Greetings, and welcome to the Gentherm First Quarter 2023 Earnings Call. 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 conference over to your host, Yijing Brentano, Senior Vice President of Strategy, Corporate Development and Investor Relations for Gentherm. 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. 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 securities laws. Statements reflect our current views with respect to future events and financial performance, and actual results may differ materially. 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, including certain pro forma measures related to the Alfmeier acquisition. Reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures are included in our earnings release or investor presentation. On the call with me today are Phil Eyler, President and Chief Executive Officer; and Matteo Anversa, Chief Financial Officer. 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. 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. I'm quite proud of the Gentherm team for coming together, executing with focus and delivering strong results in the first quarter. We delivered the highest quarterly revenue in company history, growing 36% year-over-year or 39%, excluding the impact of foreign currency translation. Adjusting for FX and the Alfmeier acquisition, automotive revenues increased 14% year-over-year in the first quarter, outperforming actual light vehicle production in our key markets by over 800 basis points. It was just a year ago that we announced our acquisition of Alfmeier, which expanded Gentherm's value proposition beyond thermal within comfort, health and wellness. Demand for our thermal comfort, massage and lumbar solutions is accelerating, evidenced by our $480 million of new automotive business awards, a record for our first quarter. We won a break through integrated thermal comfort, lumbar and massage system for Jaguar Land Rover EVs. We also won our first lumbar and massage award with General Motors on a future electric vehicle. The pace of these conquest awards is well ahead of our expectations following the Alfmeier acquisition. On the profitability side, our margin performance improved year-over-year as a result of our cost improvement initiatives and our negotiation of appropriate cost recoveries from customers. On a pro forma basis, our adjusted EBITDA margin rate improved 230 basis points year-over-year. We generated $25 million of cash flow from operations and repurchased $10 million of shares in the quarter. Matteo will provide more details on our financial results in a few minutes. Now, turning to automotive highlights on Slide 4. In the first quarter, we launched our automotive solutions on 17 different vehicles across 9 OEMs, including BMW, Ford, General Motors, Great Wall, Hyundai and Mercedes-Benz. We continue to see momentum for our…

Okay. Thank you, Phil. Let me turn to Slide 7 and focus on the items that most significantly impacted our first quarter results. For the quarter, our product revenues increased by 36% 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 14%. Starting with the Automotive segment. Automotive revenues were $353 million, reflecting a 37% increase compared to the prior year period. Adjusting for the $66 million contribution from Alfmeier and foreign currency translation, automotive revenue increased by 14%. And this compares to a 6% increase in the actual light vehicle production in our key markets of North America, Europe, China, Japan and Korea. And as Phil just mentioned, we outperformed the light vehicle production volume by over 800 basis 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. We saw significant growth on the majority of our product lines. And more specifically, steering wheel heaters revenue increased by 27% compared to the prior year period due to higher demand and production volume on multiple GM platforms as well as higher production volume with a major global EV OEM. BPS revenue increased 15% due to higher volume with Mercedes, Jeep and the start of production of our proprietary thin foil self-connecting board on the BMW 7 Series plug-in hybrid. CCS revenue increased by 12% due to higher production volume of GM trucks and SUVs as well as take rate increases on Mercedes, Stellantis and Hyundai Kia. Seat heater revenue increased by 10% due to higher production volume of trucks and SUVs at GM, Ford and Stellantis. Lumbar and massage solutions…

Thanks, Matteo. Now let me summarize. The results of the first quarter clearly demonstrates the significant and continued progress we're making against our long-term strategic initiatives. We delivered the highest quarterly revenue in company history and improved profitability year-over-year. We secured $480 million in new automotive business awards, the highest that we've ever secured in the first quarter. Our results also highlight how the Alfmeier acquisition has accelerated our market penetration. And finally, our momentum in the first quarter demonstrates our unique positioning to capitalize on industry megatrends to create a flywheel of profitable growth. With that, I'll turn the call back to the operator to begin the Q&A session.

Thank you. [Operator Instructions] Our first question comes from the line of Matt Koranda with ROTH MKM.

Hey guys, good morning.

Good morning, Matt.

On the bookings, good morning guys. On the bookings front, the $480 million, it sounded like a good amount of Alfmeier content may be in there. Just any breakdown on the balance between thermal comfort versus lumbar and massage?

Yes. I think both were stronger than normal, so very good performance. We're especially excited about the combined award with JLR, which was very sizable in total and was an exciting conquest win for us.

And it sounds like there is additional potential in the pipeline for the additional combined content. Just curious if maybe, Phil if you could just give a little bit of color on sort of what's in the pipeline on a go-forward basis on that front?

Sure. Well, it's -- yes, I would say we're -- we have quite a bit more interest than we had anticipated, especially from the more traditional Gentherm customer base that Alfmeier did not do business with prior to the acquisition. That's keeping us very busy, as you can see with the big wins with JLR and with General Motors. But on top of that, the potential for new platforms with traditional Alfmeier customers like BMW, Mercedes, Volkswagen, Audi, some really significant opportunities are rolling in there, too. So we're very busy with all of the opportunities rolling in. But at the same time, our win rate was very high on thermal business and activity is starting to pick up. So we're excited about the pipeline leading into the rest of 2023.

Okay. That's great to hear. And then just for Matteo, maybe -- curious if you could just give a more detailed gross margin bridge in the first quarter? Revenue up significantly, obviously, I think Alfmeier may be a bit of a drag on the gross margin front, but just curious if you could maybe provide a more detailed breakout of the gross margin bridge on a year-over-year basis for us?

Yes. Sure Matt, good morning. Maybe the best way to do this is to talk about the legacy Gentherm business. So really pleased on where the profitability came in the first quarter. You have about -- if you compare the 24% that we had in the first quarter of last year to the -- what legacy closed, excluding a little bit of an adjustment that we had due to the exit on the non-automotive electronics, the gross margin rate in legacy came at about 26.5%, which is a nice improvement year-over-year. A couple of key drivers, volume leverage is accounted for an expansion of about 250 basis points. We saw, as expected, freight costs coming down quite nicely, driven by a couple of reasons, premium freight, primarily as a result of the improved environment compared to what we were facing last year as well as a very good job by our team negotiating better freight rates for the regular freight. So freight accounted for about 180 basis points of margin expansion. The other real positive is price, which was actually positive in the first quarter, which, as you know, is very unusual for our business as we always have the negative impact of the annual price-down that kick in, in the first quarter. But the team did a fantastic job in continuing to drive the positive momentum on the cost recoveries with our customers. So that's about 80 basis points of margin expansion. And then on the negative side, you have the labor and material inflation, which accounted for about 140 bps negative and FX was 120 bps. So I think really great performance by the team. And again, we are starting to see, particularly on the legacy business, a nice pickup in profitability, and we feel pretty comfortable for the rest of the year.

Okay, excellent. And then just last one from me. I noticed, you reiterated the guide for the full year, makes sense. Just any additional commentary on sort of the seasonality or cadence for the rest of the year here, is it's still expected to be sort of build into the back half of the year on both revenue and EBITDA margin? I mean, you outperformed the EBITDA margin a little bit, I think, in the first quarter, but just any more commentary on sort of the shape of the year here?

Sure. So yes, you're right, Matt. I think the first quarter came in probably slightly better than what we were expecting at the beginning of the year, which is good. The -- if I look at where we need to be in terms of the EBITDA rate, you really -- for the next three quarters, on average, the EBITDA rate needs to be about 12.9%, right, to hit the midpoint. And really, if you bridge from the 11.5% of today to the 12.9% for the remainder of the year, you really have a couple of things that we are expecting to happen. Number one is the volume, which is exactly what you said. The revenue cadence, we are confirming what we said a couple of months ago. We are expecting the second half to be higher than the first half, thanks to new product launches. So that's about 80 basis points of margin expansion. Alfmeier is going to be in the mid-single-digit type of EBITDA rate for the remainder of the year. So that's about 100 bps of margin expansion. And then we have the usual timing on incremental price recoveries that the team will negotiate as well as sourcing savings that tend to come in the latter part of the year, which also will drive another 70 basis points of margin expansion. And then you have a little bit of an investment on OpEx, primarily driven by the merit, so these are the increases that, for us, kick in on April 1. So that's how we bridge from the EBITDA that you've seen today -- we reported today towards the midpoint of guidance for the next of the year. I think overall, our rationale here in terms of reconfirming the guidance, on one side, we are very excited where the quarter came in. We have great momentum, particularly on the price recoveries. I think the -- on the other side, the environment remains volatile, and we also have to do -- continue to do some work to continue to improve the profitability of the company. So that's really our rationale to -- for now maintain the guidance that we gave a couple of months ago. But we are very pleased on where the team came in, in the first quarter.

Okay. Super detailed and helpful. I'll leave it there guys, thank you.

Thank you, Matt.

Thank you. [Operator Instructions] Thank you, ladies and gentlemen. This concludes our Q&A session, and thus concludes our call today. We thank you for your interest and participation. You may now disconnect your lines.