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Executives

Jill Bertotti – IR

Dan Coker – President and CEO

Barry Steele – CFO

Analysts

Steve Dyer – Craig-Hallum Capital Group

Anthony Deem – KeyBanc Capital Markets

Joe Bess – ROTH Capital Partners

Adam Brooks – Sidoti & Company

Bill Selesky – Argus Research

Shirley Lui – Garrison Bradford & Associates

Gentherm, Inc. (THRM) Q4 2012 Earnings Call March 6, 2013 11:30 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the Gentherm Inc. 2012 Fourth Quarter and Year End Results Conference Call. At this time, all participants are in a listen-only mode. Following today’s presentation, the conference will be opened for questions. (Operator Instructions) As a reminder, this conference is being recorded today, March 6, 2013.

I would now like to turn the conference over to Ms. Jill Bertotti. Please go ahead, ma’am.

Jill Bertotti

Good morning, everyone, and thank you for joining us today for the Gentherm Inc. 2012 fourth quarter year end results conference call. Before we start today’s call, there are a few items I’d like to cover with you. First, in addition to disseminating through PR Newswire this morning’s news release announcing Gentherm’s results, an e-mail copy of the release was also sent to a number of conference call participants. If any of you need a copy of the news release, you may download a copy from either the Gentherm website at www.gentherm.com or the Allen & Caron website at www.allencaron.com. Additionally, a replay of this conference call will be available via a link provided on the Events page of the Investors section of Gentherm’s website.

Finally, I’ve also been asked to make the following statement. Certain matters discussed on this conference call are forward-looking statements that involve risks and uncertainties and actual results may be different. Important factors that could cause the company’s actual results to differ materially from its expectations on this call are risks that sales may significantly increase; additional financing, if necessary, may not be available; new competitors may arrive; and adverse conditions in the automotive industry may negatively affect its results.

The liquidity and trading price of its common stock may be negatively affected by these and other factors. Please also refer to Gentherm’s Securities and Exchange Commission filings and reports including, but not limited to, its Form 10-Q for the period ended September 30, 2012, and its Form 10-K for the year ended December 31, 2012.

On the call today from Gentherm, we have Dan Coker, President and Chief Executive Officer; Barry Steele, Chief Financial Officer; and Bud Marx, Chairman. Management will provide a review of the results, after which there’ll be a question-and-answer period.

I now like to turn the call over to Dan. Good morning, Dan.

Dan Coker

Good morning, Jill. I know it’s a very early morning for you. We appreciate you getting up for our calls. And we’d like to welcome everyone to our fourth quarter 2012 earnings review. For us, a key and significant item was that our combined companies achieved around a $555 million revenue milestone number for us, which allowed us to slightly exceed our projection on revenues from the last year of about a 10% revenue growth. This was driven by new platform programs, new product opportunities and some recovery in the U.S. market in particular. As we go forward today, we’re going to hear a summary of the operational, financial details from Barry, and then we will open the floor for questions with support by our esteemed chairman where required. Mr. Steele, would you like to review the operations?

Barry Steele

Absolutely. Thank you, Dan. Our earnings for the fourth quarter were $0.09 per share. There were three unusual items that impacted these results that I’d like to describe for you. First, we entered into an agreement to terminate and accelerate our royalty payments under the technology license agreement that covered our CCS product at Gentherm. This resulted in higher than normal royalty expense during the quarter totaling $1.6 million, but also represented the final payment required under the contract which had been running about $400,000 in quarterly costs.

Second, we changed our accounting practice with regard to patents costs. Previously, we had a capitalized external cost associated with our internally developed patent, but expensed our internal cost. We now are expensing all costs consistently and will do so in the future. This has the impact of decreasing our operating income by $1 million for the year and $300,000 for the fourth quarter.

Finally, our cash provision does not reflect research and development tax credits and certain exemptions under the U.S. foreign income tax rules because the U.S. Congress did not extend these provisions in the law until January 2, 2013. If that action had occurred during 2012, our tax expense would have been $1.3 million less. We will be recording this benefit during the first quarter of 2013. Taken at total, these items reduced our fourth quarter earnings per share by $0.08 per share.

Product revenues, as Dan mentioned, for the fourth quarter 2012 are $148.2 million, which represented an increase of $17.2 million or 13.1% for the fourth quarter 2011 product revenue. The increase is due to strong automotive production, especially in North America, however, our euro denominated revenue was lower when translated to U.S. dollars by approximately $1.6 million as compared with the prior year quarter.

Our gross margins for the fourth quarter was 25.8%, representing – however, this was impacted by the accelerated royalty I mentioned earlier. Without that expense, our gross margin would have been 26.9%, representing an increase of 1.1% over the prior year fourth quarter. This was the result of an improved fixed cost coverage and favorable product mix.

Our operating expenses were $29.3 million during the fourth quarter, representing an increase of $3.3 million or 20% over the fourth quarter of 2011. This increase is primarily due to costs associated with our program to implement the requirements of the Sarbanes-Oxley Act for W.E.T, higher legal expenses and year end international management incentive. This total amount of operating expense is higher than we would like, but we expect that the amount will be somewhat lower during the first quarter of 2013.

Our adjusted EBITDA was $18.1 million, which was $3.5 million higher than that of the fourth quarter 2011. This increase was primarily due to the higher revenue and gross margin percent offset partially by the higher operating expense.

Turning now to the balance sheet, our cash which totaled $58.2 million at the end of the quarter, decreased by approximately $14.1 million during the fourth quarter. We used some of our cash reserves for several items, including: we used $8.4 million to pay our quarterly installment on our Series C Convertible Preferred Stock. The remaining amounts due on the preferred stock offering totaled $24.3 million including dividend payment. These amounts are due in three installments. One was made in cash on March 1, which was last week, while the other two are due on June 1 and September 1. At that point, the preferred stock will be completely extinguished.

We invested $9.9 million in capital expenditures, a portion of which included the ongoing expansion of the W.E.T. China manufacturing location, our new electronics manufacturing location in China, and other capacity improvements. We also paid $3.8 million in debt.

Our operating cash flow was $7.7 million, favorable, which was reduced by approximately $5.5 million in working capital expansion related to the higher revenue and volume level.

We chose not to use any of our cash reserves for the W.E.T. minority stock purchase during this past February, which Dan mentioned, rather, we drew approximately $40 million from our credit agreement that had been established for this purpose. Our revolver capacity remains virtually untapped and totals approximately $55 million. We have plenty of liquidity to fund the operation going forward. And that’s what I have.

Dan Coker

All right. Thank you, Barry. We did want to mention on the early part of our call that we were able to negotiate with a couple of the key minority shareholders of W.E.T., an agreed to price which included, in one case, some shares of stock that were issued and cash, and then cash for the balance of the shares, that has now netted us pretty close to 99% of the public shares of W.E.T. I think the exact number was 98.8% as I recall, but we’re definitely in the range of being able to chase down the remaining shares.

This process is not complete yet. Until we have 100% of the total shares, we will not consider the process complete. But we do have a very good, solid operating relationship now with our sister divisions at W.E.T. and we plan now to begin the process, blending the two companies together to be able to provide a much better and faster response to our customers. With those comments, I think we will open the floor to questions. Jill, we’re ready.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions). Our first question comes from the line of Steve Dyer with Craig-Hallum Capital Group. Please go ahead.

Steve Dyer – Craig-Hallum Capital Group

Thanks. Good morning, Dan and Barry.

Barry Steele

Good morning.

Dan Coker

Good morning. We thought you’d be snowed in today.

Steve Dyer – Craig-Hallum Capital Group

Almost. Just related to your last comment, Dan, in the combined company, wondering if you’re able to kind of elaborate or give any additional color now that it’s largely done on, maybe some of synergies that you see going forward and how those maybe will be realized and the timeframe.

Dan Coker

Well, as we’ve said in the past, Steve, that we see an approximate $10 million minimum synergies that can be achieved in several different areas. Reduction of expenses is one of the key areas in terms of – we’ve been fighting this battle now for a couple of years, our legal and administrative cost are pretty high with regard to that. We also have not been able to take advantage of the combination of our two teams. There’ll be some significant savings as we bring those two teams together and refocus them on the future.

And then one of the key things for us is the ability to be able to blend the two knowledge bases together and develop new and exciting product solutions for our customer bases. So all of that, we see taking a period of two to three years to be completely implemented, but we see very good solid synergies and bottom line impact by the combination of these two fine technology companies.

Steve Dyer – Craig-Hallum Capital Group

And I think you had said in the past, you were spending something in the order of $3 million to $4 million to $5 million somewhere in there in legal expenses, which I would assume drop off almost immediately. Is that fair?

Dan Coker

Well, unfortunately not completely, but yes, the bulk of that expense has been basically to pursue the Domination and Profit and Loss Agreement that we worked so hard to try to get in place for the last 18 months. But we will always continue to have some legal costs, you’ve scared all of our lawyers to death, but those numbers will be significantly lower going forward. But we now have to enter a phase where we go in to a essentially, a squeeze-out play to try to obtain the final, literally, 1% of the shares on the outside. So there will be some modest costs for the next year and then that will be normalized, right, going forward.

Steve Dyer – Craig-Hallum Capital Group

Okay. With respect to the 1%, is that – is your sense that there’s resistance there or it’s just so dispersed that perhaps people don’t even know necessarily what’s going on?

Dan Coker

I suspect the latter. We have a not an updated listing of the shareholders and we pretty much pursued all the way down to people who own the thousand shares, and that’s pretty low in terms of the volume. So we suspect that the remaining 1.2% is probably in small lot quantities all over the place. So we’re advertising now the placement of DPLTA, we’ve issued instructions as to how people can submit their shares for the cash price.

We also have a program going with the banking groups in Germany to try to find people who hold W.E.T shares and their portfolios and advise them of this development of the issuance of the DPLTA and request that they submit their shares into the Domination Agreement. So I suspect that there’s probably a whole lot of folks that have got 10, 20, 50 shares of stock that we’ll have to work pretty hard to find.

Steve Dyer – Craig-Hallum Capital Group

Any sense on the timing of the squeeze-out?

Dan Coker

We’re not in a rush. The big key for us and the success for us was getting the Domination Agreement registered. That relieves a lot of operating constraints for us that we’ve had to literally struggle with for the last 18 months. As you know, we spent quite a bit of time in 2012 developing and implementing what we call cooperation agreements where the two companies established a group of agreements where we could work together pretty much at arm’s length, but toward a common goal. The requirement for that has now been lifted and we can literally work together side-by-side as teams. So I think that’s going to be a very positive development for us going forward.

Steve Dyer – Craig-Hallum Capital Group

Great. And then just a couple more and I’ll hop back in the queue. As it relates to, I guess, the business at hand, most of your peers, I think, in the industry have forecasted a more back-half loaded year than the normal for a whole host of reasons. As we look at your 8% to 10% revenue growth this year, is that kind of a fair assessment as to how you think that’ll play out for you as well?

Dan Coker

When you balance out the three major markets that we service, Europe, North America and Asia, the North America market has continued to be fairly strong, we expect that to be fairly balanced. The Asian market has been relatively flat in the first quarter of this year. And the European market is, I think everybody knows, is off and will continue to stay at very low production run rates at least through mid year, and we are expecting a small and slow recovery beginning in the second half. So that’s a broad answer, but I basically can say that yeah, we’ll see a stronger second half than we will have a first half.

Steve Dyer – Craig-Hallum Capital Group

Okay. One more bed sales. Any update there in terms of how that’s going, maybe revenue in the quarter and new developments there with Matt Firm?

Dan Coker

Well, there’s – the developments at Matt Firm are that they are continuing to expand the retail stores that offer our heated and cooled bed line and that’s been very positive. Our revenues for the fourth quarter were pretty much in line with what we saw in the third quarter, but we’ve seen a very strong response in the early first quarter of 2013. And that’s kind of the first result we see of the hard work that the Matt Firm teams have put in place to be able to get this additional retail coverage for us since the new state. So we expect that number will continue to grow during the year and we look forward to seeing that additional revenue roll in, in Q3 and Q4 here.

Steve Dyer – Craig-Hallum Capital Group

Are you able to quantify how many doors you’re in right now and sort of what the plan is as the year goes along?

Dan Coker

I’m not, actually, I can’t tell you exactly how many doors we’re at. I do know that they have 1,000 stores and that we are in a relative minority of those shops right now.

Steve Dyer – Craig-Hallum Capital Group

Okay, I’ll hop back in line. Thanks.

Dan Coker

Thank you, sir.

Operator

And our next question comes from the line of Anthony Deem with KeyBanc Capital Markets. Please go ahead.

Anthony Deem – KeyBanc Capital Markets

Hi. Good morning gentlemen.

Dan Coker

Good morning.

Anthony Deem – KeyBanc Capital Markets

I have a few questions here. So under 8% to 10% revenue growth guidance for 2013, this is obviously solid outperformance versus the light-vehicle production in the regions where you have lot of exposure. North America, forecasted up 3%; Europe, down 3%, for example, and definitely one of the most robust sales guidance of any supplier if I recall. So I’m just wondering if you could spend little bit of time walking us through whether you see take rates improving for your products this year or is this outperformance simply a function of new program launches and favorable customer mix. Any thoughts there?

Dan Coker

Well, yes. All of that’s true, what you’ve said. We do see additional platforms offering our products, both our Gentherm traditional heated and cooled, and heated and ventilated seats and the W.E.T heated seat and heated and vent seats. Plus, we also have a fairly nice portfolio of new product applications that are kind of rolling in.

Key among those are, of course, we just mentioned our beds will be expanding. We’ve also seen pretty good response to cup holders and cold storage boxes, and the W.E.T. lines with the new steering wheel heaters which on a day like today in Michigan are quite delightful to have. All of those things combined will help us, plus there is new penetration and new market growth for us through penetration in all of the major markets. So it is actually a cumulative effect and we feel like that should be our target. We should try to grow the business by about 10% a year and we’re working on plans to deliver that.

Anthony Deem – KeyBanc Capital Markets

Okay. And as it relates to the portfolio of your new product applications with respect to the 8% to 10% guidance you provided, any thoughts on the breakout of what the beds, cup holders, steering wheel heaters and such, what the contribution to the growth rate will be between those products – new products?

Dan Coker

We have lots of thoughts but we don’t really expose those to the market. We just say, we give you a top line growth number and that’s really about all the information we feel comfortable presenting.

Anthony Deem – KeyBanc Capital Markets

Okay. And then just can you talk to margins a little bit in 2013, it just seems like there’s a lot of moving pieces. Obviously, legal costs have potential to come down $2 million to $3 million, maybe, pick a number. SG&A expense, higher in 2012 as a percentage of revenue, and you’re expanding your presence in Asia, when and how we should be thinking of SG&A. You’re making some changes to your accounting with respect to your patent development and maybe there could be some benefit from the W.E.T. integration. So just wondering if you can sum this up for us and paint a picture of how we should be thinking about margins this year relative to 2012.

Dan Coker

Well, there are a lot of driving factors for that. It’s a very broad – obviously margins is kind of the base pulse of the business. There are some things that we’re doing, as you heard. One of the key things we’re going to be doing is we’ll be reducing legal costs, that’s going to definitely affect our SG&A line. We have definitely taken steps to negotiate what we think is a favorable settlement of a royalty agreement that we had that had quite a bit of time left on it that will reduce our expenses by about $400,000 per quarter going forward. We continue to work to try to reduce our operating cost at all level, not just at the SG&A line, but also at the engineering, R&D and operational levels.

Material cost impact is there. We’ve seen reasonable cost on tellurium, our old mini system time spring sometimes right now, it’s been a relatively a stable commodity that we require. We have some exposure now, greater exposure to currency fluctuations worldwide. We’ve seen some negative impact from the euro and dollar relationship, and we’ve seen a little bit of positive impact from the yen to dollar. So when you boil all this out, what you’ll see is, I think, a steady improvement of our gross profit over time, but we can’t really pinpoint a quarter that you’re going to see that. I think over the next four to eight quarters, you’ll see a good, solid, steady improvement of our gross profit margins.

Anthony Deem – KeyBanc Capital Markets

Okay. And a few more, if I may. Do you have an estimated accretion from the W.E.T. transaction?

Dan Coker

Yeah, we’ve – the accretion that we think from the acquisition of the – most of the 24% non-minority holding is somewhere in the range of $0.12 to $0.13.

Anthony Deem – KeyBanc Capital Markets

Okay. And then just lastly, tax rate, how should we be thinking about that longer term as your Asian presence grows?

Barry Steele

Our tax rate, well – this is Barry speaking.

Anthony Deem – KeyBanc Capital Markets

Hi Barry.

Barry Steele

Well, are certain to come down as we’re able to potentially become more tax efficient with respect to – with looking at the company in its operations and structure. We’re unable to do any sort of tax planning or method while we are without an DPLTA. The tax rate you see here is probably a little bit lower, so good news things that went through for the year. You have to recognize some – to protect that, is that we didn’t have before. So we would probably predict about a 28% rate roughly going forward and with the hopes that we’ll be able to structurally change ourselves, we’ll be able to lower that.

Anthony Deem – KeyBanc Capital Markets

Thank you very much.

Operator

(Operator Instructions) Our next question comes from the line of Joe Bess with ROTH Capital Partners. Please go ahead.

Joe Bess – ROTH Capital Partners

Good morning.

Dan Coker

Hi.

Joe Bess – ROTH Capital Partners

W.E.T. revenue growth for the full year was pretty strong and I believe there’s about 14.6% if you had acquired the business on January 1. Can you help me get a better understanding on where that growth occurred? Is that really just a function of you moving production to key customers to the W.E.T. system is at W.E.T.? And then can you quantify that for us?

Dan Coker

That is one of the key contributions, plus there’s been a very strong market in the, what I would call the Asian markets, particularly in China where W.E.T. is traditional product. There’s probably $12 million to $15 million worth of product revenue you’re referring to that the heated and cooled seat products that had been supplied traditionally by Gentherm, that is now being supplied by our North American operation for the W.E.T. operations down in Mexico.

Joe Bess – ROTH Capital Partners

Okay. Great. Thank you. And then thinking about the minority interest in Q1, is that going to be a bit higher because of the date of the ownership where you gained about the extra 16%?

Barry Steele

The minority interest should be lower. There’ll be a period of time where we do still have the 24% going to the minority interest line, then it will go down quite a bit, it’ll be 1%.

Dan Coker

Right.

Joe Bess – ROTH Capital Partners

Right. And starting Q2, it would be at about 1%, but in Q1, it’s lower sequentially, but higher compared to Q2 quite a bit, right?

Barry Steele

And that shouldn’t be higher compared to Q2, it should be lower.

Joe Bess – ROTH Capital Partners

Okay.

Barry Steele

Keep in mind, we close the transaction in February – February 13 actually, and so that’s the point where we go from a 24% dilution I guess to 1%.

Joe Bess – ROTH Capital Partners

Okay. Thank you. Thank you.

Dan Coker

All right. Thanks, Joe.

Operator

And our next question comes from the line of Adam Brooks with Sidoti & Co. Please go ahead.

Adam Brooks – Sidoti & Company

Good morning, maybe even good afternoon at this point. A few quick questions here. Now that you’ve registered the Domination Agreement, can you talk about the decision-making process for which platforms to pull in-house?

Dan Coker

That’s a very good question actually. One of the things where we’re actually have been working on developing a plan to begin the integration. Obviously for us, the larger platforms that are remote to the manufacturing sites today are the key targets. For us today, at the old Gentherm business, all of our manufacturing support was provided out of Asia. We have lots of very nice happy customers here in North America that would prefer to see their product made locally. And so those are the top priorities for us to try to make sure that we relocate as much of that business closer to the markets – demand market as possible. So that will continue to be on pressure.

If you recall, the biggest customers that we have for the heated and cooled seat products are here in North America, so we’ll begin that process right away. And then the rest of the products will be faded in over a two to three-year period.

Adam Brooks – Sidoti & Company

Okay. So is that a big chuck of that $10 million in synergies that you quoted?

Dan Coker

It is a contributing factor, yes, I would say it’s significant.

Adam Brooks – Sidoti & Company

Okay. And then just looking at SG&A, R&D is pretty steady throughout the year. It seems like there’s a little more seasonality in SG&A since you’ve acquired W.E.T. Maybe can you touch on if this is going to be the normal seasonal trend kind of an uptake in 3Q, 4Q, not just – doesn’t seem just volume-driven, but from a percent of revenue as well.

Dan Coker

Yeah, actually, you’ve seen that seasonality for the last year and a half and, to some extent, it will continue. The SG&A does shift and move around depending upon the position in the year. As I think Barry mentioned a little bit earlier, there is a yearend management incentive that has played out on an international basis in December, that only occurs in December. So you’ll see that blip every year as the incentives are earned and paid.

For the rest of the transactions, I think it’s reasonably steady, and we’re aware that that’s a large number and we’re going to be working on trying to figure out a way to become more efficient as a combined company.

Adam Brooks – Sidoti & Company

Okay. And then just one more, 2013, 2014 pretty large platform years for North America as far as changeovers and launches, in general, for the industry. For you, is it possible, a little bit of pickup from the historical norm?

Dan Coker

I’d like to think so. There’s a lot of activity, and where there’s activity, there’s opportunity for us. So yeah, we think that there’s a good shot at us getting on some new platforms.

Adam Brooks – Sidoti & Company

All right. Thank you.

Dan Coker

Thank you, sir.

Operator

And our next question comes from the line of Bill Selesky with Argus Research. Please go ahead.

Bill Selesky – Argus Research

Yeah, thanks. Hi guys. Congratulations on the fourth quarter and 2012 results. I just have two questions, first, Dan, could you talk briefly about the European market and more specifically, the Germany market? I know last quarter, you had spoken about as in a process of cooling some and I’m kind of wondering if things have bottomed or if things are actually turning up.

Dan Coker

I’m sorry. Do you want to ask both questions or do you want me to respond one at a time?

Bill Selesky – Argus Research

Oh, no, if you could do that one first, I’d appreciate it.

Dan Coker

Okay. Great. Yeah, we are seeing – the European market has continued to cool and I would say maybe is even getting close to frigid right now. So I suspect that sometime in the first half, you’re going to see things kind of settle down to a bottom and in the second half, it will start going back.

Specifically, in the Germany market, they have a very high export business based out of Germany, Mercedes, BMW, and Audi, in particular, all generated very large amount of their revenues each year from international markets, particularly China and the U.S. We think those markets have held strong for these products, in fact, if you look at the recent publications, you’ll see that Audi, BMW have all had record quarters here in the U.S. and they’ve been a little flatter in China. So the slowdown that you see, that’s finally beginning to affect even the German companies, has been primarily pressure from the European market, the local markets. We expect those markets to begin to improve in the second half.

Bill Selesky – Argus Research

Okay, great. And my final question, I think you also addressed this last quarter but on CapEx going forward, 2013 and 2014. I think you had previously mentioned in the range of $20 million to $25 million, I just wanted to see if that was still the same or if there’s any change in that?

Barry Steele

This is Barry speaking. We would expect that to be fairly consistent for 2013 with the possibility of things tapering off and going down a little bit in 2014, unless we need more capacity and we see growth that’s somewhat likely.

Bill Selesky – Argus Research

Okay, great. That’s helpful. Thanks very much.

Operator

(Operator Instructions) And our next question comes from the line of Shirley Lui Garrison, Bradford & Associates. Please go ahead.

Shirley Lui – Garrison Bradford & Associates

Hi, good morning.

Dan Coker

Good morning.

Shirley Lui – Garrison Bradford & Associates

Congratulations to your tying up of W.E.T. Could you please tell me more about the size of the markets and your share, and how fragmented it is and the competition involved?

Dan Coker

Well, the markets get broken up into many different pieces. The traditional markets that the old Amerigon, the existing Gentherm serviced, which was dominated by the heated and cooled seat business, we had essentially 90-something-plus percent of that relatively small but somewhat fast growing segment of the market. W.E.T has maintained, they’ve actually fought and earned their way to roughly a 50% market share of the worldwide traditional resistance seat heater business. So those are the two big driving factors. So I think you’d say we have somewhere roughly better than 50% of the available market for us worldwide, so that would put the total market somewhere in excess of about $1 billion

Shirley Lui – Garrison Bradford & Associates

Okay. And so you are the major player, so to speak, in this heating and cooling systems.

Dan Coker

Yes, ma’am, we believe we are.

Shirley Lui – Garrison Bradford & Associates

Right. And your future growth depends on your other products such as your heat and cooled beds.

Dan Coker

Actually, we still see very good growth opportunities in the heated and cooled, and heated and ventilated business. Particularly in the developing markets, the heated and ventilated business, we believe, will be a very strong contributor for our future growth for the next five years. And that will be complemented by our new product development efforts that we’re bringing out that you see now in a kind of an early infant stage as they mature and are joined by other projects that we’re currently working on.

Shirley Lui – Garrison Bradford & Associates

Okay. And if you could tell me, is there a certain target for your operating margins?

Dan Coker

We would very much like to see at least a 10% return on our efforts.

Shirley Lui – Garrison Bradford & Associates

Okay. Thank you very much.

Dan Coker

Thank you.

Operator

And we have a follow-up question from the line of Anthony Deem with KeyBanc Capital Markets. Please go ahead.

Anthony Deem – KeyBanc Capital Markets

Hi. Thanks for taking this question. Just one quick one. So Dan, you had mentioned legal costs in your synergy remarks. I just want to double check something. Does that longer term $3 million to $4 million of lower legal expenses over the next couple of years, is that part of the $10 million synergies or is that just above and beyond?

Dan Coker

It is a portion of the short-term synergies that we see immediately. And as we’ve indicated, the $3 million to $5 million we have both been spending on legal attempts to place the DPLTA will drop fairly significantly, but there will be a residual impact for the pursuit of the squeeze-out and the reorganization of the company.

Anthony Deem – KeyBanc Capital Markets

Great. Thanks.

Operator

And there are no further questions at this time.

Dan Coker

All right. Thank you, operator. We believe we’ve covered most of the questions and as much information as we can at this time. We would again very much like to thank all of the listeners for dialing in. We would like to invite you back at the end of the first quarter where we’ll be reviewing hopefully some pretty good results for the first period of 2013.

Gentherm is at the threshold, I think, of a very exciting three to five years. We see a very good opportunity to grow our business, become more efficient and expand our product offerings to our customers. So we’re looking forward to it. We’re very excited about it and we thank you all for joining us and come back next quarter. Thank you.

Operator

Ladies and gentlemen, this concludes the Gentherm Inc. 2012 fourth quarter and year end results conference call. You may now disconnect.

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Source: Gentherm's CEO Discusses Q4 2012 Results - Earnings Call Transcript
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