Greetings, and welcome to the Gentherm Fourth Quarter and Year End 2022 Earnings Conference Call and Strategy Update. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Yijing Brentano, Senior Vice President of Strategy, Corporate Development and Investor Relations. Thank you. You may begin.

Thank you, and good morning, everyone, and thanks for joining us today. Gentherm's earnings results were released earlier this morning and a copy of the release is available at gentherm.com. In addition to discussing fourth quarter and full year 2022 results, Phil Eyler, our President and CEO; and Matteo Anversa, our CFO, will also share Gentherm's strategic plan for 2023 and beyond. You will be able to see the slides on your webcast screen when we advance through them here in the room. A copy of the complete slide deck will be posted under the Events tab in the Investor Relations section of gentherm.com immediately following the completion of Phil and Matteo's prepared comments. In addition, an audio replay of this event will be available for 90 days. 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 federal security laws. Statements reflect our current views with respect to future events and financial performance, and actual results may differ materially due to a variety of important factors and risks. All statements that address future operating, financial or business performance or Gentherm strategies or expectations are forward-looking statements. In making these statements, we rely on assumptions and analysis based on our experience and perception of historical trends, current conditions and expected future developments as well as other factors we consider appropriate under the circumstances. We undertake no obligation to update them except as required by law. Please see Gentherm's earnings release and its SEC filings, including the latest 10-K and subsequent reports, for discussions of our risk factors and other risks 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 or investor presentation. After Phil and Matteo's prepared remarks, we will have a Q&A session. Now, I'd like to turn the call over to Phil.

Thank you, Yijing. Good morning, everyone, and thank you for joining us today. First, let me outline the agenda for our enhanced earnings call this morning. We will begin with a brief review of Q4 and full year 2022 results and 2023 guidance. We'll then review our mid-term strategic plan in detail and provide 2026 financial goals. We would encourage you to follow along on the webcast as we will kick off the strategy update with a short video. And finally, we'll conclude with a Q&A session. Now turning to Slide 4 for some 2022 highlights. I am extremely proud of what the Gentherm team achieved in 2022 despite a continuously challenging operating environment. During the year, we closed the acquisitions of Alfmeier and Dacheng Medical, which expanded Gentherm's value proposition in both automotive and medical. We also achieved record revenue in the fourth quarter and for the full year 2022. Of special note, we achieved record annual revenue for climate control seats, steering wheel heat and battery performance solutions in 2022. With the addition of Alfmeier and Dacheng, revenue grew 38% year-over-year in the fourth quarter or 43% excluding the impact of foreign currency translation. Adjusting for both foreign currency translation and the Alfmeier acquisition, Automotive revenues increased 23% year-over-year in the fourth quarter, outperforming actual light vehicle production in our key markets by nearly 20 percentage points. For full year 2022, revenue rose 15% year-over-year or 23% adjusting for the impact of foreign currency translation. Adjusting for both foreign currency translation and the Alfmeier acquisition, Automotive revenues increased 11% year-over-year in 2022, outperforming actual light vehicle production in our key markets by over 600 basis points. In addition, we secured new automotive business awards of $1.8 billion in 2022, setting another record in company history. Our milestone achievements…

Okay. Thank you, Phil. Let me turn to Slide 6 and focus on the items that most significantly impacted our fourth quarter results. For the quarter, product revenues increased by 38% compared to the same period of last year, including the contribution from the acquisitions. If we adjust for the impact of acquisitions and FX, our overall product revenue increased by 21%. Starting with the Automotive segment. Automotive revenues were $332 million, reflecting a 40% increase compared to the prior year period. Adjusting for the $58 million contribution from Alfmeier and foreign currency translation, Automotive revenue increased by 23% and this compares to a 2% increase in the actual light vehicle production in our key markets of North America, Europe, China, Japan and Korea. As Phil mentioned, we outperformed light vehicle production volume by nearly 20 percentage points. We have provided the detail on revenue growth by product category in our earnings press release and associated materials that are available on our Investor Relations website. Turning to adjusted EBITDA. Adjusted EBITDA in the quarter was $38 million, up from $31 million in the prior year period. The adjusted EBITDA rate for the fourth quarter was 11.1%. This compares to 12.5% in the year ago period. The 140-basis points decrease was driven by higher material and wage inflation, negative impact of foreign currency exchange, primarily due to the appreciation of the US dollar compared to the euro, as well as the impact of Alfmeier, which has a lower profitability rate than the legacy business. These were partially offset by fixed cost leverage on higher sales volume as well as cost recoveries and negotiated price increases from customers. It is worth noting that the dilutive impact to the adjusted EBITDA margin rate of Alfmeier in the quarter was approximately 170 basis points.…

Thanks, Matteo. Before we get started with a detailed review of our mid-term strategic plan, we will show you a short video about Gentherm. We encourage you to join via the webcast. You'll be able to see the video and slides on the webcast screen when we advance through them here in the room. For those of you remaining only on the phone line, you'll hear just a few minutes of silence while the video is playing for the next couple of minutes. [Video Presentation] We will now start a detailed review of our mid-term strategic plan and 2026 financial goals, and will conclude with a Q&A session. In 2018, we established our clear mission, creating and delivering extraordinary solutions that make meaningful differences in everyday life by improving health, wellness, comfort and energy efficiency. And we remained laser-focused. This has been our true north every day. We are truly a purpose driven company and we believe that our purpose differentiates us from the competition. Health, wellness, comfort and energy efficiency drives everything we do from long-term strategy to daily execution. This mission drives our entrepreneurial innovation around the world. You will certainly remember us and our mission on those winter mornings when you experience our thermal solutions in your car or if you or a loved one are treated by our patient temperature management products in a hospital, and realize an improved outcome and faster recovery. You're going to hear more today about the reasons why Gentherm is a compelling investment. And during the presentation, we'll walk you through more details on the points shown here. We are a pure play leader in thermal and pneumatic technologies. We continue to sharpen our portfolio to capitalize on our core competencies. Significant tailwinds for growth remain through a massively underpenetrated market…

Thank you, Phil. Let me start the financial section on Slide 59 by taking a step back and look at where we have been. As Phil mentioned earlier, in the middle of 2018, we launched our Fit for Growth initiative centered around a few key strategies. Overall company simplification, which resulted in the disposition of non-profitable businesses as well as the [halting] (ph) of expenses in areas that were not part of our core strategy. Footprint rationalization, which led us to the restructuring of our electronics manufacturing, and the closure of a few facilities in North America and Asia, sourcing and manufacturing excellence and SG&A rationalization, which resulted in a reduction of operating expenses by 15%. The Fit for Growth program was extremely successful and generated more than $75 million of growth savings that allowed us to improve the profitability of the business up to high-teens adjusted EBITDA rates at the end of 2020. On a balance sheet standpoint, we significantly improved our cash conversion through working capital optimization and tighter controls on capital expenditures. We generated approximately $370 million of free cash flow over the 2018-2021 period, deploying the cash towards strengthening the balance sheet and opportunistic share buybacks. 2022 was a year of transition for the company. We entered the year in a net cash position of approximately $150 million, which allowed us to successfully weather the supply chain disruptions around the semiconductor shortages and build inventory to protect our customers. Our strong balance sheet enabled us to play offense and complete the Alfmeier and Dacheng acquisitions in the summer of last year, and we were able to mitigate the impact of the supply chain disruptions and material inflation through tight cost control on SG&A and more than $20 million price recoveries from customers. As we look forward,…

Thanks, Matteo. Now, let me close. I believe Gentherm presents a strong investment thesis. Simply put, our best-in-class innovative technology, industry-leading manufacturing, our deep customer relationships and proven execution create a sustainable competitive advantage for the company. As I pointed out, the market is large and underpenetrated, and we're going to capitalize on our independent market-leading position and our capabilities to drive high-return growth outpacing the market. And finally, we will leverage our operational excellence to deliver strong cash flow and shareholder returns. With that, I'm going to turn the call over to the operator to start the Q&A.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first questions come from the line of Luke Junk with Baird. Please proceed with your questions.

Great. Thank you, and good morning. Thanks for taking the questions. I want to start with the question on '23 guidance and then I'll ask a couple of strategic questions. And first one, maybe for Matteo, if you could just unpack the 2023 EBITDA margin assumption, I'm thinking in terms of gross margin, incremental investments, underlying leverage in the business, can you just help us understand some of the key drivers '22 into '23 and the EBITDA margin? Thank you.

Hi, Luke, thanks for the question. Good morning. So, let me start with EBITDA. So, if you look at the pages that we posted, our pro forma 2022 EBITDA rate was about 10.4%. So that's our starting point. If I look at the midpoint of our guidance, we are on the revenue side projecting a 13% organic growth. The S&P Global right now has a growth of about 3% to 4% for our relevant market. And so that equates the flow-through of about 30% of gross margin, about 190 basis points expansion on our EBITDA rate due to the volume. Then, we are expecting about 70 basis points of margin expansion from pricing activities. So, very similar to what we have accomplished in 2022 with some of the recoveries. About 70 basis points improvement also coming from manufacturing productivity, value engineering net of the labor inflation. So, these are the positive side. Then, on the pressures, we are assuming about 120 basis points pressure due to material inflation, which we are still seeing being pretty high, particularly entering the year considering that we were able to push out some of the material inflation out of '22. And then, FX is a drag of about 120 bps. So, that's how you get to this at the midpoint of guidance the 200-basis points EBITDA margin improvement compared to where we closed on a pro forma basis 2022. Maybe on your question on the capital -- sorry, go ahead, Luke.

No, sorry. I didn't mean to interrupt.

I think you asked a question on capital and investment. So, let me talk maybe first on the income statement on the operating expenses. So, we are assuming operating expenses to be in total still at about 16% of revenue, very -- pretty much in line with the pro forma of 2022. And primarily, this is driven by investments on the R&D as we continue to fund new programs on BPS, on ClimateSense and some of the new technologies of Alfmeier. And then, we also have to manage labor inflation, which is not only impacting the variable cost, but this applies also to the operating expenses. And then, on CapEx, so we guided a little higher than our normal run rate and that's again driven by some of the investment that we have to make in order to fulfill the high win rate that we had on awards in the recent months.

That is all very helpful. Thank you for that. And then, pivoting to a longer-term view, Phil, maybe if we could just kind of put a capstone on all the strategic updates this morning, and I'm just kind of want to think about the evolution as a market since you last gave a strategic update in 2018 in terms of consumer expectations changes post COVID, changes that we've seen competitively, a lot has changed since 2018. As we kind of line up the world today with respect to the mid-term revenue target that you're implying in the guidance, can we just talk about a little bit more about how you lean into those dynamics and specifically the changes in the company's strategy today that maybe you want to spike out with a little more emphasis relative to [four] (ph) years ago?

Sure. Well, I think that we're really excited as we look to the years ahead. The one area that I think has accelerated pretty dramatically is the momentum towards full EV as we proceed. And I think that's a big benefit for us. And really kind of highlights -- when we look at thermal especially and, to a similar extent, pneumatic product, four growth vectors for us that we're really doubling down on. If you get the basic -- the first pillar is production. So that's what most of us look for is vehicle production growth. Of course, it's not huge, but that's the first one. The second one is adoption. One thing we're seeing with EVs and, to a similar extent, a high volume mass market vehicles is more nameplates adopting thermal and pneumatic technologies. And this is, I think, driven by a couple of factors. Consumers are demanding it. We talked a little bit about the consumer studies that we've done and those are clear to the OEMs. But then there's the energy efficiency benefit that EVs will see across the board. And of course, we've got the full continuum from adding devices all the way to ClimateSense. So that's clearly driving our strategic initiatives. The third one is take rates. So, we're really optimistic and excited to see what customers have done in the past year or so and especially what we see in the coming couple of years that vehicles that offer our product are increasing the take rates for the same reasons I just mentioned. And then, the fourth one is content per vehicle. And we've launched a lot of new technologies and new products that are, we think, perfectly positioned to enhance both the consumer experience and efficiency. And some examples are intelligent neck…

Great. And then if I could just ask one more question. Phil, in the video, clearly a focus on ClimateSense. And one of the things in the video, many more partnerships with OEMs. Sure to follow and hoping you could just put a finer point and maybe a little bit of a state of the union on ClimateSense in terms of your current engagement with customers and what your line of sight is beyond the two vehicles that you've already booked in terms of near-term development, say, in the next 12 months to 18 months on the business development...

Well, obviously, we're extremely focused on launching successfully with General Motors. It was our largest customer, and this is -- and we're so honored to be partnering with them on these types of technologies, and clearly Cadillac CELESTIQ is critical to us. And then, we've got a follow-on award past that, and we want to keep building that partnership who we perceive as one of the most ambitious EV companies out there. And clearly, they're excited about the technology. So, that's a big part of our focus and I don't want to downplay that. That said, the Cadillac CELESTIQ announcement in a lot of the press that has come from GM and from us has opened up even more interest from other potential customers. So, we're selectively doing development projects, assessing potential vehicle rollouts and, obviously, we're excited about opportunities to come with new customers. And one area, I think that positions us pretty well and this is why we highlighted it so much in the strategy chat was that we've created a scalable platform. It's kind of like a building block migration to the full-blown ClimateSense. And I think that's relatively new development for us and it's really coming together. If you look at the mid-term plan to '26, it's certainly -- I would say we have pretty modest expectations for ClimateSense growth from a full system perspective in there. But what we do see and where we expect pretty good fuel to our growth rate is adding the Smart Effectors that come from the scalable platform and more content per vehicle as we see OEMs make the migration to full-blown ClimateSense.

Great. Thank you for all that. And I'll go ahead and leave it there for now.

Thank you, Luke.

Thanks, Luke.

Thank you. Our next question is coming from the line of Matt Koranda with Roth. Please proceed with your question.

Hey, guys. Good morning, and thanks for all the detail with the strategy update. I'll do a couple near-term ones and then a couple of long-term as well. So, maybe just, Matteo, maybe I missed it, but just could you maybe break out the drag on EBITDA margin in '23 from Alfmeier? Just sort of how we should be thinking about that headwind to versus core EBITDA improvement in '23? And then, maybe also just speak to the progression of EBITDA margin throughout the year. You did mention first quarter below sort of the full year, but maybe any finer points you could put on that first quarter number? And then, just is it a steady progression sequentially each quarter throughout the year or is there a step change somewhere in the back half of the year?

Sure. So, let me start with the first question. So, Alfmeier today, if you look at where we closed 2022 is in the low-single digit EBITDA rate. And we're expecting that to improve throughout the year to about mid-single digit EBITDA rate. And then the further improvement will come as we [indiscernible] the full synergies and continue to work also on productivity projects that are included in the mid-term strategy and financials that we provided this morning. But that's mid-term EBITDA rate -- mid-single digit EBITDA rate would be what we have factored in our guidance for 2023. In terms of your cadence, question, you're right. I mentioned that regarding the first quarter, I think, let me break this down for you. I think it's important to start where we finished 2022. So, if you look at the fourth quarter profitability that we had in 2022, that profitability benefited from portion of the pricing recoveries that were actually negotiated earlier in the year. So, if we normalize the pricing recoveries and exclude also the impact on the non-cash stock comp, the EBITDA rate in the fourth quarter would be around 10%. So, this is how we enter 2023. The other aspect that I think, Matt, we always have to consider is that our earnings tend to be seasonal. So, in the first half of each year, our margins are negatively impacted by the annual price downs. All the cost recoveries and pricing actions are negotiated throughout the year. So, the impact, the positive impact of those generally come later in the second half. And the same applies actually with some of the sourcing savings. If you think about volume rebates from suppliers, they always tend to come in the third -- in the fourth quarter. So, I would also add one other thing that I think everybody is currently facing, which is labor inflation, which is still pre elevated both at the factories on the variable side as well as on the salary side. So, when you combine all these aspects, right, that's why we expect our profitability in the first quarter to be below our annual guided range for EBITDA. And then, the adjusted EBITDA margin rate from there will steadily improve throughout the year as the impact of price recoveries, price negotiations, productivity at the factories and supplier cost reduction will kick in later in the year.

Okay, very helpful. And then, just shifting to the longer-term outlook and strategy presentation, just wondering if you can provide a few concrete examples of the content per vehicle shift. One of the slides I think you had shown -- shows sort of a $30 to $300 current opportunity versus like upwards of $1,000 in [BEV] (ph). And I'm just curious how much of that shift relies on the underlying mix of vehicles changing toward full battery electric? And how much of the, I guess, the '26 outlook in terms of growth takes a view on sort of the mix shift in sort of battery electric versus price in the car part?

Sure. I'll take that one. Let me talk about first of all the building blocks to get the increased content. I think what we typically look at on an ICE is as our full suite is kind of two seats of CCS and a steering wheel. And where we see that gradually building in the transition to full EV is adding rows, so more seats in the vehicle. That's a clear adder. Obviously, the different effectors that help not only with comfort, but help to stepwise improve efficiency, and those I mentioned earlier, neck conditioning, footwell conditioning, heated interior surfaces, potential radiation. And then you add in when we get to ClimateSense, more electronics and more software, and you can start to get a sense. And then, of course, you add in the pneumatic side on top of that, and you start to get a sense of all the potential component additions that you get on the comfort side. And then, on top of that, of course, our battery performance solutions, if we were able to get the full-blown cell connecting suite in the EV and then also there's the potential for battery heating. So, you can just kind of add all those pieces up and that's what can get you to the $1,000 per vehicle. When you look at the '26 rate, we basically built in the cars in our pipeline that we know of, it's the way -- '26 is, if you think about it, an awful lot of that is either already awarded or we have a very clear path for the RFQs that will come in the next 18 to 24 months. And those are what's built into our growth rate. So, there's not a lot of speculation to be honest with you. Obviously, we have to execute and we have to drive a lot of wins or at least a fair number of wins in that time period. But I think '26 is fairly well known. And then, the acceleration then beyond '26 to 2030 is where we start to see more ClimateSense, deeper penetration of BPS and continued scaling content per vehicle.

Okay. Makes a lot of sense. And then, just lastly, maybe for Matteo, wanted to talk about the EBITDA bridge over the next couple of years. And you have a pretty decent size assumption in there for manufacturing productivity of $40 million. Just curious if you could maybe speak to, does that require any manufacturing footprint shifts? What kind of capital investments do we need to pencil in to assume you hit the $40 million in manufacturing productivity? And then, any concrete examples on the purchasing cost savings, the $30 million that you got penciled in there, would be very helpful.

Sure, Matt. So, let me start with the productivity side. So, really, we are looking at this $30 million to $50 million savings net of inflation, we have a couple of -- this is how I will break it down. 60% of it -- of the savings will come from pure manufacturing productivity. This is in the form of material usage optimization, process flow, lean improvements across all our networks. Fixed cost reduction as well as heavy focus on manufacturing automation in some of our key lines. So, that's about 60% of the benefits. 15% roughly is coming from value engineering, so really taking cost out of the bill of material. And then, the remaining 20%, to your second part of your question, is really coming from the footprint optimization that we talked about in the prepared remarks. So, for your second part of your question in terms of CapEx, so we will expect CapEx in the next throughout the planning period to be between 4% and 5% of revenue. And this is how we indicated in the prepared remarks and this CapEx includes any investments that are related to capacity that will be required to fund the growth that we have on the top-line.

Okay, great. And then, just on the...

Sorry. Then, you had another on the purchasing. Sorry. I was forgetting the purchasing portion, Matt. For the purchasing side, I think the majority of the savings really will be generated through design to low-cost initiatives, multi-sourcing strategies, particularly in electronics and connectors, for example, that's where we're looking at, localization of suppliers for materials such as fleece and plastics, and then continuous cost improvements activities such as e-auctions and carousels that we do with several of our suppliers. So that's what -- these are the building blocks of the sourcing savings that we talked about.

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

Thank you. Our next question is coming from the line of Ryan Sigdahl with Craig-Hallum. Please proceed with your question.

Good morning, guys.

Hey, Ryan.

One on 2026 business plan. Curious how much of that has been awarded versus anticipated new business? And then, secondly, if you've factored any acquisitions into that, both 2026 and 2030 targets, or if that's all organic?

Sure. Yes. When you look at the award rates, it's over 60% awarded for '26. If you look at our core business, the thermal business, it's over 70%. Obviously, with pneumatic, there's a lot of activity with new customers. When I say new customers, Gentherm's traditional customers that aren't currently customers for pneumatic. So, we're building in a reasonable win rate for that. And then, BPS, of course, is less awarded between now and then. Great news though, we do have a clear pipeline of bids that we're going for there. So that's kind of the picture there. When you look at 2026, there's no -- that's pure organic. There's no M&A built into the 2026 plan. And frankly, when you look at the 2030, $3 billion-plus goal that we have, that's assuming organic growth as well.

And then, maybe just a follow-up. What's the timeline from award to production on pneumatic and BPS? Is it similar to kind of core auto awards, where it's a two to three year, or is it shorter, longer, et cetera?

It's the same. It's two years. If you get some with 18 months and some a little bit longer, but around about two years.

Maybe one just higher level one and -- but curious on the timing to give the strategic update 2026, 2030, et cetera, targets this morning, given the macro uncertainties, everything we're dealing with. I guess just talk through management's thoughts around timing now.

Yes. It's been five years plus since we did it last time. And there's been so much evolution of our strategy and direction. To be honest, we postponed it a couple of times because of the same reason the macro environment, and we just felt that at some point we just had to make a decision and lay out our vision for the future. So that's what drove this.

Great. Maybe one more if I can sneak it in. Is there any ClimateSense included in the 2026 besides the two GM awards?

There is, but it's conservative.

Thanks all. Good luck, guys.

Thank you, Ryan.

Thank you. Our next question is coming from the line of Glenn Chin with Seaport Research Partners. Please proceed with your questions.

Great. Thank you, and thanks for all the detail folks. So, first just on the near term. In the press release, there wasn't really much mention of supply chain issues. I don't presume they're behind you. Can you just give us an update still on what developed in the quarter, and then what you see going forward?

Yes. It's still a volatile time, Glenn. It's not as volatile as it has been, especially if you look a year ago, but we're still seeing a couple of areas that are presenting challenges and that has led even into the first six weeks of the current fiscal year. Customer order volatility is still meaningful, but we're especially seeing that in Europe. And when I talk about that, I mean orders that come in, we ramp up our plants, put our people in place and then the orders are canceled. That causes productivity, causes overtime, causes inventory bubbles. We see that still to a maybe a little bit lesser extent in North America and Asia. But those are still challenges and we see those as being tied mainly to still occurring semiconductor shortages and also some market issues. Obviously, China was a significant impact in the fourth quarter and in the early part of the year with the impact of shutdowns and that -- COVID-related shutdowns. Of course, that's been opened up now. I know we did see a little bit of an extension in terms of demand shortfall with the Chinese New Year celebrations. Good news is we're starting to see that pick back up. And then, semiconductor shortages in general. Although thankfully, it's not nearly to the magnitude as it was, it's still a constrained environment with certain nodes of semiconductors. And we faced those. Our team still is in taskforce mode on many -- with many suppliers. And we still see OEMs run into shutdowns related to semiconductor shortages. So, it's certainly not behind us. We are planning for and continue to, number one, see from our perspective and hear from our customers steady improvement over the course of the year, and the year being 2023.

Okay. Very good. Thank you. And then kind of a related question, maybe for Matteo. So, in your 2026 outlook, you talked about improving free cash flow conversion. So, what can we expect, Matteo, with respect to the inventory buildup? When might that unwind or do you not see unwinding between now and 2026? And just more broadly in 2023, any other working capital puts and takes we should keep in mind?

Sure, Glenn. So, the -- if you look at -- historically, if you take the last four to five years, our free cash flow conversion over adjusted EBITDA has been roughly in the mid-40%s. Now, 2022 was an exception obviously due to the supply chain disruptions that we faced. So, when I talk about going back to the conversion rates, what we are expecting is that we will return to a free cash flow conversion in the mid-40%s in the planning period. Now the geography is going to be a little different from what we've done in the past. You will see an increase in CapEx as a percentage of revenue, as we discussed earlier. And this will be offset by a higher cash flow from operations. And really, this is going to be coming from two key areas. Number one, improvement on the inventory terms, and then negotiating better payment terms with suppliers. So, these are the two key areas that we're focusing on the mid-term plan, and I think that this would apply also for 2023.

Okay. Very good. Thank you. And then, longer-term, Phil, now that you guys are had Alfmeier, you have these four growth pillars, any other pillars you think you'd want or need?

Well, obviously, we feel really good about the pillars we have at the moment and it's keeping us very busy. But I would say, as we've been consistent over the last several years, we're really focused around our mission and our mission is around health, wellness and comfort in the car, it's in the cabin to improve the lives of passengers, and then, obviously, in operating room in hospitals. So, if we see opportunities that we think we can add a lot of value and fall into the M&A strategy, that Matteo mentioned, certainly, we feel like we're in a position from a balance sheet standpoint that we could make those moves, but those will be very, very selective.

Okay, very good. And then, just one last one. In the presentation, you mentioned software numerous times. Any thoughts on what percent of revenue that may comprise for you guys as a percent of total in the future?

You mean software itself?

Yes.

Yes. We don't break that out. I would call software more a part of our complete system solutions. There definitely are cases where we have customers interested in purchasing software to embed in other electronics, and a lot of that revolves around the specific algorithms that we've developed. But for the most part, we see it more as an enabler of our full system. And obviously, it differentiates our product and our solution, and we expect that to drive higher margins for our products.

Yes. Okay. Fair enough. Thank you.

Thanks, Glenn.

Thank you, Glenn.

Thank you. I will now turn the call back over to Yijing Brentano for the webcast question-and-answer session of today's call.

We have time for one question from the webcast, and here's the question. How should I think about the cadence of revenue growth and profitability improvement from 2023 to 2026? And what gives you confidence that you can achieve your 2026 financial goals?

Okay. Well, maybe I'll start with the revenue side and I'll turn it over to Matteo for the profitability. A couple of things on the 2026 side, and I'll talk specific and then more high level. First of all, if you look at the revenue for 2026, a lot of that's coming from either awarded business and I mentioned the percentages, and the known pipeline. That entire buildup was created around what we know is ahead of us. So, it's a fairly short timeframe between now and 2026. And then, the factors that give us confidence in the outperformance over that timeframe are really the four vectors that I mentioned earlier, especially with thermal and pneumatic. The first one is production growth. The second one is adding new nameplates. And that's what we're seeing in the pipeline between now and 2026 is a healthy rate of new nameplates, new cars that we will be able to launch on. The third is take rates. I mentioned this many times throughout our last couple of hours together is more and more consumers are demanding thermal technologies and that's accelerating with the transition to electric vehicles. And finally, content per vehicle. More of the opportunities in front of us are beyond our climate-controlled seats to include devices that surround the body. And those are all going to enhance the experience of consumers as well as add more efficiency to electric vehicles. So, those core vectors are really important. I'll throw on a couple of others that are really incremental. The BPS is clearly incremental growth for us we pick up more wins with our cell connecting. And on the pneumatic side, beyond the four vectors I mentioned, there is a replacement process that's happening where pneumatics will transition and take over more of the share from the motorized mechanical lumbar massage. And, of course, modest medical growth on top of that. So, a lot of areas for us to drive that growth between now and 2026.

So, turning to talk about the profitability side of the question, I think -- so first of all, at a high level, I think we have proven through our Fit for Growth initiatives that we were able to deliver $75 million to $80 million of savings through Fit for Growth. So that's why we feel comfortable that we can deliver the $80 million of cost out actions that we talked in the prepared remarks. And also quite frankly, if we look at the execution over the last five years, which have been, for sure, one of the most difficult operating environments that the company has faced, we were able to really work with our customers to bring innovative solutions, to grow, but at the same time to negotiate price recoveries and also to really manage cost very tightly. So, I think the combination of the anticipated revenue growth and the productivity progression that we talked about will allow us to really continue to grow the company both on the top-line and on the bottom-line in the next few years. Specifically on the cadence question, I would say that on the revenue side, we expect somewhat the cadence to be pretty linear, maybe with just the exception of BPS, which will probably be a little bit more back-end loaded. In terms of profitability, the leverage from the revenue increase will follow the revenue growth. There are a couple of actions that I mentioned to achieve the $80 million cost improvement, such as the footprint optimization and the Alfmeier synergy, which will come a little later in '25 and '26. But that's how I would model the profile.

Thank you. I will now hand the call back over to Phil Eyler for any closing remarks.

Great. Thank you everyone for joining our strategic update this morning. We are committed to executing on our four closely-balanced strategic imperatives: focused growth, extending technology leadership, deliver financial excellence, and leveraging world class talent and culture, a flywheel to profitable growth. We have built and will continue to build a portfolio of industry leading products that will shape the future and positively impact people's lives around the world. While we continue to effectively navigate the macro environment as it evolves, we remain laser-focused on capitalizing on the exciting opportunities ahead of us and driving significant shareholder value in the long term. We appreciate your interest and your support, and look forward to keeping you apprised of our progress.

This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.