Gentherm Inc · NASDAQ:THRM
Gentherm — Investor Day (June 2018)
53 slides from Gentherm's investor day presentation, Jun 25, 2018
Slide 1: Strategy Update Investor Meeting
Strategy Update Investor Meeting June 25, 2018 Proprietary © Gentherm 2018
Slide 2: Forward-Looking Statement
Forward-Looking Statement Except for historical information contained herein, statements in this presentation are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent Genthe
Slide 3: Market and Industry Data; Non-GAAP Financial Measures
Market and Industry Data Certain information contained in this presentation concerning our industry and the markets in which we operate is based on information from publicly available independent industry and research organizations and other third-party sources, and management estimates. Management
Slide 4: Why Gentherm?
Why Gentherm? • Pure play leader in thermal management • Global automotive market is large and massively under-penetrated with climate and comfort solutions • Unique, innovative solutions key to vehicles of the future • Global reach and industry-leading manufacturing capabilities • Strong cash gener
Slide 5: Our Diligence and Findings
Our Diligence and Findings A fresh perspective on Gentherm’s business and growth outlook… UNIQUE CAPABILITIES • Customer and partner visits • Thermal technology and human • Site visits and employee town hall meetings thermophysiology • Shareholder and analyst listening tours • Global footprint • Inv
Slide 6: F.A.S.T. Forward
F.A.S.T. Forward F ocused growth Aligned portfolio FORWARD S harpened execution T echnology leadership Proprietary © Gentherm 2018 6
Slide 7: Our Path
Our Path AUTOMOTIVE GLOBAL LEADING A THERMAL STARTUP MARKET ENTRY EXPANSION REVOLUTION Quickly established Launch of the first Continued organic Focused growth ourselves as a leader in heated and cooled growth enhanced by Alignedportfolio thermoelectric automotive seat in acquisition of W.E.T. Sharp
Slide 8: Competitive Footprint Advantage
Competitive Footprint Advantage Sales & Support Engineering Manufacturing 26 Locations 13,000+ People $1.0B Revenue * * 2017 Pro forma includes full year of Etratech revenue Well positioned to serve our customers and grow in key markets Proprietary © Gentherm 2018 8
Slide 9: Market Segments
Market Segments 2017 Automotive ($926M) * Core Thermal Products Battery Thermal Electronics Products Industrial ($106M) Medical Products Global Power Technology TestChambers * Pro forma includes full year of Etratech revenue Proprietary © Gentherm 2018 9
Slide 10: 40+ Global Automotive Customers
40+ Global Automotive Customers Established Customers Emerging Customers Proprietary © Gentherm 2018 10
Slide 11: Key Industry Trends
Key Industry Trends Understand Global Megatrends Leverage Industry Trends Opportunities • Human thermal comfort and health Comfort & Wellness Connected / Energy Comfort Redefined Autonomous • Increasing adoption rates • Energy optimization • Miniaturization of HVAC Vehicle Growth in SUVs/ Machine Mo
Slide 12: Automotive Market Overview 2018-2025
Automotive Market Overview 2018-2025 Vehicle Production (in millions) and CAGR by Region 2017 Gentherm Automotive Sales 2.5% By Region 34.0 0.8% 28.6 24.0 0.2% 22.7 24% -0.6% 17.2 17.5 13.1 12.6 50% 26% China Europe North America Japan/Korea 2018 2025 North America Asia Europe Source: IHS Light Vehi
Slide 13: Vehicle Electrification Trends
Vehicle Electrification Trends Projected Powertrain Application Rates 8% ICE 4% 7% 11% Mild Hybrid 10% 27% Full Hybrid BEV 93% 78% 54% 2018 2021 2025 Source: IHS Light Vehicle Powertrain Alternate Propulsion Forecast April 2018 Well positioned across multiple product categories to capitalize on the
Slide 14: Our Strategy
Our Strategy Focused Extend Technology Expand Margins Optimize Capital Growth Leadership and ROIC Allocation Proprietary © Gentherm 2018 14
Slide 15: Focused Growth
Strategy 1 Focused Growth Proprietary © Gentherm 2018 15
Slide 16: 1: Focused Growth
Strategy 1: Focused Growth Divest and minimize non-core investments • Divest Global Power Technologies • Divest CSZ® Industrial Chambers • Eliminate / Minimize Investment — Furniture — Aviation — Battery Management Electronics — Industrial Battery Packs — Automotive Thermoelectric Generator — Non-co
Slide 17: 1: Focused Growth
Strategy 1: Focused Growth Step 1 Step 2 Step 3 Step 4 Accelerate Core Introduce Innovative Drive Battery Expand Patient Automotive Climate Microclimate Solution Thermal Thermal Solutions and Comfort Growth Management Enabled by Electronics and Software Systems Proprietary © Gentherm 2018 17
Slide 18: 1.1: Accelerate Core Automotive Climate and Comfort
Strategy 1.1: Accelerate Core Automotive Climate and Comfort Our Climate Seating Solutions ClimateSense™® System CCS ComfortSense™ CCS® ComfortBalanceTM CCS® Active CCS® Vent Heated Seat A complete portfolio of products to deliver personal thermal comfort and energy savings across all vehicle segmen
Slide 19: Global Penetration Rates
Strategy 1.1: Accelerate Core Automotive Climate and Comfort Global Penetration Rates 2018 2025 Heated and Cooled Seat 8% Heated Seat 20% None 29% 43% 63% 37% Source: IHS Thermal seat technologies report April 2018; Internal analysis. Significant growth in penetration rates from 2018 to 2025 Proprie
Slide 20: Global Market Share
Strategy 1.1: Accelerate Core Automotive Climate and Comfort Global Market Share Heated and Heated Seat Steering Wheel Gentherm Cooled Seat Heater Competitor 1 Competitor 2 Other 36% 65% 75% Source: IHS Thermal seat technologies report April 2018; Internal analysis. Industry-leading market share Pro
Slide 21: Regional Market Share
Strategy 1.1: Accelerate Core Automotive Climate and Comfort Heated and Cooled Seat Heated Seat Regional Market Share North America Europe China Japan / Korea 39% 52% 76% 73% 39% 52% 76% 73% Gentherm Competitor 1 Competitor 2 Competitor 3 Competitor 4 Other Source: IHS Thermal seat technologies repo
Slide 22: Global Addressable Market
Strategy 1.1: Accelerate Core Automotive Climate and Comfort Global Addressable Market $1.5B 2018 $1.8B 2021 $3.2B 2025 11% CAGR Heated and Cooled Seat Heated Seat Heated SW Source: IHS Thermal seat technologies report April 2018; Internal analysis. Addressable market growing at an accelerating rate
Slide 23: Gentherm Differentiators
Strategy 1.1: Accelerate Core Automotive Climate and Comfort Gentherm Differentiators • Proven, unique technology • Market-ready solutions for cars of the future • Strong global customer base • Robust and growing IP portfolio • Global R&D and manufacturing footprint Only company at the nexus of ther
Slide 24: Proven positive environmental impact
Strategy 1.1: Accelerate Core Automotive Climate and Comfort Proven positive environmental impact 2 CCS® Active seats can save 4.5g of CO per mile 2 • Proven through testing with the U.S. National Renewable Energy Lab • GM applied for Off-Cycle credits • EPA has now approved GM’s application • Opens
Slide 25: Key Initiatives
Strategy 1.1: Accelerate Core Automotive Climate and Comfort Key Initiatives • Increase take rate and content per vehicle • Build on strong key customer relationships • Expand with European customers • Capture China growth • Collaboration, partnerships and prudent acquisitions Aspiration: grow core
Slide 26: 1.2: Introduce Innovative Microclimate Solution
Strategy 1.2: Introduce Innovative Microclimate Solution ClimateSense™ Delivers • Best-in-class thermal comfort • Intelligent climate zones for each occupant • 30-50% reduction in central HVAC size • Full-electric pre-conditioning • Greater styling freedom and weight improvement • Self-regulating co
Slide 27: Battery thermal management product focus
Proprietary © Gentherm 2018 Active Battery Passive Battery Battery Cell Connecting Cooling / Heating Cooling Heaters Boards Focus Growth in BTM Core Products Proprietary © Gentherm 2018 27
Slide 28: 1.3: Drive Battery Thermal Management
Strategy 1.3: Drive Battery Thermal Management Why BTM is needed • Required to maintain peak battery performance • Optimizing charge capacity and battery life is critical to economics of electrification • Challenging packaging constraints increase thermal management need 250% 200% 150% 100% 50% 0% H
Slide 29: 1.3: Key Initiatives
Strategy 1.3: Drive Battery Thermal Management Key Initiatives • Drive adoption rates of TED-Based BTM Technology – Unique advantage for 48V • Introduce BTM products in PHEV and 12V Li-Ion battery segments • Launch new Battery Heating Products, leveraging proven heating technology and expertise • Gr
Slide 30: 1.4: Expand Patient Thermal Solutions
Strategy 1.4: Expand Patient Thermal Solutions Why Medical is Attractive • Large market with consistent underlying growth drivers • Superior contribution margins; sustainable demand • Low relative investment • Highly-fragmented market, ripe for disruption • Unique credibility with automotive OEMs 20
Slide 31: Gentherm Differentiators
Strategy 1.4: Expand Patient Thermal Solutions Gentherm Differentiators • Exclusively focused on Patient Thermal Management (PTM) • Broad offering of PTM solutions which can address 99% of the market • Core thermal technology shared with automotive, driving product development synergies Well positio
Slide 32: 1.4: Key Initiatives
Strategy 1.4: Expand Patient Thermal Solutions Key Initiatives • Continued product enhancement • Leverage direct sales force • Expand globally • Differentiate on superior human thermophysiology and thermal technology Aspiration: grow medical revenue to $200M by 2025 with company-leading margins Prop
Slide 33: Focused Growth – Revenue Outlook
Strategy 1: Focused Growth – Revenue Outlook $80-100M $40-60M $1.2-1.4B $150-175M $1.06-1.08B $80-90M ~$1.0B ~70% Automotive Revenue Awarded 2018E EXIT BUSINESSES 2018E POST EXITS AUTO C&C + BTM MEDICAL 2021E ELECTRONICS Aspiration to grow revenue to over $2.5B by 2025 Proprietary © Gentherm 2018 HI
Slide 34: Extend Technology Leadership
Strategy 2 Extend Technology Leadership Proprietary © Gentherm 2018 34
Slide 35: 2: Extend Technology Leadership
Strategy 2: Extend Technology Leadership Software & Electronics Simulation Thermophysiology Thermal Engines Integration Focused investment in key core technologies and competencies Proprietary © Gentherm 2018 35
Slide 36: Expand Margins and ROIC
Strategy 3 Expand Margins and ROIC Proprietary © Gentherm 2018 36
Slide 37: 3: Expand Margins and ROIC
Strategy 3: Expand Margins and ROIC 1 Focus on higher-return growth opportunities Build a Culture of Performance Introduce Fit-for-Growth cost program 3 Divest GPT and CSZ Industrial Proprietary © Gentherm 2018 37
Slide 38: Fit-for-Growth
Strategy 3: Expand Margins and ROIC Fit-for-Growth • Eliminate / minimize non-core investments • SG&A rationalization • Engineering focus and efficiency • Purchasing excellence • Manufacturing optimization Target $75M annual savings by 2021 Proprietary © Gentherm 2018 38
Slide 39: Fit-for-Growth Strategy
Strategy 3: Expand Margins and ROIC Fit-for-Growth Strategy 3: Expand Margins and ROIC Fit-for-Growth February March April May June July August September PURCHASING ELIMINATE / MINIMIZE SG&A ENGINEERING FOCUS MANUFACTURING EXCELLENCE NON-CORE RATIONALIZATION AND EFFICIENCY OPTIMIZATION INVESTMENTS •
Slide 40: Improve Operating Expense
Strategy 3: Expand Margins and ROIC Improve Operating Expense * (As a Percentage of Revenue) 21.4% 1 – 1.5% 3 – 4% 1 - 1.5% 15 - 17% 2017A DIVEST / EXIT FIT FOR GROWTH FIXED COST LEVERAGE 2021E * Selling, general and administrative expenses plus net research and development expenses Proprietary © Ge
Slide 41: Improve ROIC
Strategy 3: Expand Margins and ROIC Improve ROIC 1 – 2% >20.0% 1 – 2% 5 – 6% 1 – 2% 12.5% 2017A DIVEST / EXIT FIT FOR GROWTH WORKING CAPITAL FIXED COST 2021E LEVERAGE Proprietary © Gentherm 2018 41
Slide 42: 2018 Updated Guidance & 2021 Outlook
2018 Updated Guidance & 2021 Outlook Revenue Growth Operating Expenses % of Revenue Gross Margin Adjusted EBITDA Margin ROIC 2018E 8 – 10% (3-5% Organic) 20 - 22% 29 – 31% 14 – 15% 12 – 13% 2021E High single-digit Organic CAGR 15% - 17% 30 – 32% High teens > 20% 2021 Outlook: expected EPS growth rat
Slide 43: Optimize Capital Allocation to Drive Shareholder Returns
Strategy 4 Optimize Capital Allocation to Drive Shareholder Returns Proprietary © Gentherm 2018 43
Slide 44: Strong Cash Flow and Liquidity
Strategy 4: Optimize Capital Allocation to Drive Shareholder Returns Strong Cash Flow and Liquidity • 4-Year cumulative free cash flow of over $550M • Establish Debt/Adjusted EBITDA leverage target (1.0 – 1.5x) • Rigorous working capital management – Shed working capital-intensive businesses – Incre
Slide 45: Disciplined Capital Allocation
Strategy 4: Optimize Capital Allocation to Drive Shareholder Returns Disciplined Capital Allocation • Opportunistic share repurchases – $300 million Board authorization • CAPEX projects to drive organic growth • Invest in core innovation • Prudent bolt-on acquisitions to accelerate core growth Propr
Slide 46: Our Strategy
Our Strategy Focused Growth Extend Technology Leadership Expand Margins and ROIC Optimize Capital Allocation Proprietary © Gentherm 2018 46
Slide 47: Our Mission
Our Mission Creating and delivering extraordinary thermal solutions that make meaningful differences in everyday life, by improving health, wellness, comfort and energy efficiency. Positively impacting people’s lives around the world Proprietary © Gentherm 2018 47
Slide 48: Why Gentherm?
Why Gentherm? • Pure play leader in thermal management • Global automotive market is large and massively under-penetrated with climate and comfort solutions • Unique, innovative solutions key to cars of the future • Global reach and industry-leading manufacturing capabilities • Strong cash generatio
Slide 49: F.A.S.T. Forward Towards our Aspiration
F.A.S.T. Forward Towards our Aspiration F ocused growth Aligned portfolio S harpened execution T echnology leadership FORWARD $2.5B+ REVENUE BY 2025 Proprietary © Gentherm 2018 49
Slide 50: Gentherm Technology to the next degree
GENTHERM Technology to the next degree TM
Slide 51: Appendix
Appendix Proprietary © Gentherm 2018 51
Slide 52: 2017 ROIC Reconciliation
2017 ROIC Reconciliation Operating income Effective tax rate Net operating profit after tax (NOPAT) Total shareholders’ equity Total debt Less: Cash and cash equivalents Total capital ROIC As Reported $ 97,324 49.1% 49,538 $ 553,874 144,669 (103,172) $ 595,371 8.3% Tax reform items (1) $ --29.1% 28,
Slide 53: Proprietary © Gentherm 2018 Proprietary © Gentherm 2018 53
Proprietary © Gentherm 2018 Proprietary © Gentherm 2018 53