Gentherm Inc
NASDAQ:THRM
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Gentherm Inc
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Greetings, and welcome to the Gentherm, Inc. Second Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Yijing Brentano, SVP, Investor Relations and Corporate Communications. Thank you. You may begin.
Thank you, Jessie, and good morning, everyone, and 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, 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 their comparable GAAP financial measures are included in our earnings release.
On the call with me today are Phil Eyler, President and CEO; and Barry Steele, Chief Financial Officer. Please note that during their comments, Phil and Barry will be referring to a presentation deck that we have made available on our website at gentherm.com/events. 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 all for joining us today. It was great to see many of you at our Strategy Update event in New York City in June. My team and I are committed to disciplined execution towards our strategic goals which we presented to you there and driving shareholder value. Our second quarter results reflect both improvements in our core automotive business and the solid initial progress we're making in lowering our operating expenses.
This morning, we reported second quarter product revenues of $263.8 million, an increase of 8.4% from the same period in 2017. In our Automotive Segment, we had growth of 11.6%, which included the acquisition of Etratech and favorable currency translation. More importantly, on an organic basis, the Automotive segment saw growth of approximately 2% despite headwind in North American vehicle production. Our Industrial segment revenues declined by 16.7%, primarily related to the timing of custom projects in both our power generation and industrial chamber businesses.
We're seeing encouraging trends in our medical business as our direct sales force delivered both year-over-year and sequential revenue growth in the quarter. We reported an increase in adjusted EBITDA to $35.5 million in the quarter. Adjusted EPS of $0.58 improved $0.05 or 9% year-over-year. In total, our results in the quarter were in line with our expectations, and Barry will provide more details on the financials later on in the call. Overall, our outlook remains intact and we are focused on meeting the 2018 financial guidance that we provided to you at our Strategy Update in June.
Now let's review some business highlights for the quarter, beginning with slide 5 in our presentation deck. As I just mentioned, we saw a return to organic growth in our Automotive business despite the decline in North American vehicle production during the quarter. Specifically, several of our large North American automotive customers, including Ford and Hyundai, experienced double-digit year-over-year production volume declines in the quarter.
Nonetheless, we continue to see momentum in market launches and we achieved record automotive awards. As we predicted, the downturn trend in CCS, driven primarily by product mix of CCS active versus CCS vent reversed, and CCS revenue increased sequentially over the first quarter. That's after five quarters of decline.
Overall, we're pleased to be able to deliver improved financial results for the quarter, and we've made significant progress on our focused growth and margin expansion activities. We're already seeing early positive results in our financials. I'll provide more details about this in a few minutes. Finally, we repurchased $20 million in shares during the second quarter, and as of now we still have $268 million remaining in our current authorization.
Turning to slide 6, we saw the strong execution by our team continue in the second quarter with launches of systems on 40 different nameplate models across 16 OEMs. The launches included BMW X3, Geely C-SUV, GMC Sierra, Hyundai Santa Fe, Jaguar X540 E-PACE, Lexus ES and Lincoln MKX. CCS launches were an important contributor to our sequential automotive revenue growth.
In Battery Thermal Management, we launched the second thermal electric BTM system with the FCA Group on the hybrid version of the Jeep Wrangler, coupled with FCA's new eTorque technology. In the 48-volt hybrid version of this iconic Jeep Wrangler, Gentherm's thermoelectric-based thermal management system is used to cool or heat the vehicle's lithium-ion powerpack, improving overall vehicle efficiency.
OEMs are placing an increasing emphasis on vehicle electrification with an aggressive lineup of 48-volt hybrid, plug-in hybrid and full electric vehicles in their roadmaps. Gentherm's strategy to offer a suite of battery thermal management products, including thermoelectric-based products, air cooling devices, cell heating, connecting and sensing products, is well aligned with the trends in the global market.
Finally, Gentherm received the General Motors Supplier Quality Excellence Award. I am very proud of our manufacturing team in Acuna, Mexico, and our product development and program management teams in Northville, Michigan, and around the world. This recognition from one of our most important customers is a testament to our intense focus on delivering quality products.
Now let's go to slide 7 where you can see that we're continuing to win new business at a record pace. In the second quarter, we secured more than $440 million in new program awards across 20 different customers. In total, we secured approximately $800 million in new awards from OEMs year-to-date, well on track to surpass our record of $1.2 billion in awards in 2017. Importantly, approximately 46% of those awards offer climate controlled seating. This gives us even greater confidence in the CCS revenue turnaround to come.
Over the last six quarters, we've won over 90% of the CCS opportunities available to us. We won multiple climate controlled seating awards, including Audi A6, Beijing Auto BJ8, Cadillac CTS, Honda Pilot, Hyundai Sonata, Jeep Grand Cherokee and the Subaru Outback. And as the development of electric vehicles continues to ramp up, we won CCS awards for the all-new Audi e-tron and the Porsche Mission E, further demonstrating the importance of energy efficiency in our solutions.
In addition, we received the Heated Interior award for the Mercedes S-Class. We believe this type of comfort enhancement will continue to penetrate luxury vehicles in the near-term. Our business in China continues to grow with the first full system award for the Changan CS75. This award combines CCS and a multi-function ECU with integrated electronics and software for climate, memory seat and mirror control functions in one ECU. This award demonstrates that we are well positioned to capitalize on the ECU consolidation trends helping OEMs reduce the number of ECUs in vehicles and thus reducing cost.
Finally, the growth in our battery thermal management business continues with awards for air cooling BTM applications for the Hyundai PDe, the Geely Emgrand GS and C-Sedan vehicles, and the Volkswagen Golf. In addition, OEMs continue to show strong interest in our innovative thermoelectric solutions. In fact, we were awarded two development contracts with Asian OEMs utilizing this technology.
Let me also give you a quick update on our ClimateSense, our personal microclimate solution showcasing our industry-leading expertise in thermophysiology. Our global engineering team has built and is testing various vehicles ranging from ICE-based luxury SUVs to full EVs equipped with our ClimateSense solution. These cars have been successfully tested by OEMs in climate test drives.
We're seeing strong customer interest from OEMs for our solutions to address the challenges of the interior cars of the future. Several OEMs have engaged Gentherm in development projects, which positions us well for winning future awards. As I discussed during our Strategy Update in June, this world's first complete personal microclimate solution is the anchor to the future of the company.
Now let's turn to slide 8 for a discussion on our Industrial segment. As I discussed at our Investor Day in June, we continue to see significant opportunities in Cincinnati Sub-Zero to increase our penetration of the sizable patient thermal management market as well as leverage our growing body of technological knowledge and expertise in thermophysiology from this business to improve our products in the automotive market. Although we've decided to divest the CSZ Industrial Chamber business, we continue to see positive momentum and market opportunities and new awards outlook for that business.
Now, let me review some highlights from the CSZ business. Just last week, we announced the appointment of Jim Paloyan as the new head of our medical business. Jim joins us from BD, a global medical technology company, and brings 25 years of experience across medical devices and pharmaceuticals. At BD, he grew the global infusion disposables business at double the market rate to approximately $500 million in revenue. Jim has already immersed himself into the business and he shares our vision about the significant opportunities to grow.
Before I discuss awards in the quarter, let me give you a quick update on the R&D front. We've made significant progress in upgrading our existing equipment portfolio to the latest compliance standards while also – we're focused on real innovation in this business and expect to begin seeing fruits of these investments in the near future.
In medical, we secured awards for our Blanketrol III, Hemotherm and Micro-Temp devices across multiple hospital systems. In addition, we continue to grow our strong relationship with the University of Pittsburgh Medical Center through converting an increasing number of their hospitals from competitor products to our filtered flow blankets. This will generate recurring revenue for us, an important part of our strategy.
Finally, we secured $10.4 million in Industrial Chamber awards from customers across 10 different industries, including NASA, General Motors and Generac.
With that business summary for the quarter, let me now ask Barry to give you a little more color on the financial results. Barry?
Thanks, Phil, and thank you to everyone joining the call today. I'll start on slide 9 where you can see that during the second quarter of 2018, our product revenues increased by 8.4% to $253.8 million over the prior year. This increase included $25 million in higher revenues in our Automotive segment, partially offset by a $4.6 million decline in the Industrial segment. The automotive increase included both the acquisition-related benefit of Etratech totaling $15.2 million and a favorable effect of currency translation of about $6.5 million. Adjusting for these impacts, the Automotive segment grew organically by 2%, fully offsetting the organic decline during the first quarter.
On a pro forma basis, Etratech grew by nearly 7% when taking into account its prior year second quarter revenue before the acquisition. The Automotive segment increase was in spite of a decline in automotive production volumes in North America. According to IATA, automotive production was down 2.5% in North America during the second quarter, a market that represents nearly half of our automotive product revenues.
Even more importantly, production revenues for two of our top customers were significantly lower. North American production for Ford Motor Company, which represents approximately 11% of our product revenues, was down 13% during the quarter compared to the prior year, and Hyundai vehicle production, which is about 8% of our sales, was down 10% in North America and off 5% in Korea.
These market changes along with our tough prior year comparison related to the impact of a technology shift on certain vehicle programs to our lower priced heat vent solution impacted the product revenues of Climate Control Seat, or CCS, disproportionately to our other automotive products. This is because CCS revenues are concentrated in North America and that Ford and Hyundai are both important CCS customers.
In addition to the production-related decreases, our annual customer price incentives decreased revenue by approximately $6 million or about 2.5% of Automotive segment revenue. Despite all these unfavorable headwinds, every one of our automotive products grew significantly, except for CCS, which again had a tough prior year comparison. In fact, taking out CCS and adjusting for currency and the Etratech acquisition, the Automotive segment grew nearly 10%. Speaking of CCS, the 2018 second quarter CCS revenue increased by $2.5 million or 3% sequentially, marking a reversal of the recent downward trend.
In our Industrial segment, lower sales were primarily related to lower climate chamber revenues and the timing effects of large custom projects at GPT. You may recall that during the second quarter of 2017, we shipped several large custom climate chambers. Also, GPT revenue was only $5.2 million for the quarter, mainly due to the fact that very few custom projects shipped during the period whereas several shipped during 2017 second quarter. This is typically an issue of timing for these large programs. However, our full year outlook for GPT, a business we are looking to divest, has decreased.
The gross margin for the second quarter was 28%, which represented a decrease from 30% in the second quarter of 2017. The three main causes of this decline are a shift in product mix, the timing of the automotive customer price decreases as compared to related cost improvements, and launch costs for our new Battery Thermal Management product. Product mix was unfavorable due to lower industrial sales, which have higher normal gross margins than the Automotive business as well as lower CCS product revenues and a lower gross margin of Etratech within Automotive.
As I mentioned earlier, our annual customer price decreases were about $6 million during the quarter. As in the first quarter, this was only partially offset by reductions in our production and raw material costs during the quarter. However, this is mainly a timing issue. This timing difference will balance out during the second half.
The new thermoelectric-based Battery Thermal Management product line was launched at the end of the 2017 fourth quarter on one vehicle program and was launched on a second vehicle platform during the second quarter. This business is expected to ramp to a $50 million to $60 million run rate by the end of 2019, but was only $4.5 million in the 2018 second quarter. In this early stage, production expenses which reflect fixed costs for the volume and temporary launch expenses at two of our factories, the second of which began production during the second quarter, unfavorably impacted our gross margin.
Our operating expenses for the quarter included a restructuring charge totaling $6.2 million related to some of the early changes that we have implemented in conjunction with our new focused growth strategy and our Fit-for-Growth cost reduction initiative, which is targeting $75 million in overall cost reductions by 2021. This is in addition to a related $865,000 restructuring charge taken in the first quarter, which we have now broken out separately in our six-month tables for comparative purposes.
The total fees are (00:18:29) $7 million. They include about $3.4 million in non-cash charges and consist of employee severance expenses, cost for an idle research center in California and consultant fees. As Phil mentioned, these first actions leading to the charge are expected to provide cost savings of $12 million on an annual basis. As we worked with the Fit-for-Growth program, we will likely incur additional restructuring charges as we approach the overall $35 million savings target.
Taking out the restructuring charge, operating expenses were $52.7 million during the second quarter. This amount was $519,000 lower than the prior year second quarter and $4.4 million or 8% lower than this year's first quarter. We achieved this year-over-year decrease in spite of $1.1 million in currency translation increases, $2 million of additional operating expenses coming from recently acquired Etratech, and $900,000 in higher equity compensation mark-to-market adjustments. More than offsetting these increases were $2.8 million in higher-than-normal R&D cost reimbursement and some early savings related to Fit-for-Growth.
Our effective tax rate was 15% for the second quarter. This is lower than our 24% guidance, mainly due to discrete items recorded in the quarter related to non-recurring intercompany transaction that shifted the weighting of our earnings in jurisdictions having lower statutory tax rate and due to windfall tax benefit from employee stock option exercises. We continue to expect an approximately 24% tax rate for the balance of the year. However, that amount could be as much as two percentage points higher or lower depending on various factors including final calculation of the impacts of U.S. tax reform and other discrete items.
Turning to the balance sheet on slide 10, our cash decreased by $37.8 million during the first half and our outstanding borrowings on a revolving line decreased by $30 million. These changes are mainly the result of the repatriation of cash made economical as a result of U.S. tax reform. We plan to make further debt repayments throughout the year. We have covered the cash outlay for our share repurchase program under which we acquired approximately $20 million in Gentherm common stock during the first half through operating cash coming from the business.
Increases in our working capital during the first half are mainly related to the seasonal timing of revenues in the fourth quarter compared to the second quarter. Our total debt now stands at $113 million and our revolving line of credit availability increased to $251 million. Total liquidity therefore stands at approximately $316 million when adding our cash to the undrawn revolver.
Now let's discuss our guidance which is summarized on slide 11. As you saw today's press release, we are reaffirming the full year 2018 guidance and 2021 outlook that we presented at our Investor Day meeting in June. As Phil stated earlier, we are very focused on delivering the objectives we have set for this year and beyond.
Now I'll turn it back over to Phil to give an update on our focused growth strategy. Phil?
Thanks, Barry. Well, I know many of you either joined us in person or listened into the webcast of our Strategy Update on June 25, I wanted to quickly review the four key overarching strategies guiding where we are moving the company going forward to drive improved shareholder returns as we discussed at that meeting. These strategies are, one, focusing our growth on key businesses and product categories to drive sustainable above-market growth, attractive ROIC and strong technology synergies.
Two, extending our technology leadership through innovation in both current and new product categories with the focus on five key areas, including thermophysiology, software and electronics, simulation, thermal engines and system integration.
Number three, expanding our margins and driving return on invested capital through the Fit for Growth program, which is supported by a globally recognized consulting firm. And number four, optimizing our capital allocation, prioritizing opportunistic share repurchases, CapEx projects to drive organic growth, investing in core innovation and prudent bolt-on acquisitions to accelerate core growth.
Now moving to slide 13, let me give you a quick update on two of these key pillars of our overall strategic plan, beginning with our plans to divest or wind down our non-core businesses. Intense work has begun on the process of searching for buyers for our CSZ, Industrial Chamber business and Global Power Technology business. We are engaging outside experts to help us with the process. Given the very early stages of these efforts, we do not yet have visibility into the timing of those divestitures.
With respect to the product lines we plan to exit, we are well along in that process. We have finalized actions to exit the furniture business. We're winding down projects related to aviation, and we've sold the battery management electronics and industrial battery pack businesses
Moving to slide 14, slide 14 outlines the elements in our Fit-for-Growth initiative. The $6 million charge taken in the second quarter represents actions being taken that are expected to produce $12 million in annualized savings. These actions include facility closures, head count reductions, material cost savings programs and consolidating several software systems.
This $12 million savings was part of the $50 million total savings we discussed at the Strategy Update. But I'm pleased to report that additional initiatives have been identified since that time, and we now have identified $60 million in savings opportunities towards our annualized savings target of $75 million by 2021. I would like to recognize our global management team for working so diligently to rapidly resize our organization and position the company for strong long-term growth.
In summary, as I mentioned at the beginning of my remarks, the results of our second quarter demonstrate the initial progress that the entire Gentherm team has made. I'm confident that we'll continue to gain momentum as we move through the rest of the year and that we're well positioned to deliver significant positive results for our shareholders.
With that, let's turn the call back over to the operator to begin the Q&A session. Operator?
Thank you. At this time, we will be conducting the question-and-answer session. Our first question is coming from the line of Christopher Van Horn with B. Riley. Please proceed with your question.
Good morning. Thank you for taking the question.
Hi, Chris.
Seeing as it's on the forefront of everyone's mind and you did call it out a little bit in the press release, just curious around the tariff impact potentially to guidance – is it in your guidance? Any products that you could maybe call out that you've identified that were in the July 6 list? And then, any sort of strategy around finding alternative suppliers or other ways to source those products?
So, Chris, we've added about $3 million to $5 million in cost for the new tariffs into the second half.
Chris, to answer your second part of it, absolutely we're looking at all options to offset that $3 million to $5 million. Of course, if nothing were to be done, you could basically double that for the next year. But we have some good ideas on ways to mitigate that both through supplier activities, through some production relocation activities on our side and in some negotiations both with suppliers and potentially with customers. So, obviously we're not just going to accept the full amount, but that's what we're looking at right now.
Okay, great. Thanks for the color. Okay. With that out of the way, the full system award that you mentioned, it seems like a great opportunity set for you. Could you get a little bit more detail, you don't think – I don't know if you can give specific pricing, but how does it relate pricing-wise or opportunity-wise to some of the other things you're doing in the controller business. And is anybody else kind of offering this full set solution or are you kind of first movers here?
So, in terms of pricing, I'll just give you a general sense, obviously it's increased content which is what we're going after, adding more content per vehicle in our CCS suite of solutions. It also includes, importantly, the memory seat module, which we announced some pretty big activities on those, especially with the Ford intelligent positioning system that we announced last quarter. So, all those things obviously are exciting for us because, number one, they give us more content in the vehicle and number two, provide more value for the OEM customers in terms of ECU reduction going forward. So, as far as I know, I'm not aware of anyone else in our specific space that offers that solution.
Okay, great. And then, when you think about the launch phase of BTM and some of the programs coming online, it seems like that's going to be trailing off in the back half. And I just was curious, how long do you see those launch phases lasting, and is it the right way to think about it is you see kind of a slower, not a slow decline, but a decline over the back half of this year and maybe a little bit into 2019 as these ramp up?
Yeah. I think, what you said is about right. The second half of the year is our primary ramp up period, which by the time we hit 2019, we should be clicking pretty good.
Okay.
As with any new technology launch, obviously we're very focused on launching it correctly, get the quality right, and we're putting the amount of resources and cost necessary to assure that.
Okay. Thanks for the time. I'll hop back in the queue.
Thank you, Chris.
Thank you. The next question is coming from the line of Gary Prestopino with Barrington Research. Please proceed with your question.
Hey. Good morning, everyone.
Good morning, Gary.
Quick question. You said that – hi – of the $800 million of new business that you signed up, was it 46% with CCS or was it 40%?
46%, that's correct.
Okay, so 46%, that's on a six month basis. Can you give us any idea of how that was split between the quarters? I guess, what I'm trying to get at is, are you seeing more of an acceleration in CCS in your new business awards on automotive?
We're definitely seeing an acceleration in CCS awards, but I think if you look at the split, it's about the same, roughly equivalent.
I mean, opportunities can very quiet a bit just based on what vehicle programs are being awarded or being in the market basically (00:30:17) got to look at it on a long-term just individual quarter.
No, that's fine. I'm just trying to get – I'm happy with the progress.
We're seeing a nice weighting towards conquest wins in the CCS market too, which for us is pretty exciting.
Okay. And then, Barry, as far as the tax rate goes, you said there's going to be variation there, but what caused the tax rate to be down this quarter versus where you think it's going to be the back half of the year?
It's basically discrete items, Gary.
Yeah.
We have some intercompany transactions that basically switch different – our taxable income to different jurisdictions. We have variations in our different tax rate. So that's one thing. That was related to repatriation of our cash. And then, the windfall tax is basically when we have stock option exercises, we'll get a tax deduction in excess of and the expense that we booked, that benefits the quarter as well. Those are all discrete items that you booked individually in the quarter, not as part of your estimate.
Sure. Are there going to be these similar discrete items, so do you think – you said 24% for the back half of the year, right?
Yes. There is very good possibility that we'll have other discrete items in the second half.
Okay. Thank you.
Thank you, Gary.
Thank you. Our next question comes from the line of Matt Koranda with ROTH Capital. Please proceed with your question.
Hey, guys. Good morning.
Good morning, Matt.
First question is on CCS. Just in terms of the sequential increase that was good to see, should we expect sequential growth for the rest of the year?
That's what we're seeing so far, yes.
I'm noticing more domestic China OEMs in your deck. So, maybe if you could call out what is CCS penetration like for you guys, what kind of domestics currently? And then, is there much quotation activity with them at the moment? Is that contributing at all to the wins that you presented?
Yeah, a lot activity in the domestic market there. The OEMs are – I would say at least this is my view, they are aggressively trying to keep up with the kinds of comfort features that the global OEMs are implementing. When you look at our share, you asked the question about our share, we're about 50% of the market on CCS in China. So, I think we're doing a really good job of capturing our fair share. We've put in place a really strong key account team for the domestic China market, and that team is obviously aggressively working with the OEMs and marketing our solutions to assure we're right there front and center strategically with the right domestic Chinese OEMs. We're not trying to capture everything, but certainly going after what we perceive as the OEMs that will be most effective for our growth.
Okay. That's helpful. And then, just in terms of the drill down a little deeper, I think you guys said 46% of the $800 million was CCS. Is there any way to give us a sense for what was active heat/cool versus heat/vent in the CCS vents year-to-date?
We're still seeing more of the CCS vent. If you look at the architectures of current vehicles, there are still transition of entry in mid cars to adding the CCS technology. And obviously there's more of those vehicles in the world, so those are quickly transitioning to vent. Although, as you look beyond 2021 launches, we're starting to see the CCS active really pick up. That's pretty consistent with what we continue to see in the first half of the year.
Got it. That's helpful as well. And then, just in terms of the pipeline on BTM notice you guys called out development contracts with two Asian OEMs, wanted to get a sense for sort of what is the gestation period when you signed a development contract between that and sort of a decision point or program award?
It varies quite a bit, but generally if you get a development contract, you go through the process and you're somewhere in the six-month period to a year period of doing the analysis prior to an award, that's on average.
Okay. Last one for me, just on gross margins. I was wondering sort of, I mean, it looks like your guidance does embed EBITDA and gross margin as you called out sort of volume increases, efficiencies set by sort of the tariff headwinds that you're going to be facing in the back half here. So, could you bridge us sort of the 30%-plus gross margins that your guidance implies in the back half and sort of how do we get there? What's more important – are the volume increases sort of the driver, are we counting on quite a bit of sourcing efficiencies, just a little bit of color there just in terms of how we get there?
They're definitely the things you mentioned, but you missed a couple to the Fit-for-Growth activities will start to help our production expenses. You missed the Battery Thermal management will improve as we grow their revenue there, so covering the fixed cost that happens within that product line. The things you mentioned which are exactly right at the higher revenue will get higher – it will help because of the higher contribution margin, and the bouncing out, if you will, of the cost or the price to the customer versus the cost to our supply base for pricing actions.
On that one, Matt, I'm really excited about the work that our operations and purchasing team are doing to bring down costs. Unfortunately once we do those activities, it takes a little while to get the revised – the right cost to flow through our inventory. So that's taken a little longer than we expected, but I expect that will pick up pretty good in the second half of the year.
Can you guys call it one-time launch cost with the Battery Thermal Management launch this quarter, is that possible?
We didn't give a specific number, but keep in mind that there isn't just the launch cost themselves, there's also the fixed costs that are out there to support a much larger business like a depreciation of all the equipment that's in place.
Okay, all right. I'll jump back in queue. Thanks, guys.
Thank you, Matt.
Thank you. Our next question is coming from the line of Steve Dyer with Craig-Hallum. Please proceed with your question.
Thanks. Good morning, guys. A couple of questions that I didn't hear you address, just percentage of new auto awards both overall auto as well as CCS that are new versus existing renewals?
We have more conquest or new wins than renewals, over 50%.
Okay, great. And then, I didn't hear how much if it's material and how much you guys received from the divestiture of the battery electronics impact business?
It was a large number, less than $1 million.
Okay, got it. That's it for me. Thank you.
Thank you, Steve.
Thank you. We do have a follow-up question coming from the line of Gary Prestopino with Barrington Research. Please proceed with your question.
Yeah. Just – Phil, looking at your automotive awards, there seems to be an interior award for the Mercedes S-Class, is that on the feature? Is that specifically throughout the whole interior of the car armrests, floors, et cetera?
Yeah. That one is really very interesting, that's surfaces and a pillow, a rear seat pillow.
A rear seat pillow?
Yeah.
Is that that built into the seat?
It is. It's an attached pillow. It's kind of the head and upper back/neck rest.
That's interesting. Okay. Just trying to understand exactly what that was. And that's for the S-class?
Yes.
Okay. Is that – you see that proliferating throughout the Mercedes model lineup or is it just specifically for the S-Class right now?
It's a little too early to tell on that, but certainly we're seeing a lot more interest in discussions across multiple OEMs about adding these types of comfort features on the luxury side.
Yeah. Okay. All right. Thank you.
Thank you.
Thank you. It appears we have no additional questions at this time. So I'd like to pass the floor back over to Mr. Eyler if any additional concluding comments.
Thank you, operator. Thanks everyone for joining our call today. Just to reiterate, we remain focused on execution, innovation and cost improvement. I'm confident that we'll deliver significant shareholder value in the quarters and years ahead. And we certainly appreciate everyone's support and interest. Thank you.
Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation and you may disconnect your lines at this time.