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Jonathan Douyard

Thanks, Bill. I want to begin by echoing some of Bill's remarks. Through the first few weeks here, it is apparent that we have a strong team, great culture, innovative technologies, and a leading market position, which together make Gentherm quite compelling. In addition, the company has a strong financial foundation to support future growth plans.
I look forward to partnering with Bill and the global Gentherm team through this next phase of growth, leveraging my experience to drive additional financial rigor and engaging with many of you over the coming months.
With that, let's turn to slide 6, where I will discuss the highlights from the fourth quarter in the full year. Our commercial momentum continued in the quarter as the team secured $640 million of automotive new business awards. We saw success with our thermal management products where we received 13 CCS awards and eight steering wheel heater awards, three of which included hands-on detention.
These awards spanned more than a dozen OEMs and were balanced across region and powertrain. For lumbar and massage, our team won six programs across four OEMs in the quarter, including securing two new Puls.A Awards with both BMW and Land Rover. It is great to see Puls.A beginning to gain significant traction.
Next, I want to highlight key program launches in the quarter. It was another strong quarter of activity with 18 vehicle launches, including the start of production of several thermal solutions products on the high volume mid-size SUV platforms, the Acura ADX and the Nissan Murano, as well as the next generation Dodge Charger and all new electric Jeep Wagoneer S from Stellantis.
In addition, we launched a thermal control unit across several in-production Stellantis vehicle platforms for both seat and steering wheel heat control. This conquest program was our first with this OEM and positioned us to successfully win the next generation business.
In our medical segment, we delivered record financial results driven by the expansion of our global partner network. We were pleased to see the progress of this business and are optimistic about the future growth opportunities.
Starting to the full year, we secured $2.4 billion of automotive new business awards, led by increased adoption and strong market acceptance of our leading innovations. We delivered record adjusted EBITDA of $183 million and expanded margin by 30 basis points compared to the prior year despite a challenging market.
Lastly, Gentherm's balance sheet remains incredibly strong. We maintain net leverage of approximately 0.5 turns at year end while making significant investments in our operations and returning $50 million to shareholders through share repurchases throughout the year. Please turn to slide 7 for a more detailed review of the financial results.
Fourth quarter revenues decreased 3.8% compared to the same period last year. Foreign exchange adjusted revenue decreased by 3.3%. Our automotive climate and comfort solutions revenue grew 1.7%, outpacing actual light vehicle production in our key markets by 130 basis points when adjusted for FX and one-time benefits for recoveries in both periods. Revenues from lumbar and massage increased 29% ex-FX as we ramped up production for the Volkswagen MQB platform, along with several Ford models.
Steering wheel heater revenue increased by 11% ex-FX driven by the start of production of Lee Auto L6 and new launches with Honda and General Motors. Climate control seat and seat heaters revenues decreased primarily due to lower volumes from Hyundai and Stellantis, as well as some inventory corrections at the tier ones to account for lower OEM demand.
Turning to medical, as I mentioned, we were really pleased with the team's execution of its strategic and operational initiatives. For the fourth quarter, revenues increased 9% ex-FX compared to the same period last year, while once again improving profitability sequentially. The momentum is strong, and we will look to continue driving revenue growth and further expanding margins.
Moving to profitability, we achieved $41.4 million of adjusted EBITDA in the quarter or 11.7% of sales compared to 13.4% in the fourth quarter of last year. The decline was primarily driven by product mix, higher freight costs, the impact of foreign exchange, and costs related to our new plants opening in Monterey, Mexico and Tangier, Morocco.
Adjusted operating expenses were down $2.4 million versus the prior year quarter. Adjusted diluted earnings per share in a quarter was $0.29 per share compared to $0.90 per share in the fourth quarter of last year, primarily driven by unfavorable one-time tax adjustments recorded in 2024. For the full year, revenue decreased 0.9% compared to the same period last year or 0.4% when adjusted for FX.
Revenue increases from lumbar and massage and steering wheel heaters were offset by expected declines in cables, BPS, and electronics. 2024 EBITDA margin expanded 30 basis points compared to the prior year, driven by strong material performance and productivity, partially offset by price reductions, wage inflation, and the cost associated with the new plans. Excluding the impact of prior period tax audits, the effective tax rate was 26.9%.
Moving to cash flow on the balance sheet on slide 8. For the year, we generated $110 million of cash flow from operating activities while deploying $65 million to net capital expenditures. In addition, we returned $50 million to shareholders in the form of share repurchases, leaving $120 million under our current authorization.
We ended the year with a net leverage ratio of 0.5 turns and ample available liquidity of $414 million. Overall, Gentherm has been a solid cash generator, and our balance sheet remains strong. That said, in the spirit of continuous improvement, opportunities remain. Going forward, we will have a renewed focus on working capital, and it will be a key part of the operating system that Bill discussed earlier.
In my past, I have leveraged daily management and war room approaches to drive down working capital with solid results, and I look forward to seeing progress here at Gentherm. To ensure focus, we are evaluating leadership objectives as well as our incentive plans to drive cash flow as a key business priority going forward. We believe we are well positioned to generate increased levels of cash flow over time, which will allow us to efficiently deploy capital and drive shareholder value.
Now let me turn to slide 9 for our outlook. Gentherm revenue has consistently outgrown light vehicle production in our key markets, and we expect that to continue in 2025 despite an uncertain environment. 2025 revenue is expected to be between $1.4 billion and $1.5 billion up approximately 2% when excluding a $35 million year-over-year FX headwind.
According to S&P Global Mobility's mid-February 2025 report, actual light vehicle production in our key markets is expected to decrease roughly 1% for the year. So we anticipate this may be optimistic based on discussions with customers regarding near-term conditions.
We expect adjusted EBITDA margin for 2025 to be in the range of 12% to 13%. At the midpoint, we expect favorable material savings and productivity actions to more than offset inflation and annual pricing. However, we will experience headwinds related to the impact of footprint changes.
As Bill mentioned earlier, the team has been evaluating scenarios to strategically realign our operations. After review, we are accelerating these moves in an effort to drive improved long-term profitability. In the short term We will see an increase in one-time costs as well as some disruption in production, both impacting margins in the year.
We are taking action across the globe. In North America, we will be consolidating two facilities in Monterey. In Europe, we recently made the decision to close our location in the Czech Republic and consolidate production into other facilities in the region. In Asia, we announced that we will be transferring production from one of our facilities in Shanghai to Tianjin. When our optimization plan is complete, we expect to reduce our footprint by approximately 30% while maintaining the required capacity for growth as we optimize the existing floor space.
Despite the near-term headwinds associated with these footprint actions, they will play a significant role in our margin expansion over time. Without these actions, we would have expected margin expansion of at least 50 basis points year over year.
As we think about the quarterly cadence, we expect second half revenue to be stronger than the first half based on the lower first quarter. Additionally, as a typical, we expect a sequentially lower first quarter adjusted EBITDA margin driven by the impact of contractual price downs with improvements for the remainder of the year as we execute supplier cost improvements and productivity actions.
At this time, we have not factored in any assumptions to account for potential changes to tear us as there is not enough certainty with regard to implementation or timing. Capital expenditures are expected to be in the range of $70 to $80. 2025 CapEx seem higher than what we would consider typical as we continue investing in the capital required to support our increased level of awards and footprint optimization.
Despite challenging markets in the near term, we remain excited about the long-term growth prospects for Gentherm. This company remains uniquely positioned to outperform. We are exploring additional opportunities for growth, taking quick and decisive actions to drive marginal improvement, and focusing on generating cash flow through an investment cycle.
And with that, I will hand it back to Bill for a few closing remarks.

Bill Presley

Thanks, Jon. To close, I want to reiterate our excitement for the future here. We recognize the near-term view in the automotive industry was challenging. However, we remain confident in the long-term growth opportunities at Gentherm.
We are acting with urgency on a few key priorities. First, we have market leading technologies where there is opportunity to scale. We are focused on leveraging our platforms to accelerate profitable growth. Operationally, we are implementing business process standardization across the company to drive efficiency in all aspects of the business which will translate into higher margins.
And lastly, we are accelerating strategic plans that will realign our manufacturing locations across all three regions. This will optimize our footprint for improved margins and cash flow generation. I'm very optimistic about the future of the company and look forward to leading Gentherm's next phase of growth. As the year progresses, we look forward to keeping you apprised of our key priorities in progress.
And with that, I will turn the call back to the operator to begin the Q&A session.

Question and Answer Session

Operator

(Operator Instructions)
Matt Koranda, Roth Capital Partners.

Matt Koranda

Hey guys, good morning. Maybe Bill, to start with you, wanted to see if -- well, you laid out some of the basics with respect to your views on Gentherm, but are there any ways to think about your top two priorities, in the seat over the next couple of quarters?

Bill Presley

Yeah, thanks for the question. Good morning. Yeah, I'll be very clear on my top two priorities, right? Number one is If you think back to the slide that showed the technology platforms, right, we kind of break that down -- we broke that down into thermal pneumatic valve systems and air moving devices. Those technologies are platforms, those technologies are core competencies.
So while we think about those in terms of system design, those core competencies have large application outside of the seat. Sometimes I'm worried that we're often thought about too much of just being in the seat ecosystem. And we've proven that those technologies can scale outside of the seat. The same technology that's used for thermal solutions in the seat is used in other places in the vehicle. That same thermal technology is used in medical. The heart of a pneumatic system is a valve system. The heart of a thermal system is many times an air moving device.
So my point in saying that is priority number one is Jon and I have been deep into the product portfolio and the platforms, and we're aggressively working to identify opportunities that can scale those core technology platforms. That's number one because the product is the lifeblood of the company.
Number two goes back to the standardization of the operating systems. And really, what we're trying to do is put more standard hours per square foot or through our equipment in our floor space, right. And that will go through scaling those products, but we're in the process of again standardizing our business processes and I'll just give you some examples. Such that we are gapping our to effective equipment production to what's theoretically possible and trying to close that gap.
So instead of buying more assets down the road, we're just maximizing theization of the assets, putting gap plans in place that close theoretical shop floor or direct labor efficiency to what's possible. And then, again tying our manufacturing operating plan to our supply chain plan, so that our manufacturing operating plans actually consider the impact on networking capital.
So really those two things, and I'll just summarize and come back, to scaling the product and putting more product through our existing assets, in increasing our efficient use of our assets, such that we're expanding margins and generating cash by lowering networking capital.

Matt Koranda

Very helpful, thank you for that. And then just on the footprint reduction that you mentioned in the prepared remarks, I think you said 30% reduction in footprint while maintaining sort of the capacity that you have already. Are there -- is there any way maybe Jon to hang numbers on the savings that could be associated with that and how that flows through over time?

Jonathan Douyard

Yeah, I think, I mean, now, when you look at it, certainly some headwinds this year. We expect roughly 50 basis points-plus as we indicated in terms of impact just in terms of one-time expenses and inefficiencies that will run through the P&L this year. I think as you look at the out years where the benefits are, not something I would necessarily want to put a number two right now, but we certainly view this as the critical piece of the equation that will get us to the mid-highest single digit. EBITDA numbers, teens EBITDA numbers here over time.
And so we'll come back on a more holistic sort of view as to what that looks like. But I think the important thing for us is, we wanted to take quick action to be able to reposition the footprint, get rid of some of the inefficiencies or incremental costs that's in the system, and really leverage the capacity that we have, to Bill's point earlier.

Matt Koranda

Okay, fair enough. And then maybe just last one if I could ask on the '25 outlook. You mentioned obviously there's S&P production forecast down a point. So sounded like you guys were more downbeat, in terms of your expectations. So what's factored into your assumptions for industry production that's built into the guide? And I think there's only a little bit of outgrowth, I would assume implied. Historically, I guess Gentherm has outgrown the industry north of 500 basis points. Is that still the case this year? What's the right way to think about outgrowth relative to your industry assumptions for 2025?

Jonathan Douyard

Yeah, I mean, I think to your point, the IHS report down roughly a point. We expect that to be maybe a point too rich or so in that range. I think as you look at us from an overall company perspective, we're up to 2% when you exclude that facts. So that's how we're thinking about it. I think the other sort of context just on the overall environment, both from a macro perspective and in autos is just the uncertainty that exists as well. So not really in a position at this point to be forward, if you will, with the guide given the broader environment.

Matt Koranda

Okay, I'll take the rest of mine offline. Thanks, guys.

Operator

Luke Junk, Baird.

Luke Junk

Good morning. Thanks for taking the questions. Maybe I'll continue on that line of questioning and just hoping to unpack the flat revenue assumption at the midpoint. Like you said, a few points outgrowth, from a product standpoint, should we think of that mostly being driven by the pneumatic part of the portfolio or are there other key growth contributors we should be considering this year? Thank you.

Bill Presley

Hey, good morning. It's Bill Presley. Good to talk to you again. I would say if you think of climate -- our CCS portfolio, and I put the CCS portfolio and the seat heaters together. That is actually showing growth year over year. The pneumatics are showing healthy growth year over year, and steering wheel heaters are showing some modest growth year over year.
So I would say when it comes back to our core portfolio, all of those and what we would call automotive climate and comfort solutions, you know that performance versus IHS is mid-single digits at a minimum is what we think. So that's growing pretty well, we had talked in the past about proactively and consciously shedding some portfolio, so you know the battery performance system reductions is still pulling us down. And then we're kind of just treading water on the automotive cables.
So if you think about our again I go back to our core climate and comfort solutions and automotive growing as we would expect it to, and what we're seeing is just pull down from some of those things that have been previously specified last year that we would be pruning from the portfolio, again, with things like battery performance solutions and contract manufacturing electronics.

Luke Junk

Got it, thank you for that. And then, second, Bill, you mentioned business process standardization several times in your remarks, and is one of your two main focus there. Can you maybe just help provide a little more context on where you found the organization in this regard? And then should we understand these as growing pains for still young-ish companies, the results of some of the recent M&A, or is it really more all of the above of all those things contributing?

Bill Presley

Yeah, Luke, I think you're reading it right. What I mean is, if you ask my perception, where exactly where I would expect it to be. I spent the last 15-plus years in a couple of pretty hardcore operating companies that were established companies, long legacy companies that had very strong operating systems, right? When you think about Gentherm, companies 30 years old, there's been growth through mergers and acquisitions. There's been some divestitures like we've talked about in the past. There's been some stuff that we're pruning.
So the company is exactly kind of where you think it would be for a company of this maturity. You roll in Almeyer. I think Altmeyer is an example. You know they have a different SAP structure than say legacy Gentherm. You look at how certain footprint moves have happened or certain businesses have been one of the regions and then some of the volumes have dropped off. So all of those are kind of need to be knitted together.
And I go back to -- it's where I expected it to be. I'll use my experience from the past and we will standardize those operating systems such that they're linked to supply chain, they're linked to networking capital, that we build manufacturing operating plans that maximize utilization of plant property and equipment while driving down that working capital.
And I think that with, Jon's background and financial rigor and the tools and processes that he's put in place there and his proven track record. That we're where we expect to be, but we're very confident in the path forward. And I would say the nice thing about the scale of Gentherm is we think we have the ability to get there in a relatively quick fashion.

Luke Junk

Thank you. And then, last question from me just, we're fit for growth 2.0 fits into all this fully recognize your kind of ability you want to move this more towards sort of a cultural view for the organization, that's something that's more discrete. But in the near term, am I hearing it right that some of the things that were in place from a gross margin standpoint are going to be adders in 2025? And then kind of clicking beyond '25, should we see maybe some evolution of what was outlined as the prior approach for fit for growth? Thank you.

Jonathan Douyard

Yeah, look, I think you read it correctly. I mean, I think we view it certainly as sort of part of cultural or of the business system as we move forward. And I think when you look at the success of fit for growth historically, I think it's put relatively impressive focus on things like material performance. A number of the footprint actions that we have accelerated talked about accelerating here are a result of the work the team has done. And so there's some pillars there that we look to continue to build off of I don't where I think you'll see a difference is talking about specific targets as it relates to fit for growth, from Bill and I. But it is -- we plan to sort of institutionalize that into the company and we view that as a mechanism and a muscle that we can leverage to expand margins here over time.

Luke Junk

Got it. I'll leave it there thank you.

Jonathan Douyard

Thanks, Luke.

Operator

(Operator Instructions) Ryan Brinkman, JPMorgan.

Ryan Brinkman

Hi, thanks for taking my questions. I just wanted to follow up on some of the comments around footprint optimization, including how you go about during this process of approaching, like balancing supply chain and cost optimization on the one hand, manufacturing with on the other hand, like redundancy, resiliency or maybe tariff risk mitigation.
And while I don't think you have any facilities in Canada, can you just remind us again what your exposure might be in terms of what you source from Mexico into the US, and what early planning you might be doing or conversations you might be having with customers to try to go about best managing that potential risk?

Bill Presley

Yeah, I'll take the first part and then Jon, I don't know if you can jump in here if there's something to add. But yeah, our risk lies primarily with Mexico, Ryan, I think you've read that correctly. We currently have five plants in Mexico that that ship servicing the North American market.
Just on the footprint piece that that region is one of the regions where we will be consolidating plants and that's a known plan out there. With regard to tariffs, we don't know what's going to happen, so proactively what we've been doing with the customers. We've been telling them what we view the Gentherm impact to be to them once tariffs are enacted or whenever tariffs are enacted. We're trying to work proactively with the customers so that they can give us options on whether they want us to pre-stage inventory in other areas, whether they want to pull ahead inventory.
At the end of the day, what we want to make sure of is that our production assumptions are tied to their production assumptions such that the flow of goods continues. With regard to what happens to tariffs, don't know. We just want to have absolute complete clarity with our customers. We want to make sure they're aware of the impacts because, ultimately, those are costs that Gentherm can absorb and they'll become part of the costs that will need to be recovered from the customer.
Jon, anything you want to add? I mean.

Jonathan Douyard

I think just as you think about the footprint of the company, I think very strategically positioned, in China, for China, in Asia to support the rest of the region. We've got Mexico, we've got Morocco last year and have some strategic sites throughout Europe as well.
I think as we look at Inefficiencies that you touched on in terms of the plants moves, I mean, our view is -- Morocco as an example, the decision's been made. We're going to Morocco, we're very excited about the opportunity there. How do we get there faster so that you can eliminate some of the additional fixed cost or inefficiency that exists in the rest of the business, so that's really where our planning has been focused.

Ryan Brinkman

Okay, that's very helpful. Thank you. And then just lastly, I'd be curious if in the new management initial strategy review here, how you might be thinking about approaches to capital allocation, and you know what your general approach might be to, M&A versus buyback, etc?
And then how that general approach could perhaps be swayed by current market conditions either in terms of what multiples you might be asked to pay in the medical or automotive space versus also the price in in multiple that your own stock trades at currently? Thank you.

Jonathan Douyard

Yeah. Fair question, Ryan. I think I would say, a couple of things. I think one, we're fortunate to have a strong balance sheet and a company that can generate cash flow and has proven the ability to do that. I think we're also so fortunate that we are confident in an organic growth story that we don't necessarily need to do M&A to grow. And so I think that's a good foundation to be starting from.
When you look at it historically, I think funding organic growth has been the key priority, followed by opportunistic M&A, and then share repurchase in the absence of that. I think in the early days here, that framework remains consistent.
I think as we look at it, we're looking to build out the M&A funnel and re-evaluate that. We've got a bit of elevated CapEx and investment this year as we managed through the transitions and preparing for future growth. And certainly, as we look at where the value of the company is now, there's a dislocation between where we think that is in the future and where it sits today.
And so as we balance those things here, certainly one, more certain operating environment or visibility in terms of some of the things like tariffs and other things and the impact that may have on the industry. But we will continue to balance those, and I would say, it remains in that order in terms of funding organic growth opportunistic M&A, and then repurchasing where appropriate.

Ryan Brinkman

Thank you.

Jonathan Douyard

Thanks, Ryan.

Operator

Ryan Sigdahl, Craig Hallam Capital Group.

Matthew Raab

Morning guys. This is Matthew Raab on for Ryan. Two questions here, then there are both sort of bigger picture questions. How do you view the awards backlog for 2025? The focus of the of the slide deck here, at least early on, you're talking about strong demand for the solutions and creating other applications. For the tech that you guys have, how quickly could those new applications come to market and then be put into the backlog?

Bill Presley

Yeah, I will just -- I'll start and then Jon you can jump in here. I will say that, when you look at -- let's talk core automotive first, it looks pretty strong for us in 2025 again. 2024 was a was a good year. 2025 looks to be at a similar level just with the quoting activity that we see. What Jon and I, I'll go back to, have been focused on, and you touched on it is, where else can we read the technology across. Again, we view it as a platform, we view it as a core competency.
I'm just going to go back to the medical piece as an example. For us, what we use in the thermal blankets is the same technology literally that we use in the steering wheels that we use in the seats. It's a form factor. So uses the same equipment, uses the same processes, uses the same core technology. So for us, I go back to It's scalable technology. What Jon and I are aggressively doing right now is working with the team to identify where we could scale that technology.
Optimistically, we'll spend the next six months planning out what I call strategic conquests. You probably saw the word conquest in my portion a lot, which is it is targeted things we're going after that utilize the core technology and the platforms. So. I would expect that, within -- in the next six to seven months, we have a very hardcore line of conquests. And I would say -- I would expect that next year we're rolling those into our actual booking targets.

Matthew Raab

Okay. And then switching over to China, how do you view the Chinese domestic market? Do you plan to take a more aggressive stance there and kind of shift that revenue backlog mix up over time?

Bill Presley

Yeah, let me take that. So I think you're spot on there. If you look at us historically in the China market, we've been 80% the multinational joint ventures, 20% domestic Chinese. We've been taking an aggressive approach to shift that mix. Within the next year, that mix will be 40% domestic Chinese OEMs. And we continue to try to fill our booking funnel in the China market to more accurately represent the mix of manufacturers in the market. So that is a proactive strategy that we're actually using, so ultimately, we would like to see our mix relevant to the mix in the market.
And one of the things we actually like about the China market is the development cycles are much faster in China, so that's an opportunity as we went there to build up the backlog quicker by focusing on the Chinese domestic OEMs. And the one thing that we're hoping, honestly, I made a trip to China last. I was impressed with the quality. I was impressed with the technology, the bit in the finish. They've come a long way in the 10 years I've been traveling back and forth. So we do expect that they're going to start penetrating other markets in EMEA and in North America. And we'd like to be a partner of choice with whoever comes across because we do have a global footprint and global capability.

Matthew Raab

Okay, great. That's it for me. Thank you.

Operator

This concludes the question-and-answer session and today's teleconference. You may disconnect your lines at this time. Thank you for your participation.