue synergies, a lot of customer introductions. What's been the trend in new awards since you closed on Alfmeier? How has that tracked versus your original expectation?

Well, we've been -- as I mentioned, when we did the acquisition, we have been working on this deal for years and the timing worked out. And our focus really was about innovation and technology with Alfmeier. As a company that has the industry-leading technology throughout the whole system, including what was in the pipeline, which was Puls.A, which we're really excited about that. I think it's going to be a game changer that's proprietary, and I think it's going to provide an experience that no other pneumatic massage or lumbar solution can provide. But we have -- the thesis really was around building on a small company that had only a few global customers, mainly in Europe and bringing Gentherm's customer mix into play. And we had a reasonable plan to ramp that up, and we've done it much faster than we expected. We've won, as I mentioned, 9 Conquest awards with the likes of General Motors, Hyundai Kia, JLR, Stellantis, Tesla, the list is really impressive. And that's already fueling growth. If you look at Q2, that was our fastest-growing product line. We grew over 20% with our pneumatic business, and that, I think, is going to get even higher throughout the course of the year. And then over the next couple of years, we start rolling out even more of these new business awards, I think that's going to be our fastest-growing segment for probably 2, 3 years to come, at least.

That's great. I wanted to check in on the competition from Lear following its acquisition of Kongsberg Automotive interior Comfort Systems business. I for you say that you're positioned as the largest independent provider of thermal and pneumatic solutions is a key differentiator with both your OEM and Tier 1 customer. I would want to give business to their competitor, right? And I think you've got a lot of proof points there, considering the number of wins you've announced since Lear's vertical integration of heating lumbar and massage. And given you discussed on the last call that you won 80% of what you quoted on during the quarter, your pursuits. At the same time, Lear's also communicated to investors that it expects to progress from #2 in seat heating #1 by 2027, while increasing their share of the lumbar massage and ventilation markets also. Could you review for us why you think being an independent supplier helps you in the eyes of your OEM customers and other seating suppliers that compete with Lear? And will you be #1 in 2027 in seat heating?

Well, yes, I think let's talk about how we focus on our customers. I think that's what -- that's our focus. Obviously, there's competition in the space. But in my experience, if you're laser-focused on delivering the absolute best solution for the customer and the best business model and the best support, that's how you win. And this independent model fits really well in the space. The majority of OEMs, direct source, this technology, especially if they're larger. And the rationale behind it is there are multiple seat manufacturers within an OEM's portfolio, and they want to provide -- this experience is so important to customers. They want to provide this in a consistent way across all their vehicle platforms. So we work directly with them to develop this technology, customize it. I think GM is a great example and deliver it. So it guarantees the best solution possible. And we can do that with every seat manufacturer in their portfolio. Obviously, they get scaled in with us. So from a commercial standpoint, that's good for them. It's good for us. And then we have a long-term view on how we want this to integrate into their complete vehicle thermal and pneumatic comfort solution. And of course, the fact that we are the only player in the industry that is really science-driven. I think that's -- a lot of people missed that. We focus on the human body. We have a complete organization that develops science-based solutions around thermal, around pneumatic comfort. We follow this process called the 3Ss, which is science to software to sensation. So the science is the human body aspect and our PhDs develop these routines, whether it's thermal, pneumatic or combined. We deliver that to our software team who turns that concept into a working algorithm or a set of software for the vehicle and then it gets to implementing all of the effectors the proper way to deliver that experience. It's a real differentiator in the space. But we're -- obviously, some of the businesses working with Tier 1s, and we're really proud of our relationships with Tier 1s. When they have sourcing capability, we follow the same approach with them. Really proud of our relationship with Mini. Adient, I think, is a great example, someone we're working quite closely with and have been successful with and -- but many more around the world. And sometimes when median suppliers once has one thing, one says the other. Aptus said something about electronic, Lear says something, I can just kind of weigh what they say. In this case, I can go and I can ask Adient. I can ask Mac because I cover them. And I feel like since Lear's acquisition of Kongsberg, Adient has been making your case for you. They've been telling investors we don't need to do anything like that. We don't need to go buy but we can -- lumbar, we can work really well with Gentherm, and we can go to market with them and we'd rather use our capital to buy back stock and -- or pay down debt. And so really just backing up what you have to say. So I was a little surprised that when I went to China in May, and I met with James Wang, who runs their Asia Pacific operations. And he was highlighting a recent acquisition, which I hadn't seen them advertise, pet an acquisition, a joint venture that they formed with a Chinese company called Jimbo to develop a mechanical message. So again, not pneumatics, kind of like your thing, too. So I mean, well, I feel like Gentherm can do mechanical massage and during China.

So what happened there? And does it mean that other seating Tier 1s might -- is that unique to China there? Could it be replicated? What do you think?

Well, we obviously know every technology out there in the space and look at all of them. And our belief is with our pneumatic solution and Puls.A included, we've got the best solution. And it's really important to focus and the pneumatic solutions that we're working on not only provide a great experience, but they scale. It's not a niche technology. And I think there are always going to be different solutions that may provide some kind of niche application. But when it comes to fast market acceptance of a technology, we believe we have them.

I've got some more questions, but are there any in the audience? As they're thinking of their next question, maybe we can ask on WellSense, which you showed in -- at CES. And really it's kind of interesting because it's sort of like Climate Sense where it kind of ties in like a lot of things that you do like with Climate Sense, you've got the surface heating, you've got the steering wheel, you've got the seat and the ventilation and puts it all together. With WellSense, you're tying to other things you do and like the seat heating and cooling and lumbar, but even some things that you don't do, like the sound system -- so maybe just talk a little bit about that. And I know you just got the comfort scale, but when might we get a well sense award?

Well, we're really excited about WellSense because it really brings together the human body expertise we have, and we're developing software solutions that capitalize on high content in the vehicle. And there's a nice cycle that's happening there. So we're presenting the WellSense solutions, which really provide unique experiences for consumers. And one thing that I think is so exciting about Gentherm is basically, when you sit in a vehicle, your body touches and is in close proximity to a lot of points in the car. Basically, Gentherm there everywhere you're touching. It is very unique. Obviously, on the seat, on the armrest, the steering wheel, proximity to the neck, the underbody well, all those we have product that not just connects with the human body, but I can do something. And so when we create a WellSense, our focus was, what are the different types of solutions that we can bring to passengers in the car that can make them feel better when they get out of the car, there's a refresh mode that we've developed that if someone comes in from a stressful day, there's a routine of massage and heating and cooling that can really make you feel good when you get out, there's a recovery mode that if you just got off the golf course or you get out of the gym, you can come in and there's a -- and through our understanding of the human body, we know what to do and how to apply heating, cooling and different kinds of manipulation to the body to make you feel better when you get off -- I'm getting older and playing golf even makes me sour. So that's one that I'm excited about. But then also working with driver monitoring systems. There's obviously some great technologies that can monitor alertness or focus of drivers and especially as you get to the different levels of autonomous driving, it becomes really important. But what do you do with that once you are what you do determine what the state of the driver, will we provide the what to do and algorithms around how to cool the person so that you become more alert or what kinds of movements to the person to drive alertness. So that's really what's behind it all. We've been demonstrating this to, obviously, at CES, but now to customers. A lot of excitement around it. The one great thing that's already happened is more content. OEMs are seeing this, like, yes, that's something that we believe we could get consumers to enjoy enough to feel good about paying extra after they've purchased the vehicle. So if you imagine, you buy a vehicle and you've got a basic massage, base of heating and cooling, but then a new solution gets developed by Gentherm such as recovery mode. There could be an app, there could be a subscription, different ways to monetize it. That's a new way to monetize the consumer. And so there's a lot of excitement. People believe in that the OEMs do. And they're starting to add more content in preparation for being able to do that. So there's a nice cycle that's happening.

We were talking earlier about how when you came in, in 2018, how you instituted that discipline and you made the painful decision to let go of the thermoelectric bed and the office chair and the thermoelectric generator. And -- but one thing you kept was medical and such a strong, I think, strategic coherence there with the base you've got that calling card that Lear doesn't, right? And you got the PhDs and whatnot. But obviously, while there's a good product there with Blanketrol, it went through a tougher stretch, not because of the product -- because of the end market, right? You talked for a while about the hospital, the care networks are doing real poorly in the U.S. So you did some restructuring there and you kind of changed your go-to-market. Maybe talk a little bit about that because it looks like it's starting to pay off, right? In the last quarter, you're growing again. What's changed in medical?

Yes, I get lots of questions about the medical business, why are you doing that? And it really -- the #1 reason is the synergy back to automotive, and it's the differentiator. We -- when we're across the table from the advanced R&D teams at the OEMs, the knowledge that we bring and the credibility of heating and cooling patients during operations or in intensive care, we're very heavy in the pediatric centers for babies who need to be hyper cooled after birth and those kind of things. So that expertise we can translate that directly to our human expertise in the vehicle. Of course, it's around more about comfort and health and wellness than it is necessarily improving the impact of a procedure. But that is -- we believe that's a big advantage. From a business perspective, it's a high gross margin business. The product life cycle is very long in medical. So the amount of capital needed to invest in new products is very modest over time. And we're not a huge player. The market is $2 billion. We expect to be $50 million-ish here this year. And so I think it's -- with a decent amount of growth, we can get that business where we want it. And we changed -- previously, we had been -- our model of going to the customer was direct to the hospital systems. That could be GPOs or small hospitals. And we've changed that to focusing more on doing business with, I'll call them, Tier 1s, let's call it, in the automotive terms. We're trying to become a Tier 2 to Tier 1s who sell to hospitals now, where they're distributors or equipment consolidators or even rental equipment, rental companies. And that is really starting to pay off for us, gives us more scale, we can reduce the amount of boots on the ground that have to really work the hospitals, which has become much more difficult since COVID. And that's -- I think that's driving some of the short-term growth, and we're going to keep at it.

Okay. Maybe a last question can be on Climate Sense. Thinking back to that 2018 presentation, we talked about Fit for Growth, I think there was like this slide. We had this like Arrow after like, like you grow through -- was it '23, '24 and then there was like after it's climate sense. It's just like to the moon. And I just feel like -- that was before you had lumbar and massage something like that, all those things that are driving the business now. And first of all, what's going on. You've got some on the road right now with us elastic, very few, right? I think they built like 100 of those per year. You got the escalated IQ9 to look forward to that, that might be a little bit of inflection. At the same time though, has climate has changed a little bit because I feel like when we were first talking about it, it was like going to be ubiquitous in the industry because it was like this game changer for EVs right out where you could shrink the HDAC and extend the range of the EV for like mass-market EVs and it was more about like an economical thing and a prevalent thing whereas now, like there was like the Celestica like a $350,000 like ultra rare car, the Celestica's 165. Like -- and I love it. I'm sat the net condition, it's amazing, but is it more now like a luxury nice-to-have feature as opposed to we're going to see it everywhere. It's going to be a huge growth driver. I don't think it has to because you've got other growth drivers now. But what do you think?

No, I think it is actually a growth driver for the company. It's going to have its time. We're launching all the Celestica on the Escalate IQ. And what we've done is we've really had to pivot it a little bit to the development cycles of EVs. We to get the full content that like a Celestica is going to have, you do need to justify that added content with less spending on the HVAC system. And that hasn't been a priority yet with most OEMs. So we've tried to create a scalable Climate Sense. And I think GM is a great example of what we've done with them. Obviously, we're coming in with pretty high content on the Celestica it will scale down a little bit on the luxury side, but we've developed this software platform that can actually provide a fair amount of the benefit even on a standard CCS. So that's been our approach, which is why GM awarded us the basic almost cross-car line Climate Sense software. And their intention -- I don't want to speak for their intention, but the concept is that you start adding content in the vehicles over time, and you can take more and more advantage of the climate since algorithm. And as we started to present that scalable concept to customers, we're seeing a lot more opportunities.

Okay. Great. Thanks. And with that, we are out of time. So please join me in thanking Phil and Matteo for the great color and insight they shared today.