Gentherm Inc (NASDAQ:THRM) Q1 2018 Earnings Conference Call - Final Transcript

Apr 26, 2018 • 08:00 am ET

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Gentherm Inc (NASDAQ:THRM) Q1 2018 Earnings Conference Call - Final Transcript

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Presentation
Executive
Barry Steele

the end of the 2017 fourth quarter. This business is expected to ramp to a $50 million to $60 million run rate by the end of 2019, but was only $1.3 million in the 2018 first quarter. In its early stage, production expenses, which reflect fixed cost for the much higher volumes and temporary launch expenses, unfavorably impacted our gross margin.

Our operating expenses increased by $7.6 million or 15%. This amount includes $2 million in currency translation and increases -- in currency translation increases, excuse me, and $2.2 million of additional operating expenses coming from recently acquired Etratech. The remaining increase is mainly due to higher spending for research and development activities covering a wide variety of products and technology.

Our effective tax rate was 19% for the first quarter. This is lower than our 24% guidance mainly due to discrete items recorded in the quarter related to non-recurring intercompany transactions that shifted the weighting of our earnings to jurisdictions having lower statutory tax rates. 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 the final calculations for the impacts of U.S. tax reform.

Turning to the balance sheet on Slide 9. Our cash decreased by $32.7 million, mainly due to a $35 million pay down on our revolving line of credit. This represents the first installment of the repatriation of cash that is now more possible as a result of U.S. tax reform. We plan to make further payments throughout the year. Increases in our working capital during the quarter, which are mainly related to seasonal timing of revenues in the first quarter compared to the fourth quarter as well as capital expenditures of $8 million, offset cash coming from our normal operation.

After the repayment, our total debt now stands at $109.2 million, and our revolving credit line availability increases to $256 million. Total liquidity is approximately $326 million when adding our cash to the undrawn revolver.

Now let's discuss our guidance, which is summarized on Slide 10. As you saw in today's press release, we are reaffirming the full year 2018 guidance, which we initially provided back in February on our year-end earnings call. And as you heard Phil say, despite starting off the year a bit soft, we are confident that we can deliver on the objectives we initially set for the year.

With that, let's turn the call over to the operator to begin our Q&A session. Operator?