Gentherm's CEO Discusses Q1 2014 Results - Earnings Call Transcript

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 |  About: Gentherm Incorporated (THRM)
by: SA Transcripts

Operator

Greetings, and welcome to the Gentherm First Quarter 2014 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions).

As a reminder, this conference is being recorded. It is now pleasure to introduce your host Jill Bertotti. Thank you. You may begin.

Jill Bertotti

Good morning and thank you for joining us today for the Gentherm Incorporated 2014 first quarter results conference call. Before we start today’s call, there are 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 at Gentherm’s website.

Finally, I’ve also been asked to make the following statements. During this conference call, representatives of the company may make forward looking statements within the meaning of federal securities laws. These statements reflect current views with respect to future events and financial performance and actual results may materially differ. Please see the Gentherm Incorporated SEC filings and including related 10-K and subsequent reports for a discussion of various risks and uncertainties underlying any forward looking statement.

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

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

Daniel Coker

Yes, good morning, Jill, thank you and thank you everyone for dialing into our first quarter earnings call. As I think most of you probably saw from our press release at 6 AM this morning the first quarter of 2014 was an extraordinary result and we’re very, very pleased.

I’d like to start off my comments by thanking all of our associates, all of our vendor partners and all of our folks around world who worked very hard to get these results in place and it’s not just a quarter that they’ve been working we’ve been working together with our partners that WET for the past three years to develop this good result and we’d also like to welcome our new associates at Global Thermoelectric Inc. in Calgary, Canada which we just acquired effective on April the 1st.

The results were quite extraordinary we’re very pleased with the top-line performance the middle of the P&L and the bottom-line, everything fell into perfect order for the quarter and we’re very, very pleased. Barry is going to give you some a brief overview of the details the P&L and the balance sheet and little bit on the cash and then we’ll open the floor for question.

So Barry if you would help us walk through this extraordinary quarter, we appreciate.

Barry Steele

Thank you Dan. Hello, everyone. Our earnings for the 2014 first quarter were $0.47 a share on a fully dilutive basis. This represents an increase of $0.23 or 96% from the first quarter of 2013 and an increase of $0.16 or 52% from the fourth quarter of 2013. These improvements are the result of a favorable conversion of significantly higher revenue to net profit. Our product revenues for the first quarter were $193.9 million, which represent an increase of $45.8 million or 31% over the first quarter of 2013 product revenue.

This also represented sequential increased at $11.6 million or 6.4% over the product revenue of the 2013 fourth quarter. The increase is due to strong performance in all of our product lines and regions strong as which being the climate control seat, which for the first time exceeded our heat industry product revenue. Climate control seat revenues grew by 46% over the prior year.

During the quarter, actually on April 1st we acquired Global Thermoelectric Incorporate. The product revenues of this new company will be included in our results during the second quarter and beyond. This should increased our product revenues between $20 million to $25 million during the balance of 2014 in the second, third and fourth quarters. Our gross margin for the first quarter was 29.4%, which was a 3% higher in the prior year and 2.2% higher than the 2013 fourth quarter.

The number of favorable factors contributed to this increased including improved coverage of fixed costs by the significantly higher product revenues, the shifting mix and products favoring climate control seat, favorable exchange production costs that we incurred in foreign currencies and for the first time a contribution coming from our electronic manufacturing facility, which continues to increased production volumes.

As we've mentioned in the past, our target for gross margin percentage is currently 28%, the performance this quarter exceeded that goal. However, we expect this represents the higher end of potential gross margin range. Our operating expenses were $32.2 million during the first quarter representing an increase of 2.9 million or 10%. This included approximately $1 million related to the new electronics facility, much of the remaining increase resources that are been directed to development of existing and new products and the related marketing activities for those new products, which we expect will continue to support our product revenue growth target. We expect additional investment in our development of new product including the area of electronic components will increase our spending rate from future quarters.

Our fourth quarter adjusted EBITDA was $32.4 million, which was $30.3 million or 79% higher than that of prior year period. Again this significant increased resulted from a very favorable conversion of a much higher product revenue. Turning to the balance sheet just for a moment. Our cash increased by $2.8 million from the end of the fourth quarter and was $57.5 million at March 31st.

As we indicated during the last quarterly earnings call, we invested approximately $23 million in working capital as a result of the higher product revenue during the first quarter this was offset by about $13 million and our revolving line of credit and operating cash flows before working capital increases.

Our total offsetting debt was $90.3 million at end of the quarter, representing an increase of $8 million, which included the revolver down I just mentioned, and this was offset by normal term payment. Our revolver capacity was approximately $42 million at the end of the quarter.

That why I have Dan, and I turn it back to you.

Daniel Coker

Thanks a lot Barry. It is always to give good numbers, we will at this point terms we call over to the operator for questions from the audience, operator?

Question-and-Answer Session

Operator

(Operator Instructions). Thank you. Our first question comes from the line of Philip Shen with Roth Capital. Please proceed with your question.

Matt Riley - Roth Capital

Hey, good morning guys. Matt Riley on for Phil.

Daniel Coker

Hi, Matt.

Matt Riley - Roth Capital

Hey. So, I wanted to start off with your China facility. Could you comment on what percentage of your internal electronics demand was generated from this facility in Q1?

Daniel Coker

I can't give you a direct numbers, it's an increasing number as we tend to pull in volumes that we use to purchase from the outside. But I wouldn't tie it down to a specific number of what our total purchases are.

I would guess just in rough estimate that we probably buy somewhere of between $75 million and $100 million worth of electronic components from the outside world. And we were nowhere near making a dent a better. Our ultimate goal is to be able to be self sufficient by the end of next year with our two existing facilities. So, it's going to grow and build. Barry mentioned earlier that we had finally kind of gotten over that hump of where the facility is now contributing. And of course it's helping contribute to our gross margin line and that we're not buying from the outside more expensive electronic components.

Matt Riley - Roth Capital

Okay, thanks Dan, that's helpful. Just touching on that self sufficiency by the end of ‘15, could you comment on external business, when you might start seeing that come on line, what the revenue levels might be? And if you secured any new wins during the first quarter for that?

Daniel Coker

During the first quarter we have not secured any new additional wins outside of our self-sufficiency programs. We are very heavily engaged with several very good programs. And I think it’s fairly safe to say that we’ve secured a couple of programs that indicate to us that our decision to go after this electronics business is very valid. In terms of the upside potential for this it’s literally hundreds of millions of dollars of potential business for us in the long run.

So we're very excited, we think we’ve made a good decision, we’ve made a good investment with our facilities and with our team and we're continuing to try to build the internal resources and the necessary to support that external business.

Matt Riley - Roth Capital

Got it. Turning over to the GTE acquisition, obviously it helps you guys get closer to commercialization of your own internal technology. What might be the initial end markets for that technology, would it be on the [smelting] side, or could perhaps be truck or bus, could you give us a little color around that?

Daniel Coker

Well, obviously initially their business that’s existing in the gas and oil pipeline businesses, their main focus and we're going to obviously concentrate on that. We are going to try to expand that business and provide whatever resources and support necessary for them to build on their own existing business longer term or mid-term actually I would say that we have targeted some industrial applications that we think that then asset like Global Thermoelectric will be very helpful for us to be able to go after. And that’s outside of the normal oil and gas work and then ultimately we see mobile power generation systems as being a key target for this type of team.

So initially, we’ll go after the existing markets and try to expand there internationally; there is lots of room to grow in that marketplace and then there are additional industrial applications that we want to target. And then with a lot of work together and working with our potential partners in the truck and bus business we see this has been very good opportunity for the company.

Matt Riley - Roth Capital

Okay, great. Just expand a bit on that mobile segment Dan, what might be award cycle and the sale cycle look like to that segment?

Daniel Coker

They’re similar to the automotive market but particularly the volumes are lot smaller in the trucking industry so it’s a little bit easier to get fuel test set up and get some kind of the immediate data. So but the cycle is not too far off from the normal auto industry or transportation industry it takes a couple or three years to get something designed and tested evaluated and put on the street.

Matt Riley - Roth Capital

Okay, great. And just one more if I may here, I know you guys…

Daniel Coker

You’re using up your whole quarter Matt.

Matt Riley - Roth Capital

You guys broke out the three segments, CCS, heated seats, heated steering wheel. Could you give us any kind of sense of how these segments might trend going into the remainder of 2014 on perhaps a year-over-year basis?

Daniel Coker

I think you’re going to see a continuing transition from just the heating seats over to heated and cool seats. We have seen, Matt this, as Barry mentioned quite (inaudible) that this is the first quarter where we’ve actually had generated more revenue out of the Climate Control Seat group then we did from the traditional seat heater business and we predicted that that trend was likely to occur. It’s occurred in the past and a month or two but never in a solid steady state for a full quarter. So we expect to see climate control seats heated, then heated and cool seats continue to increase and we still believe there is growth in the heated seats but I think it will be outpace by growth in the heated and climate control seat factors.

Matt Riley - Roth Capital

Okay, terrific. I'll jump back in queue. Thanks guys.

Daniel Coker

All right. Thanks a lot.

Operator

Our next question comes from the line of Steve Dyer with Craig-Hallum. Please proceed with your question.

Steve Dyer - Craig-Hallum

Dan and Barry, congratulations, great results.

Daniel Coker

Thanks a lot.

Barry Steele

A lot of people worked very hard for these results.

Steve Dyer - Craig-Hallum

Understood. So a couple of different things. As you look at the gross margin sort of upside to your target this quarter. Is there any way to sort of step off how much of that was driven by mix versus just kind of overhead absorption I guess, I'm trying to figure out kind of a 28, kind of the mid-point of what we should think about or is that sort of a level that we can kind of build on as we get (inaudible) contributing more to cost of goods?

Daniel Coker

I think you're going to see the continued improvement. I do think that this quarter might have been spike because of a couple of things that happened. But we are making progress toward our target of 28% on a regular consistent steady basis. We've been working up to that level in the second quarter of last year. We were beaten industry because we slip a little bit below 26% for a random series of events that occurred.

And I think you're going to see that we're going to continue to make progress. Again, we're focusing on a good solid steady consistent reporting of margins in that 28% range. So there are factors, I think that were a little bit extraordinary and I think it's higher than we would expect to see in a regular run rate. But it shows progress toward our long-term goal and that's what we're excited about.

Steve Dyer - Craig-Hallum

Sure. So is it just safe to kind of think 28 of is it a good kind of baseline average level going forward or is that still something that you think it's going to reset down into the 27s and work back up to the 28?

Daniel Coker

I think we are getting close to 28 but you are going to see some 27s, you may have been seen a 26 once in a while, but I think we are getting closer to that 28 target but it wouldn’t surprise me at all one other quarters during this year has 27 or 26 on it, and it wouldn’t surprise me if you saw some 28.

Steve Dyer - Craig-Hallum

Perfect, as it relates to operating expenses really good kind of discipline there. And I am trying to think about how that number should look going forward you had a million bucks or so in acquisition related cost this quarter. So that’s kind of absent that it’s kind of 31 on assuming some will get layered in from the acquisition, but is 31 kind of a number to grow off up this year or is there a significant amount from the acquisition that we should be thinking about adding or how should we think about that number?

Daniel Coker

There is going to be some spending on the global thermoelectric team and (inaudible) remind the group that we are continuing to spend and invest in as particularly in our electronics business. We are also investing in some of our convenience products businesses. So in the second half and particularly I think you will see some increased spending, but again it is not going to be what I call the wholesale assault on spending. We are going to try to keep a very monitored measured approach to it, you will see steady predictable results on operating expense increases.

Steve Dyer - Craig-Hallum

Great, and then the bad debtness which I think we talk about every quarter and a return in the corner there or any uptick that would be great?

Daniel Coker

I think we are continuing to make good progress, I think the designs of the bed are really nice, we have introduced the new partners to the bed business, they are showing some extraordinary designs. I am very excited about that and I have actually gotten one of the brand new beds yet to sleep on myself, but we've seen some very good designs that I think we're going to see some exciting stuff happening in the second half of this year.

Steve Dyer - Craig-Hallum

Great. One last question and I'll hop back in the queue. You pointed out the new K2 line up from GM as a real area of strength for this quarter. As you, I know you were on the GMT's as well, is it just that kind of initial volumes there are so much better or do you have significantly more content on the K2s?

Daniel Coker

It's actually turned out to be a wonderful program for us. There has been a lot of acceptance of the feature and it's been pretty broad. So, we're pretty excited about K2XX.

Steve Dyer - Craig-Hallum

Do you have additional content on it vis-à-vis the GMTs

Daniel Coker

We have additional content compared to the GMT 900 line, yes.

Steve Dyer - Craig-Hallum

Yes, okay. Thank you guys.

Daniel Coker

Alright. Thanks a lot sir.

Operator

Our next question comes from the line of Bill Selesky with Argus Research. Please proceed with your question.

Bill Selesky - Argus Research

Hey, thanks for taking my question. Hi guys and congratulations on a great operational quarter. I just have two questions, basically with GTE, the acquisition April 1. Dan you mentioned gas and oil will be the main focus going forward, try to expand that. Is oil and gas the primary product area that GTE kind of functions in right now? I know they also do telecommunications and some security and I think military, but is it oil and gas by far and away the biggest part of their business?

Daniel Coker

Yes, Bill I would say it's very safe to say that their primary function in life is to provide remote power for oil and gas field operations including offshore rigs and field power wherever it's necessary. So, that's they do a lot of other work in a lot of other areas and they've done a lot of excellent design work in some new applications.

What we're hoping to bring is some additional experience and understanding and knowledge of working with thermo electrics and with materials, we also have a very broad scope globally around the world, we can provide now perhaps some additional base for them to work on to try to expand the business a little bit more outside of the North American market place, which where they are very, very strong.

So I think the general answer is yes, they are very, very familiar with and expert in the oil and gas field power range.

Bill Selesky - Argus Research

Now are they primarily North America is probably is the oil and gas exposure goes or do they also have some international…?

Daniel Coker

They have a substantial international business, but there I think the bulk of their business is North American base.

Bill Selesky - Argus Research

Okay, great. And just one last question, CCS for a great quarter, can you tell me your internal studies and numbers what percentage of the luxury market, you possibly have right now and what the go to in the future?

Daniel Coker

Well I think we stated publicly that we believe we have less than 10% market share, sorry not market share, market penetration of the luxury high-end market and I believe that number can go up, I think it go above 50% over time, but that’s going to take us lot of work and we're going to have to show a lot of better performance particularly in the European market where we have, we're kind of lag behind, getting the earn out to some of the bigger luxury car makers in Europe.

Bill Selesky - Argus Research

Okay great. And one last thing, on the German OEM market, can you bring us up to date there and talk about potential penetration anything going on in that space for you?

Daniel Coker

Well, we are working very hard, we're very pleased to say we have a very strong position in the German market in seat heater business in which we are working very diligently now to probably that relationship we have in from the seat heater business to get into their currently more comfortable area which is the heat vent system that they seem to like a little bit better and we’re trying to get them to focus on heat cool in some of the particularly in the export markets for them here to North America and to China, which are two very large markets for them and perhaps might see in the little bit warmer environmental markets than they might see in the beautiful lovely (inaudible) and ovarian woods in Southern Germany.

Bill Selesky - Argus Research

Okay. That’s great thanks very much.

Daniel Coker

Thank you sir.

Operator

Our next question comes from line of Gerry (inaudible) with Gerry (inaudible). Please proceed with your question.

Unidentified Analyst

Hi guys, congratulations. Is there much in the way of seasonality in the March quarter you reported or is that a typical quarter in terms of activity and could we think about their run rate apply to the quarter in terms of how the business should play out for the rest of the year?

Daniel Coker

The seasonality in our business is typically, where kind of a model year launch season. So the new models pretty much around the world all launch at the beginning of the third quarter, so I guess you could say our fiscal year might start in July and then run through June year.

So what the strength you saw in the existing March quarter that we’re just reporting right now that trend was started in the third quarter of 2013 carried on in fourth. And so this is really the third quarter of that expansion that we saw during the 2014 model launch which was July of ‘13. So the next opportunity for us to show some improvement over these numbers will be in the second half of this year as the 2015 model start launching.

Unidentified Analyst

Okay. So seasonally the June quarter should seasonally moderate from the March quarter level, is correct?

Daniel Coker

It should be pretty consistent. Although there is an occasional softening in the second quarter, but we really expect to see the third and fourth quarter be the result of any new programs we introduced during any given year.

Unidentified Analyst

So could we say that that March quarter seasonally if you look at a fourth quarter average or annual average represents less than 25% generally of your full year results?

Daniel Coker

Slightly, yes sir.

Unidentified Analyst

Slightly less than 25% of your full year results. And for expanding for seasonable adjustment if you will?

Daniel Coker

Yes, sir.

Unidentified Analyst

So that one my take the quarter you reported and apply greater than four time factor to just established a run rate on a seasonally adjusted basis?

Daniel Coker

One might.

Unidentified Analyst

Okay. Thank you.

Operator

Our next question comes from the line of Josh Goldberg with G2 Investment Partners. Please proceed with your question.

Josh Goldberg - G2 Investment Partners

Hi, good morning guys, nice results. Just a couple of quick question first on the acquisition. It sounds like you pay around $35 million and it contributing that $20 million to $25 million of revenues for the balance of the year. So roughly that $35 million, $30 million to $35 million sales, is that a fair assumption?

Daniel Coker

Well, a little bit the $34 million to $35 million you refer to our Canadian dollars. So roughly it somewhere between US$30 million and US$32 million that we acquired the assets for. And on a run rate, yeah, you're right. We're projecting that in three quarter of this year, we'll see somewhere between $20 million and $25 million with the revenue for us as we acquired affectively force.

Josh Goldberg - G2 Investment Partners

And what’s roughly your gross margin and EBITDA profile for that business?

Daniel Coker

They are actually, they do pretty good in terms of gross margin, the business they have has high value added and they gets some pretty good solid results much better than the traditional automotive businesses and much more like custom work industrial markets, but we haven’t released anything yet about those operations and we deferred not to talk about them until we fully understand the numbers.

Josh Goldberg - G2 Investment Partners

Okay. So it’s fair to say it’s kind of added to your gross margin as it starts going into the second quarter?

Daniel Coker

It will definitely be accretive to our business yes.

Josh Goldberg - G2 Investment Partners

Okay. And then just adding on to the you’re the previous callers question. The 193 that you did in the first quarter design include any of this acquisition, so if you have a roughly similar or even slightly down Q2 that does not include this $8 million or $9 million a quarter 20 to 20 for rest of the year, is that fair to say?

Daniel Coker

That is absolutely fair to say, there was nothing in the 193 included the results for the GTE acquisition and we will be booking those results in the remaining three quarters of the year and that will be added to the numbers you see.

Josh Goldberg - G2 Investment Partners

Okay, last two questions from me. One is on the balance sheet, did you use your long term the phase of this acquisition?

Barry Steele

The revolver borrowing was used for the acquisition, but we paid off cash really for it.

Josh Goldberg - G2 Investment Partners

Okay, but you are hoping that the cash really will generate for the back half of year will kind of bring your debt to a normal level?

Daniel Coker

Much more than that yeah, much created cash generation.

Josh Goldberg - G2 Investment Partners

Okay and then just on your taxes, I mean 27 new tax rates for the loss of the year?

Barry Steele

The rate you've seen in the first quarter is our estimate for the full year.

Josh Goldberg - G2 Investment Partners

Great. Thank you very, very much and congratulations.

Daniel Coker

Thanks a lot.

Operator

Our next question is a follow up question from Steve Dyer with Craig-Hallum. Please proceed with your question.

Steve Dyer - Craig-Hallum

One last one, F Series which I think is still your biggest program at least it was recently. It's going to undergo a changeover in the second half of the year, two kind of off shoots of that, one how should we think of the impact from that, I think, I don't know that that truck of itself of super material anymore? But then secondly, when the new model start shipping, would we expect to see additional content on there, whether it's new term levels or steering wheels or anything like that?

Daniel Coker

Well, yes, Ford has announced themselves that, as they go into the model year launch that there will be some downtime, as they have to make a major shift in the manufacturing operation from steel panels to aluminum panels. And there is a big shift in process required in order to do that.

So, Ford themselves have announced that there will be some downtime in the second half as they convert over to the new 2015 all aluminum model truck.

We have that in our projections and in our plans. And we also see from the pre-orders that Ford has announced that's going to be a very popular item. We don't expect a whole lot of additional business we didn't win, that's heated steering wheel business on that model. There is nothing else other than our normal solid take rates on the heat and the cool seats that are featured on the F150 today.

Steve Dyer - Craig-Hallum

Very good. Thank you.

Operator

Our next question comes from the line of Mike Schneider with Artisan. Please proceed with your question. Mr. Schneider, your line is live.

Mike Schneider - Artisan

Yes, good morning Dan. Can you just comment on the sequential increase in revenue and if you look at again, if the model launch is again in middle of last year, what would explain a sequential increase in CCS, is it higher take rates, is it just higher production levels at your customers and trying to figure out if the launch is really occurred nine months ago, why you saw the increase this quarter?

Daniel Coker

Well, it’s a global thing. It’s a combination of all those things, but it’s really a global thing Mike and what we are seeing is a lot of good solid strength in a couple of key markets for us, particularly in our Asian business; our Japanese and our Korean businesses are extremely strong and they are dominated more by the climate control seat business than the heated business.

The North American business has been very strong in the climate control seat business. So it is a combination of things. And we do see shifts around the world as different markets pick up strength. So I think that explains a little bit of the sequential increase that you see.

Mike Schneider - Artisan

Okay. And then as it relates to the revenue guidance of now greater than 15%, (inaudible) assumes their revenue is flat sequentially or even slightly down. That would imply you are not expecting any new model wins in the second half. Can you just comment on presumably you know your front log of platform wins and launches in the second half, why would the guidance imply none?

Daniel Coker

I think we said at least 15% and we didn’t include the additional revenue volumes, from our GTE partners. But we think we have a few new wins coming in the second half, some of that will be slightly offset by losses of volume from the F-150 as Ford goes through their conversion. And the Chinese market is not as exciting as we had hoped it would be during this year. So there is some negative headwinds but mostly for us we see positive results. And I know that you are quite familiar with our story but we’re relatively conservative people by nature.

Mike Schneider - Artisan

And can you quantify the number of platform wins or just in anyway could frame what you see coming in the second half in terms of new business?

Daniel Coker

No, we don’t release any information about new models or new wins. We simply provide as best we can the broad guidance for the year. And right now we see that being better than 15% for the full year.

Mike Schneider - Artisan

Okay. And then the GTE acquisition, you said it’s additive to the numbers. I presume the stated margins are higher, but with purchase price accounting and any inventory adjustments or upfront expenses other than what you’ve already booked, will there actually be any unusual items or again purchase price accounting hits in the second quarter or third quarter?

Barry Steele

Yes. This is Barry. Yes, there definitely will be, they should be fairly modest because it is not a huge balance sheet quite frankly. But we start analyzing the actual amounts and when we do have them and publish in the second quarter, will be adding those new amortizations and intangible assets to our disclosures that we put in our earnings release, so you can see what those purchase accounting impacts are.

Mike Schneider - Artisan

Okay. And then if we normalize the gross margin this quarter back to the 28% kind of target number, it implies it was about $2.7 million or $3 million in round numbers of excess earnings and you said there were some unusual items or events that drove those. What would explain in rough numbers that $3 million of excess earnings?

Barry Steele

It is a number of things, but the most important probably about half of that is coming from the currency benefit we're seeing in the Mexican peso and the Ukraine currency. But there is number of other things as well.

Mike Schneider - Artisan

Okay. And those other things other than currency will not recur from here on or could they..

Barry Steele

Will not, we won’t go through a [larger] list and predict everyone. But I think it's somewhat safe to say that some of the currency benefits are going to stick with us, you’ve hedged some of it. But that's also to say that we haven’t seen any real unusual negative things in this quarter as we did as Dan pointed out in the second quarter last year and things crop up from time to time. So we'll always be cautious about our gross margin comments when we think about the things we don't know about, that could be there.

Mike Schneider - Artisan

Right. So if we get that 3 million in excess earnings or exceptional items including the currency, you did about $0.48, not $0.56. Is there anything about that earnings run rate that is otherwise unsustainable?

Barry Steele

Well, we mentioned that we’ll probably make some investments in our operating expenses. So that maybe something you'll see as a creeping factor but we should be able to grow over that. So I don't think Dan there is anything else that there is usual.

Daniel Coker

I don’t think so even, yes.

Mike Schneider - Artisan

Okay. Thank you so much.

Daniel Coker

All right. Thanks Mike.

Operator

Thank you. We have reached the end of the question-and-answer session. I would now like to turn the floor back over to Mr. Coker for closing comments.

Daniel Coker

Well, thank you very much for everyone for joining us. It's always a pleasure to hear all your questions. And for us when the results look they have for us in the quarter, we're always pleased to talk about how well things have worked out. But again, I remind everybody that this is the result of three years of hard work by nearly 8,000 people internally that are members of the Gentherm family and countless thousands of others who are partners with us in either – in the customer base or in the supply base. So we thought like we had a really good quarter, we are trying our best right now as we speak to have a really good second quarter and we invite everybody back here in about 90 days, and we will sit and talk about how the second quarter turns out. Thank you very much and we will talk to you later.

Operator

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation. And have a wonderful day.

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