Gentherm Incorporated (THRM) Q4 2025 Earnings Call Transcript
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Overview
The company shows strength with strategic partnerships, new market entries, and increased revenue guidance. Despite some risks, such as market growth uncertainty and integration challenges, the company's proactive measures, including asset optimization and focus on adjacent markets, indicate a positive outlook. The Q&A highlights confidence in growth and margin expansion. The market cap suggests moderate volatility, supporting a positive stock price reaction.
Key Financial Performance
Automotive new business awards $2.2 billion in 2025, including $485 million in the fourth quarter. Demonstrates strength in industry-leading technology and market opportunities.
Revenue $1.5 billion in 2025, increased 2.9% compared to prior year (1.8% excluding foreign currency translation). Growth driven by Automotive Climate and Comfort Solutions revenue increase of 5.8% ex FX, offset by declines in other automotive products due to planned exits.
Adjusted EBITDA $175 million in 2025 (11.7% of sales), down from 12.6% last year. Decrease due to higher material costs, unfavorable mix, and footprint realignment expenses, partially offset by operating leverage.
Operating cash flow $117 million in 2025, increased 7% compared to prior year. Despite inventory build-up for footprint transitions.
Capital expenditures $56 million in 2025, down from $73 million in the prior year. Reflects focus on asset utilization and scrutinizing new capital expenditures.
Net leverage 0.2 turns at the end of 2025. Indicates strengthened balance sheet.
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Operating Highlights
ThermAffyx system: A new innovative product combining conductive air-free patient warming with securement technology to prevent hypothermia and patient movement during surgeries. Expected to generate revenue later this year and accelerate Medical's annual revenue growth into the high teens.
Climate and comfort products for furniture: Selected by a leading global furniture brand to supply climate and comfort products. Manufacturing and delivery began in January, showcasing shorter development cycles and rapid time to revenue.
Expansion into non-automotive markets: Generated a commercial funnel totaling over $300 million of lifetime revenue in markets outside of light vehicles, including commercial vehicles, powersports, and Home & Office.
Modine Performance Technologies combination: Planned combination with Modine Performance Technologies to create a $2.6 billion market leader, expected to grow to over $3.5 billion. This expands Gentherm's reach into power generation, heavy-duty equipment, and commercial vehicles.
Footprint realignment: Strategic realignment of operational footprint to continue through 2026, aimed at margin expansion.
Business process standardization: Global rollout of a company operating system to improve efficiency and performance, driving better financial performance and cash generation.
Diversification beyond automotive: Focused on scaling core technologies into new markets and applications, validated by rapid revenue generation in non-automotive sectors.
Synergies with Modine Performance Technologies: Identified $25 million in cost synergies and over $100 million in commercial synergy funnel, particularly in valves for power generation and data centers.
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Risk or Challenges
Footprint Realignment: The ongoing footprint realignment, which is expected to continue through 2026, is causing near-term headwinds and profit drags, including a 60 basis point impact on 2026 margins.
Material Costs and Unfavorable Mix: Higher material costs and unfavorable product mix have negatively impacted profitability, reducing adjusted EBITDA margins from 12.6% to 11.7% in 2025.
Supply Chain and Inventory Challenges: Building inventory to support footprint transitions has constrained cash flow, despite efforts to strengthen the balance sheet.
Market Growth Uncertainty: Light vehicle production in key markets is expected to decrease by approximately 1% in 2026, posing challenges to achieving growth targets.
Integration Risks with Modine Performance Technologies: The planned combination with Modine Performance Technologies, while promising, carries risks related to integration, synergy realization, and execution of commercial opportunities.
Regulatory and Approval Risks: The FDA 510(k) submission for the ThermAffyx system introduces regulatory risks, as approval is required for revenue generation from this product.
Economic and Currency Risks: Foreign currency translation negatively impacted revenue growth in 2025, and similar risks could persist in the future.
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Guidance & Outlook
Revenue Expectations for 2026: Revenue is expected to be between $1.5 billion and $1.6 billion, representing approximately 3% growth at the midpoint, excluding FX tailwinds. Preliminary 2027 revenue outlook is $1.7 billion, up approximately 10% versus the 2026 midpoint guidance.
Market Growth Projections: Gentherm expects to grow above market by mid-single digits in 2026, consistent with its long-term view, despite a projected 1% decrease in light vehicle production in key markets.
Adjusted EBITDA for 2026: Expected to be in the range of $175 million to $195 million, implying a midpoint adjusted EBITDA margin of approximately 12%, with a 30 basis point expansion year-over-year.
Free Cash Flow and Capital Expenditures: Adjusted free cash flow is estimated to be between $80 million and $100 million, with capital expenditures in the range of $45 million to $55 million, approximately 3% of sales. Free cash flow conversion rate is expected to improve to approximately 50%, with opportunities to increase to 60% or higher in the future.
Long-Term Revenue and Earnings Projections: The company aims to achieve $3.5 billion in revenue and more than $0.5 billion in earnings by 2030, driven by disciplined commercial strategies and operational excellence.
Modine Performance Technologies Combination: The planned combination with Modine Performance Technologies is expected to close by the end of 2026, creating a $2.6 billion market leader with potential to grow to over $3.5 billion. Identified cost synergies of approximately $25 million and significant commercial synergy opportunities, particularly in valves and thermal management systems, are expected to drive growth.
Medical Segment Growth: The ThermAffyx system, a new product expected to generate revenue later in 2026, is projected to accelerate the Medical segment's annual revenue growth into the high teens.
Operational and Margin Improvements: Ongoing footprint transitions are expected to be a profit drag of approximately 60 basis points in 2026, but margin improvements are anticipated throughout the year due to material savings, productivity actions, and new program launches.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:How does the company view the next couple of quarters in adjacent end markets, and can they quantify the percentage of revenue in 2026 and 2027 from these markets?
A:The company will continue to lean into adjacent markets, particularly Home & Office (formerly Motion Furniture), which is expected to contribute $50 million to $100 million in revenue by 2028. Medical markets are also a focus, with a new product expected to double the size of the medical business before 2030. Adjacent markets are expected to bring 1 to 2 points of growth year-over-year.
Q:Has there been a shift in the timing of the footprint realignment, and will margin expansion accelerate with revenue growth in 2027?
A:There has been no change in the timing of footprint transitions, which are on track to be completed by 2026, with benefits flowing through in 2027. The company expects margin expansion in 2027 due to favorable mix, pricing, and cost efficiencies.
Q:Are there any incremental investments factored into the 2026 sales outlook outside of footprint realignment?
A:No significant incremental investments are expected beyond the footprint realignment and reallocating internal spend towards adjacent markets. FX headwinds, particularly from the peso, are noted as a factor.
Q:What gives the company confidence in the 2027 revenue guide, especially given the majority of core revenues come from automotive?
A:The company has strong visibility and confidence due to robust launch activity in the core automotive business, adoption of climate and pneumatic solutions, and contributions from adjacent markets like medical and Home & Office.
Q:What is the company's positioning in China exiting 2025, and how does near-term turbulence in China affect the setup for Gentherm?
A:The company has strong growth in China, with 60% of awards in China being domestic. They remain focused on rebalancing the mix towards domestic OEMs. Near-term turbulence in China does not significantly affect the setup, as revenue is more influenced by launch cadence.
Q:How quickly can the company build out the ThermAffyx patient safety system business after FDA approval, and are there more launches expected to double the medical business by 2030?
A:The company anticipates revenue from ThermAffyx starting this year, with adoption curves taking longer in medical. Another significant product launch is expected in early 2027, leveraging existing automotive technology.
Q:What are the opportunities for valves in data centers, and what would the application be?
A:The application for valves in data centers would be liquid cooling. This is a new market for the company, explored through their work with Modine Performance Technologies.
Q:Review of Unclear Management Responses
A:Management avoided providing specific EBITDA expectations for 2027, citing many moving pieces. They also used vague language when discussing the timing of benefits from footprint realignment and the exact impact of FX headwinds.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Benz adoption
Blanchette Senior
Climate Comfort
Conference Webcast
Gentherm Slide
Gentherm product
Medical
Modine Technologies
Technologies end
action
air
applicability
application
asset
belief
benefit
combination Modine
comfort
conversion
cycle
digit
expansion footprint
expenditure
footprint transition
funnel
launch activity
level
life
market Gentherm
outlook
patient
product market
pursuit
rigor
road map
role
technology market
thesis
trajectory
visibility
year
THRM Transcript
Gentherm Incorporated (THRM) Q4 2025 Earnings Call Transcript
Positive2-19
The company shows strength with strategic partnerships, new market entries, and increased revenue guidance. Despite some risks, such as market growth uncertainty and integration challenges, the company's proactive measures, including asset optimization and focus on adjacent markets, indicate a positive outlook. The Q&A highlights confidence in growth and margin expansion. The market cap suggests moderate volatility, supporting a positive stock price reaction.
Gentherm Incorporated (THRM) Q3 2025 Earnings Call Transcript
Positive10-23
The earnings call summary highlights several positive aspects, such as increased revenue guidance, strong automotive revenue growth, and strategic market expansions. While there are challenges like higher material costs and medical revenue decline, the company’s optimistic guidance, strategic partnerships, and market expansion efforts outweigh these concerns. The Q&A section reinforces positive sentiment with innovative product developments and strategic market entries. Given the company's market cap, these factors suggest a positive stock price movement of 2% to 8% over the next two weeks.
Gentherm Incorporated (THRM) Q2 2025 Earnings Call Transcript
Unknown7-24
The earnings call presents mixed signals: strong new business awards and operational improvements are positive, but revenue and EBITDA declines, coupled with management's vague responses, create uncertainty. The Q&A highlights company-specific factors for stability, yet margin pressures and lack of clear guidance temper enthusiasm. Given the market cap, the stock is likely to remain stable within a -2% to 2% range.
Gentherm Incorporated (NASDAQ:THRM) Q1 2025 Earnings Call Transcript
Unknown4-29
The earnings call presents a mixed outlook. While there are positive elements such as operational improvements, technology leveraging, and a strong balance sheet, there are also significant concerns. These include economic uncertainties, demand fluctuations, and operational challenges. The Q&A highlighted management's unclear responses regarding tariffs and guidance assumptions, adding to uncertainties. Despite some positive financial metrics and a stable financial position, the lack of shareholder return plans and mixed guidance contribute to a neutral sentiment. The market cap suggests moderate volatility, leading to a prediction of a neutral stock price movement.
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Frequently Asked Questions
Where does this earnings call transcript come from?
All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.
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Why do some answers appear as “Unclear” or “Inaudible”?
When audio quality is poor or multiple speakers talk over each other, we mark the section instead of guessing. This ensures complete accuracy rather than introducing potential errors.
Who creates the AI Summary and Key Q&A highlights shown above the transcript?
They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
