Gentherm Incorporated (THRM) Q1 2019 Earnings Report, Transcript and Summary

Greetings, and welcome to the Gentherm First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Yijing Brentano, Investor Relations and Corporate Communications. Thank you, Ms. Brentano, you may begin.

Thank you, Devin and good morning, everyone. Thank you 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 may make forward-looking statements within the meaning of the Federal Security laws. 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. Please see Gentherm's SEC filings, including the latest 10-K and subsequent reports for discussions of various risk factors and uncertainties underlying such forward-looking statements. During the call, we may 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. On the call with me today are; Phil Eyler, President and Chief Executive Officer; and Matteo Anversa, Chief Financial Officer. Please note that during their comments, Phil and Matteo will be referring to a presentation deck that we have made available on our website at gentherm.com/events. In addition, they will refer to performance excluding divested assets and assets held for sale as our core business, which include automotive and Gentherm Medical. After their prepared remarks, we will be pleased to take your questions. Now, I'd like to turn the call over to Phil.

Thank you, Yijing. Good morning, everyone and thank you for joining us today. Before I get into the results of the quarter, I'd like to share a couple of exciting milestones for Gentherm as shown on slide 4. Earlier this month, we received our very first Automotive News PACE Award. This prestigious recognition is a testament to Gentherm's world-class technology team and their dedication to excellence in delivering an industry-leading battery thermal management solution for Mercedes. The Gentherm team worked under a very tight deadline to develop an innovative approach to help solve a critical problem our customer was facing. In a very short time from the initial discussion with Daimler, we were able to develop a prototype, design and integration concept, simulate test and validate the product. With the increasing adoption of 48-volt mild hybrid systems, we are well-positioned to provide our customers with cutting-edge battery thermal solutions. Receiving a PACE award marks another milestone in Gentherm's mission to create and deliver extraordinary thermal solutions and we look forward to continuing to build on our track record of launching innovative industry-first products. On the heels of winning this PACE award our global team impressed customers and partners at the Shanghai Auto Show. At the Gentherm booth, we showcased our personalized passenger thermal solution inside Rinspeed's latest autonomous concept vehicle the microSNAP. In addition, we displayed our industry-leading climate comfort solutions, award-winning battery thermal management technologies and innovative electronic control units. Systems were also very well-represented through vehicles that were highlighted at the show by global OEMs. To name a few; Geely, Haval, WEY, SVW, BMW, GAC and Changan were all displaying our thermal technologies. I'm proud of the team that worked hard to put Gentherm on the global stage. This is a true testament of the tremendous talent we have at Gentherm. Now let's turn to the quarter. While headwinds across the automotive industry continued to present challenges for us during the first quarter, I'm pleased we were able to deliver revenue growth in our core business. Including the impact of foreign currency translation we were able to deliver 3% organic revenue growth in our core business. In addition, we delivered approximately 3% organic revenue growth in automotive despite the challenging automotive production environment. The year-over-year organic revenue growth in our automotive business outpaced the market by 900 basis points. For the third consecutive quarter, we saw year-over-year revenue growth for our Climate Control Seat or CCS business and we also continued to see momentum in market launches, and our awards of $400 million in the first quarter of 2019, surpassed last year's first quarter. We continue to make significant progress on our focus growth and margin expansion activities and we're seeing positive results on our financials. Operating expenses declined double digit year-over-year in the first quarter. As I shared with you on our 2018 year-end earnings call, we're turning our Fit-for-Growth cost reduction efforts towards gross margin expansion and we're starting to see some early signs of progress in the first quarter. We achieved adjusted EBITDA margin rate of 14.2% in our core business. Matteo will provide more details about our financial results in a few minutes. Now let's turn to slide 5. The strong execution by our automotive team continued in the first quarter with launches of systems on 12 different nameplate models across eight OEMs. These figures incorporate the continued momentum we're seeing with our CCS product with multiple launches; a few examples, the Hyundai Sonata and the Peugeot 508. During the quarter, we launched a number of new programs in luxury vehicles including a Neck Conditioner for the Ferrari California and a Heated Interior system for the Bentley Flying Spur, further confirming the market demand for increased thermal comfort content. In addition, we continued to make progress on ClimateSense development and validation with multiple OEMs. This is part of the previously announced development contracts. We also successfully completed the development of a new human-based thermal comfort measurement model with a strategic partner. These unique initiatives position Gentherm to deliver enhanced thermal comfort solutions tailored to the autonomous electrified and ridesharing ecosystem of the future. Now on to slide 6, where you can see that we're continuing to win new business at a healthy pace. In the first quarter, we secured $400 million in new program awards across 16 different customers. We won multiple CCS awards, including platform wins with the Hyundai Creta, Kia Grand Carnival and the Lincoln Navigator. We received Steering Wheel Heater awards across six OEMs, including the Audi A6, Cadillac CT5, Honda Civic and Jeep Grand Cherokee. In addition, I'd like to highlight several strategic thermal comfort awards from global OEMs that will increase our content on a number of important vehicle platforms, including a heated interior award for the BMW i20 electric vehicle, a steering wheel heater award for the Audi EV platforms and a neck conditioner award for the Lexus LS-LC convertible. On the battery thermal management front, we continue to make progress in expanding our business, winning an award from General Motors for our Air Cooling BTM system. In addition and of strategic importance for the company, a large Asian battery manufacturer awarded Gentherm our first innovative full BEV or electric vehicle battery heating contract. This is for a large North American OEM. This leverages our proprietary technology, adding battery heating to our portfolio of thermal electric and air cooling BTM technologies positions as well to achieve our growth aspirations. Now let's turn to slide 7 for a discussion on our industrial segment. In Gentherm Medical, revenue in the first quarter grew 12% over the first quarter of 2018 and 20% over the fourth quarter of 2018. We saw continued strong growth in Blanketrol, our liquid-based patient thermal management solution across the U.S., Latin America and Asia Pacific. We have several large conquest orders including both equipment and consumables from the likes of Barnes-Jewish Hospital in St. Louis, Banner Health in Phoenix and Mass General in Boston. On our last earnings call, I shared with you that we continue to invest in developing next-generation products and upgrading our existing portfolio with additional launches this year. Augmenting our in-house R&D efforts, earlier this month, we acquired Stihler Electronic in Stuttgart Germany for $15 million. Stihler's resistant warming products allow us to further strengthen our operating room patient normothermia portfolio. To summarize, while the challenges presented by the global auto industry persist, I'm pleased with the progress we continue to make. I remain proud of the hard work and commitment of the exceptionally talented global Gentherm team. With that, I'll turn the call over to Matteo for a little more color on the financial results.

Thank you Phil, and thank you to everyone joining the call today. Before I get into the details of the results, let me spend a minute talking about two minor adjustments that have been made to some of the previously reported first quarter 2018 financials. So first, we have reclassified $2.7 million of amortization of customer relationships from a contra revenue item into SG&A. This impacted revenue for other automotive as well as revenue for each of our industrial businesses for the first quarter of 2018. The annual impact for 2018 was $10.2 million increase in both product revenue and SG&A. And as a result, the gross margin rate was impacted positively by 70 basis points. Second, $865,000 of restructuring charges occurred in the first quarter of 2018, but were initially classified as SG&A. They were reclassified as restructuring charges in June of last year after we announced our strategic update plans. We have now reflected this $865,000 in the first quarter of 2018 income statement as restructuring and this adjustment impacted first quarter 2018 adjusted EPS by $0.02. Both the amortization of customer relationships and the restructuring adjustments impacted the EBITDA margin rate by 20 basis points for the first quarter of 2018. With that, I'll now start on slide 8 and focus on the items that most significantly impacted our first quarter results. So for the quarter, product revenues declined by 2.5% compared to the same period of last year. While we outpaced the market in the automotive segment, where revenues were flat year-over-year, the Industrial segment declined by almost 30% primarily due to the disposition of the CSZ Industrial Chamber business. If we adjust for the impact of FX, our overall organic revenue was flat. Automotive segment revenue grew 2.8% organically year-over-year. This was achieved despite the headwind in the global vehicle production. According to IHS latest data for our key markets of North America, Europe, China, Japan and Korea light vehicle production in the first quarter declined almost 7% year-over-year and approximately 200 basis points below their mid-February forecast. Our automotive business outpaced the market as a result of the continuous strength in our CCS product line, where revenues was up 7% year-over-year. Additionally, revenue in BTM more than doubled compared to the same period of last year, primarily due to the PACE of award-winning BTM solution that Phil just discussed. This revenue increase was offset by a decline in seat heaters which were down 12% primarily due to a decline in GM and Volkswagen sales in China, as well as our conscious decision to walk away from low margin business. Additionally, we are seeing a few programs upgrading from heat only to CCS. Automotive cables also declined about 12% due to the decreased orders from a large Tier 1 customer in Germany. And electronics revenue was also down 15% year-over-year, primarily due to the continued slowdown in the RV industry. If we move to the Industrial segment, industrial revenue declined almost 30% compared to the first quarter of last year. The declining revenue was primarily due to the lower sales in the CSZ Industrial Chamber business, which as you know was sold in February, as well as from the GPT business. As you know both businesses were classified as held-for-sale in the second half of last year. On the positive side, we saw continued strength in our medical business where revenues increased more than 12% year-over-year due to the higher Blanketrol sales in North America. If we move to gross margin, gross margin for the first quarter was 29.2%, a decrease of 150 basis points compared to the year-ago quarter. However, gross margin improved 150 basis points sequentially compared with the fourth quarter of last year. The year-over-year decline in gross margin was primarily due to higher labor cost as well as timing differences between the annual customer price decreases and the supplier cost reductions. In addition, there was a negative impact from tariffs and lower margin and BTM associated with the launch phase of our new actively cooled technology program. These were partially offset by improved fixed cost leverage from higher unit volume, as well as cost reductions driven by Fit-for-Growth. Just to add couple of more details, that the labor cost increases were mostly incurred at our production facilities in Mexico, whereas you may recall, we adjusted our wage rates to align with the new minimum wage requirements, as well as increased headcount as we ramped up the Celaya plant. On tariffs, while we were able to mitigate some of the impact as a result of the efforts from our sourcing team, the net negative impact in the quarter was approximately $800,000 which is pretty much in line with what we experienced in the fourth quarter of last year. And at this point, we continue to expect the annual impact of tariffs to be in the range of $3 million to $5 million. While our gross margin rate was below last year's first quarter, we are pleased with the 150 basis point sequential improvement compared to the fourth quarter of 2018. This was primarily driven by improved efficiencies in our plants, mostly Mexico and a higher gross margin in BTM. Moving to the operating expenses. Operating expenses in the quarter were $53.5 million. Now this amount included $1.9 million of restructuring charges, mostly related to Fit-for-Growth and $1.1 million of CFO transition expenses. If we adjust for the restructuring charges in both periods and for the CFO transition cost, operating expenses were $50.5 million, down from $59.7 million in the first quarter of 2018. Now this year-over-year decline of more than 15% was primarily driven by the impact of the Fit-for-Growth cost reduction initiatives, lower expenses for cash settle stock options, as well as the sales of the CSZ Industrial Chamber business. Also in the quarter as we continuously evaluate the fair value of our assets held for sale, we recorded a $10.5 million impairment related to our GPT business. Adjusting for the non-deductible impact of this impairment charge, the effective tax rate in the quarter was 26.7%. Finally, our adjusted EPS in the quarter was $0.55 a share, compared to $0.52 a share in the first quarter of last year. If we turn to slide 9, I will walk you through the balance sheet. So our cash position in the quarter was $41.3 million, including $2.5 million of restricted cash coming from the disposition of the CSZ industrial chamber business. Our cash position in the quarter increased by $1.7 million. We generated $6.8 million in cash from operating activities during the quarter and we had approximately $8 million of cash outlay for our share repurchase program. Now let me make a comment on this point. Given the recent uncertainties in the macro economic condition and the automotive market, we slowed down our share repurchase program in the quarter. However, we will look for opportunities to ramp up the program over the remainder of the authorization period, depending on the market conditions. We also received $47.5 million of proceeds from the sale of the CSZ Industrial Chamber business in the quarter. And as a result, our net debt decreased by $41 million from $100 million at the end of 2018, to $59 million at the end of the first quarter of 2019. As of the end of the first quarter, the total debt stands at approximately $100 million and our revolving line of credit availability stands at approximately $260 million. If we move to slide 10 on guidance, based on the first quarter results, we are maintaining our 2019 guidance and 2021 outlook. Now, given the current global automotive production forecast for 2019, it is likely that our revenue growth rate excluding the impact of foreign exchange will be at the lower end of our guidance range. We do continue to see more of our growth coming in the second half of the year. In fact, the second quarter will be our most challenging quarter due to a few vehicles rolling off. However, we are expecting several new vehicle launches in the second half of the year. In summary, while we still have work to do to further improve our margins, we are pleased with the progress that we made in the first quarter. And with that, I'll turn the call back to Devin to begin the Q&A session.

Thank you. [Operator Instructions] Our first question comes from the line of Ryan Brinkman with JPMorgan. Please proceed with your question.

Great. Thanks for taking my questions. It looks like some of your earliest identified Fit-for-Growth initiatives are making some impressive progress with operating expense for example really under control. Gross margin as you point out in the release though remains pressured year-over-year. How should we think about the next evolution in Fit-for-Growth to tackle some of the gross margin headwinds that you're seeing in the business?

Good morning, Ryan. Yes, that's a great question. As we've talked about in the last quarter, we continue to kind of refocus our energies on improvements that can drive gross margin. And some examples of that clearly driving efficiencies locally at our operating plants sharing best practices. We filed some good opportunities that we think will drive results there. We're also looking at our global footprint, finalizing some plans to potentially do some consolidations there. We're not quite ready to announce those yet, but those are in final evaluation. We're also looking at value. We think there's some pretty significant opportunities to take cost of our product either by strategic sourcing decisions or material simplification and removals from our bill of materials. So those are all activities that are in motion now. We're certainly shifting more of our resources towards that to get us to the 30% to 32% that we're pushing towards for 2021.

Okay. Great. Thanks. Now can you talk about the acquisition and if we should expect additional acquisitions on the medical side, what the materiality of these would be kind of what the multiples that you might pay or might be willing to pay for growth through medical companies? How you weigh that against repurchasing your own shares likely at lower multiples I would imagine?

Yes. I think the Stihler acquisition was a good representation of the type of acquisition we're looking for. It was really a product-based acquisition. Stihler has a technology a resistive technology that fits really nicely into our portfolio. Its product is European-based, mostly actually in Germany where the sales are. And we see as a big opportunity to unleash that product in the North America market and leverage our direct sales force in North America. So that one fit real nice. It has relatively low revenue just a few million in revenue, but a great product. And clearly, we see probably a little bit higher multiples in medical. In this case, it certainly was a little higher than you would expect in maybe a core automotive acquisition. But we're being really selective. We're not going to do any big transformational acquisitions in the short term. We're looking for technologies, products or maybe opportunities to expand our footprint in certain regions. So I think this is a good example. Certainly, we could go a little bit bigger than this but it won't be significant.

Great. I appreciate the color. Thank you.

Thank you, Ryan,

Thank you. Our next question comes from the line of Matt Koranda with Roth Capital Partners. Please proceed with your question.

Hey, guys. Good morning. Thanks. You mentioned Q2 some headwinds from some programs that are going to be rolling off in that quarter. So just any help with the revenue cadence in automotive just given that expectation?

Yes, we've got a couple vehicles. We originally expected the roll-off to happen a little bit more in the second half to be honest with you on these specific vehicles. But those are pulling into the second quarter. So towards the end of the quarter, we expect a little bit of impact from those. We're not giving quarterly guidance. I think we clearly maintained our revenue guidance for the full year with a little bit of pressure towards the lower end of that. And I think that's kind of what we expect. We do see some nice launches coming in the second half which would be a nice benefit for us.

Okay, got it. And then on CCS revenue up 7% year-on-year during the quarter, maybe could you give some color on what enabled the out-performance versus market production? I mean I guess if I think about CCS traditionally, it's been primarily North America-exposed for you guys. So was most of that new program launches in North America? Or were there other regions that contributed? And then how can we sort of expect that level of market out-performance to sustain through the year?

Yes, I think it was we've got some higher application rates that we're seeing. We saw a couple programs launch with second row CCS which helped. We're seeing -- obviously North America is a great market, but we're seeing some vehicles that are ramping up volume that have transitioned from all heat to CCS for us. One example is the BMW X5 or X platform I guess is the best way to coin that, the SUVs. It's a global platform. It's a good example of CCS taking off a little bit around the world. So, multiple factors along that line. Of course there were some negative effects built into that growth rate too with some of the market pressures around the world.

Okay, that's helpful. And then steering wheel heaters posted a rare year-over-year decline. Just wondering if you could comment on -- is that just sort of an air pocket as you await the launch of incremental programs? How does revenue unfold in that category for the remainder of the year?

Yes. I think certainly that one some specific vehicles that launched on steering wheels saw a little bit of a slowdown specifically. We do expect that to continue to pick up. Also in the quarter, we talked a lot about some passenger vehicles that were canceled by especially North America OEMs. And a few of those had steering wheels -- steering wheel heat for us associated with it. So, some timing effects there. We continue to win as I just announced and you saw in the slides significant wins. And I'd say our win rate is extremely high in that space. So, in general, we're looking good for longer term growth.

Okay, good to hear. And then I guess lastly on the gross margin. I know you referenced the pressure of timing of customer price decreases versus some of the supplier cost reductions that you guys typically get later in the year. Can you just help us understand the cadence of gross margin improvement for the remainder of 2019? Are we -- should we interpret that commentary as we should be expecting gross margin expansion sequentially through the remainder of the year? Or just a little bit of help there would be appreciated.

Sure. Yes. So, let me maybe qualify the -- I would say that if we look at the 150 basis point decline in gross margin compared to last year, I would say two-third of this was driven by the higher labor cost increase and a net of the volume leverage and then a third is the timing difference between the annual customer price decreases and the supplier cost reduction. This is going to slowly correct itself. So, yes, the answer to your question is we are expecting gross margin to sequentially start improve in the backend of the year.

Okay. So, more of it was from the labor pressure I guess in Mexico?

Correct. Correct.

Any further upward pressure expected for the remainder of 2019? I mean how is that factored into your outlook?

Yes that will stay because if you recall the bulk of the wage increase that we had particularly in Mexico happen in the fourth quarter of last year. So, we will experience that throughout the year. But as we work through some of the actions on Fit-for-Growth centered on the gross margin that Phil mentioned, we should see progressively an improvement on the gross margin and we keep guiding -- we are confirming the guidance to be in the range of 28% to 30%.

Okay, very helpful guys. I'll jump back in queue. Thank you.

Sure.

Thank you. The next -- our next question comes from the line of Richard Carlson with BMO Capital Markets. Please proceed with your question.

Hey good morning guys. Nice quarter.

Thanks Richard.

Thank you.

So Phil, I was hoping you'd talk a little bit more about that BEV battery heating award, sounds pretty exciting. I know you said it was with a North American OEM. But is that going to be a global platform? What do you expect for the volume? When does it kick-in? And are you having more conversations with other OEMs on that?

Richard, I'm glad you asked that one. That's when we're really excited about. That’s our -- just a little bit of context for those who might be a little bit new for us. We announced four product categories that we're really focused on, on the battery thermal management side. Obviously the thermal electric active cool BTM product, which we just won a PACE award for. Also air cooling BTM. So those are two we already have a nice portfolio. We're starting to see nice growth. And then two, that we called future product areas. One is battery self-heating and then the other is cell-connecting cables or boards. And this award is in cell heating, which is tailored towards high-voltage full BEV applications. So this is a real breakthrough for us. This is a new product category. And we're obviously very optimistic that this is going to lead to significant growth. It was actually sourced directly with a large battery manufacturer in Asia, and for a specific platform for North America OEM. And by the way that launches in 2020. So it's a pretty quick turn program. That one we're pretty optimistic will turn into something that can grow into more vehicles, and obviously as we get closer to launch timing, we can hopefully announce the specific customers set there. But it's a big one. I think very importantly on this, it's a proprietary technology that we have that led to that award. So we're pretty excited about that gives us a nice advantage competitively in the space. So I think that’s pretty much wraps up the details around that one.

Great. Thank you for that. And then, I guess just following on with the strong bookings you had in the quarter. Can you just share some of the metrics? I mean what was that on a year-over-year basis? And then how are you trending with the average size, if that -- is that something that actually matters to you guys? I guess, and also the split between Conquest wins and follow-ons.

Okay. Yeah. I think if you look at the last year, our first two quarters were both less than $400 million on total awards. So to hit $400 million in the first quarter is good. I think it's a good sign that it's a pretty active year. So I think that's good. In terms of Conquest or let's call it, incremental wins, it was about 30-plus percent were incremental and 60-ish -- 60% to 70% were re-wins in that bucket.

Got it. Okay. And then just one small question on the modeling. So I guess you still have the industrial chambers business and GPT in revenue this quarter. Was there any EPS contribution?

No, it's very minor.

Okay. Great. Thanks guys. Appreciate it.

Thank you, Richard.

Thank you. Our next question comes from the line of Steve Dwyer with Craig-Hallum. Please proceed with your question.

Thanks. Good morning. I guess just following up on that question. I think you'd indicated Phil last call that those two businesses, the CSZ Industrial as well as GPT would be out of revenue or not included in guidance, et cetera, and they were in this quarter. Just any color as to why you ended up putting those in?

We still have them on our books. So they're still hitting revenue. So we're reporting actual numbers.

Got you.

We do have -- if you look at the tables and the press release, we do have it split out on revenue. And then of course, I just mentioned that EBITDA for, what I call, core business was 14.2%.

Got it. Okay. And then you had mentioned obviously IHS production forecast for the remainder of the year, may be a couple of percentage points lower than they were a few months ago. You guys have obviously held up well reiterated guidance. Where you maybe seeing strength vis-à-vis those forecasts? Or what's turned out better for you such that you're able to kind of stick in that range?

New launches is one for sure. We're launching new vehicles. That helps. Battery thermal management growth, new technology win. It helps us outperform. And then penetration rates growth of content in the vehicles. Those are the three big areas that are helping.

Got it. And then lastly for me, you had mentioned a couple of sort of end of programs here in the second quarter. Are those just vehicles going end-of-life? Are they somebody who's just basically taking the technology out? Any color on those? I guess, are they losses or they just sort of vehicles end-of-life?

A little bit of a mix. There are a couple walkways. In fact, we had some of them in this quarter. But we've been pretty selective over the last year or so on programs that don't reach our margin threshold. So, we're trying to pare back on a few of those. There are a couple changeovers happening from one platform to another. In fact, that's going to be the biggest impact in the quarter. And that's primarily it.

Got it. So, walked away is being -- you guys walking away from business versus somebody removing you, et cetera?

And by the way, there are two or three programs that are -- vehicles that are going end-of-life altogether. And most of that's tied to the passenger vehicle cancellations.

Got it. That’s helpful. That’s all for me. Thanks, guys.

Thank you.

Thank you. [Operator Instructions] Our next question is from the line of Scott Stember with CL King. Please proceed with your question.

Good morning, guys and thanks for taking my questions.

Thanks, Scott. Thank you.

Maybe we could talk about on the CCS, the awards that you're getting today, the mix of Active versus Vent and those trends. And again, just remind us of when we would expect more of an active contribution whether it's in 2020 or 2021 coming out of backlog?

Yeah. We're still mostly getting the CCS Vent awards right now. But we are in -- I can tell you we've got some really interesting discussions going on with a few OEMs around CCS Active. And we definitely see the demand starting to pick up and hopefully in the coming quarters, we'll have some good news to share.

Okay. And as far as BTM goes, obviously, you've given in the past I guess, what your expectations for a full run rate would be and it seems like you continue to move the bar forward with new wins, such as the one that you just talked about today. Could you maybe just frame out again where you see at least from what you have in the pipeline an end run rate of sales for BTM?

Well, I wouldn't call it end run rate. But we definitely look at -- if you look at the 2021 projection we put out there, we said we would be between $110 million and $130 million or so, and we're feeling pretty darn solid about that right now.

Got it. That’s all I have now. Thanks.

Okay. Thank you.

Thank you. Our next question comes from the line of Anthony Deem with Longbow. Please proceed with your question.

Hi. Good morning.

Hey, Anthony.

Good morning.

Sorry, if I missed this. With the revenue growth at the lower end of your expectations, do you have a bias towards that at the mid-point or lower end of the EBITDA margin range or maybe even the high end?

No, we're still maintaining that range on EBITDA margin. We're feeling pretty confident about that range.

Okay. So no bias towards lower or higher end?

No.

In the Auto segment, how should we think about growth over market for remainder of the year, production using more realistic assumptions versus IHS? We see it about -- declining about 1% the remainder of the year, if you adjust for your regional mix. And that compares to down 4% in the first quarter. So, this 4% growth rate maybe up to the 7% over market even higher in the second half. Just wondering if this is sort of the type of framework you're using to reaffirm guidance today.

Yeah. I think, we don't really use that. To be honest, we report that, but it's not like we're tied to that directly. There's so many unique things that happen in our business as we talked about. Roll-offs -- for example, second quarter, we see some roll-offs happening that are going to make second quarter a little more challenging than certainly the second half. But we also have launches happening in the second half. So, it's definitely not -- you can't just peg us a certain percentage above or tied to IHS.

Well, implied within the revenue guidance is a substantial increase in the growth over market in the back half of the year. So just …

Yeah.

… so I think that's a fair way to look at it, right?

Yeah. It's definitely I mean certainly when you compare it that’s true. But, its related to launches and specific events that are happening. Q – Anthony Deem: Of course, right. Okay. A – Phil Eyler: Yeah. Q – Anthony Deem: And then, just in general, how do you feel about your R&D inflation, maybe over the mid-term here, the next couple years, lot of innovation new business awards. And maybe potentially some conflict launches with the new technology? BTM obviously starting out a little bit lower margin, because of low volumes. But just kind of wondering if you see a similar dynamic occurring over the next couple of years and maybe the rate of inflation in R&D? Thank you. A – Phil Eyler: On the R&D front for sure, I've been pretty consistent. We're going to continue to invest strongly in R&D. I think that's, if I understood your question right. And even though we're delivering very significant results or growth savings on the Fit-for-Growth, we fully intend to keep funneling that back into our R&D resources, especially related to the focus growth areas. And on top of that, you made a great point Anthony. That as we win awards we have to develop those projects and that's something you can't necessarily predict consistently. So, example is the battery heating project. That's a brand new product. It's going to take some R&D resources to execute that, so, given that, saying that, we still feel really strong about our profitability guidance for the remainder of the year and our direction for 2021, very importantly. Q – Anthony Deem: Phil, thank you. A – Phil Eyler: Thank you.

Thank you. There are no further questions at this time. I'd like to turn the floor back over to Mr. Eyler for closing comments.

All right great. Thank you everyone for joining our call today. As I said in my opening comments, we remain focused on execution, innovation and cost improvement. Confident that, we'll deliver significant shareholder value in the quarters and years ahead, and we certainly appreciate your interest and support, and look forward to keeping you apprised of our progress. Thank you all. And have a great day.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.