Gentherm's (THRM) CEO Dan Coker on Q2 2014 Results - Earnings Call Transcript

Aug. 1.14 | About: Gentherm Incorporated (THRM)

Gentherm Incorporated (NASDAQ:THRM)

Q2 2014 Results Earnings Conference Call

August 1, 2014 11:30 AM ET

Executives

Michael Mason - Allen & Caron, Inc., IR

Dan Coker - President and CEO

Barry Steele - Chief Financial Officer

Bud Marx - Chairman

Analysts

Samik Chatterjee - J.P. Morgan

Matt Koranda - Roth Capital

Steve Dyer - Craig-Hallum

Gary Prestopino - Barrington Research

Frank DiLorenzo - Singular Research

Chris Van Horn - FBR Capital Markets

Steve Dyer - Craig-Hallum

Eugene Fox - Cardinal Capital Management

Josh Goldberg - G2 Investment Partners

Jeff Bernstein - AH Lisanti

Michael Schneider - Artisan

Operator

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

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Michael Mason. Thank you. You may begin.

Michael Mason

Thanks, Rob. Good morning. And thank you for joining us for the Gentherm Incorporated 2014 second quarter and six months 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, the 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 release, you may download a copy from either the Gentherm website at gentherm.com or the Allen & Caron Investor Relations website at allencaron.com. Additionally, a replay of the 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 today’s 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 filings with the Securities and Exchange Commission including the company’s latest annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K for a discussion of various risks and uncertainties underlying any forward-looking statements.

On the call today from Gentherm, we have President and Chief Executive Officer, Dan 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 would now like to turn the call over to Dan. Good morning, Dan.

Dan Coker

Good morning, Michael and thank you very much for that kind introduction. Barry and I are coming to you live from the NASDAQ headquarters here in New York City, where it looks like most of the city is undergoing a renovation reconstruction project.

But the NASDAQ folks were very kind enough to arrange a meeting room for us to be able to offer our call and once again we're very proud of our long association with NASDAQ and they’ve been good friends and partners of ours.

With regard to the, first, sorry, the second quarter, we were pleased with the results. We think that the continuing efforts of all 8,400 team members continue to show positive results.

We have been able to achieve and now sustain a better than $200 million revenue run rate for couple of consecutive quarters and we see that continuing into the near future. So we’re quite pleased with the results. We are likewise pleased with the results of the additional volume and the impact on our gross profits have impacted the bottom line.

So we think we had a reasonably good second quarter. It was much in line with the results you heard about in our first quarter and we are going to spend a little bit of time talking about how those results breakout in the detail numbers as Barry gives you the play-by-play, and then of course, we will open the floor for questions from our audience.

So, with that no further ado, I would like to introduce Mr. Barry Steele, CFO of Gentherm.

Barry Steele

Thank you, Dan. Good morning. Hello, everyone. Revenue for the second quarter 2014 was up 28% to $206.2 million. This included about $8.2 million of revenue coming from Global Thermoelectric, the company we acquired in April 1st, the first day of the quarter.

Our revenue gains were attributable to continued strength of our Climate Control Seat product and we had -- we saw increases in all of our different regions of the business -- all of our different geographical regions.

Our gross margin this quarter was 29.5% as compared to 25% in the second quarter 2013. This improvement was attributable to improve mix of our products, I mentioned earlier, the higher Climate Control Seat revenue and a greater coverage of fixed costs.

We also had a positive contribution from our new electronic manufacturing facility in China as we did in the last quarter and we have some positive currency impacts in the few different markets.

The Global Thermoelectric purchase accounting did result in a unfavorable increase in costs for the quarter, one-time charge of approximately $1.3 million, as we wrote up the inventory that was held on April 1st and sold that inventory. So absent that our revenue -- our gross margin would have been $1.3 million higher or 63 basis points higher.

Operating expenses were also higher by $4.8 million or 50%. This was partly due the operating expenses of Global Thermoelectric, which totaled $2.4 million. It also -- this number included a another one-time first accounting effect as we wrote-off or amortized the backlog that was acquired on April 1st. We will see another effect for this backlog amortization in the third quarter then we will no longer have it in the expense.

A favorable conversion of all the higher revenue resulted in an increase in our adjusted EBITDA totaling $15.8 million or 98%, and an increase in our earnings per share of $0.31 or 206%. So now we mean the matter of inflection point where our revenues are dropping better to the bottom line.

Just one comment on the balance sheet. Our cash now has decreased since the end of the year by $11.7 million. This is primarily due to the acquisition of Global Thermoelectric on April 1st.

Those are details from the financial, Dan.

Dan Coker

All right. Thank you very much, Barry, for your usual deep and comprehensive review of the business. We would like to go ahead and open the floor for questions. So, Rob, if you would open the lines, we would be delighted to address any thoughts anybody has.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is from the line of Samik Chatterjee with J.P. Morgan. Please proceed with your question.

Samik Chatterjee - J.P. Morgan

Hi. This is Samik here from J.P. Morgan. Just wanted to touch on really upside base, if from any quarter is coming from compared to sort of what you are guiding earlier for the full year and also compared to probably your expectations really upside is coming from, is it just higher adoption of your product or something else?

Dan Coker

Actually, good morning, sir. Yes. The upside that we see, we kind of indicated that our revenues were be growing at a very strong pace in the first half of the year compared to the first half of 2013.

We have been working very hard as a team for the past three years to get some good solid penetration increases in new market opportunities for all three of our major product lines, the heated seat, heat ven and heat cooled and we have been very pleased with response by the market to the combined previous company's new product portfolio under Gentherm.

So we have seen have a very strong response in our, what we call CCS or heat ven, heat cooled business and a very good success from strong continued growth out of our base heated wire business.

So, all businesses are performing well and the result that you seen beginning even in the third and fourth quarter of 2013 are the basis of what we would call the advantages of working together as a full portfolio company now with a much better global distribution and customer support network and system.

We are actually able to get the word out and get in contact with more customers about more products and that has resulted in a very good uptick in the last -- really in the last two years, but in the last six to nine months we have see some very good results, in the auto business it takes a while to get things to come to actual revenue and we have been working very hard to get that to happen and we are very pleased that we have seen the kind of run that we have seen today.

As you probably saw, we are indicating that the second half of year we are going to see a continued run rate in the range that we like to see. We are very pleased to have broken through that $200 million a quarter revenue and we see that continuing in the second half as well.

Unfortunately for us the costs in the second half are little tougher, because the second half of 2013 quarter’s three and four were the beginning of this very good surge of new business.

Samik Chatterjee - J.P. Morgan

Great. And secondly, just touching on the gross margins, very impressive in terms of the gross margin in this quarter? Is that probably -- what the underlying business is now delivering and we should think about that sort of any one-off here and there in the particular quarter that’s what the baseline business is running at?

Dan Coker

Well, it’s another very good question. We have been focusing in one of our corporate goals as a team was to achieve a 28% gross profit on a consistent basis and we feel like we've been making very good progress there and the early results indicate now that we have exceeded that 28% range, but our corporate goals are still quite clear, we like now that 28% to 30% target range and we are working very hard to keep our cost in line to be to allow us to drive the business to this new range.

We've only seen two quarters at this slightly above 28% range. As I said in the past, we like to see a solid four quarters average result before we declare something is hard trend. For those of you with extremely good memories, you recall that last year about this same time there was much few and cry about the fact that our margins slipped from 26% and 27% range to 25%.

We try to explain that that was a one-time aberration. We believed that proved to be true. We also now see this current trend that’s being somewhat representative of the progress that the business has made and we're still targeting that 28% to 30% range now.

Samik Chatterjee - J.P. Morgan

Okay. Just my last question here, so how should I think about the pure volume, incremental margin that you are getting in the business like when I look at -- the performance looks like it is ahead of what other -- typical auto suppliers are right now getting more towards 24%, 25% probably higher than back and what is driving that as well?

Dan Coker

I’m sorry did you say our electronic business.

Samik Chatterjee - J.P. Morgan

Sorry, the incremental margins that you are going to be converting the incremental revenue to the bottom line. That looks to be higher than what a typical automatic supply generally generates, sort of, close to 30, can you sort of indicate what is driving that?

Dan Coker

Certainly, that has been -- first we have been fairly clear in our history that we don’t necessary consider ourselves limited to being called an automotive supplier. We’re a technology supplier to a variety of markets.

The largest segment of our business is the automotive market place and we’re quite pleased to be a part of the automotive business on a worldwide basis. As to how our margins are continuing to strengthen, it’s really a strong dedication to our principal that we fight hard to grow our revenues at the top line while we keep our operating expenses under control and as tight as we can to the generation of profits for the business.

So, we are trying very hard to grow our business by -- in this case 25 plus percent. But keep our operating expenses growing closer to 10% to 15% range as we expand the revenue base of the company. So it's a part of our corporate strategy to grow the topline and maintain our operating expenses as close as we can.

Samik Chatterjee - J.P. Morgan

Great. Thank you. Thanks for taking my questions.

Dan Coker

Thanks very much

Operator

Our next question is from the line of Philip Shen with Roth Capital. Please proceed with your question.

Matt Koranda - Roth Capital

Good morning guys ,thanks for taking my question. This is Matt on for Phil Shen

Dan Coker

Hi Matt

Matt Koranda - Roth Capital

Just wanted to start out with the Ukrainian facility. We know that your manufacturing facility is located far away from the conflict region there. And then you typically shift across the Hungarian border. But could you just give us some insight into how you think about risk in that region. How do you plan for different scenarios to ensure that you can continue to supply existing customers?

Dan Coker

Well yes, in fact, we do have business all around the world. We -- one of our strategies is to follow our customary base wherever they are and to try to face the customers as close as we can. We also have a strategy to try to be as cost effective as possible and from time to time that puts us in places where they are considered to be developing countries.

Our facility in Ukraine is one of our best facilities in the world. I was there a couple of weeks ago, had meetings with the team towards the facility, saw some of the new improvements and new businesses that we’re setting up there and was very pleased with the progress that team makes and continues to make.

We look at the current situation not necessarily in our region. As you pointed out, the conflicts are very far from where we are in excess of 1000 kilometers away to the east and has thus far been fairly limited in its scope. Any time you have this type of unrest, there is concert. The types of measures that we tend to take in this situation are to do logistical planning to look at and try to find ways to slightly over build our current run rates at our exciting facility plus we try to prepare and reserve capacities. There are other facilities around the world in cases, any caller need to try cover for any emergencies.

Our current risk assessment that this conflict will not boil over into our area and that -- so our level of concern is moderate at the moment. So we have take some measures to protect our European customers but we have -- we still see this as still being a very good place to be and our customers are comfortable with us satisfying their demand for the European market out of our Ukrainian facility.

Matt Koranda - Roth Capital

Great. That’s very helpful. And just as a quick follow up to that, as the fact that you have the Ukrainian production impacting your discussions with any prospective customers to any degree, I know that the current customers seem comfortable around it but any impact from prospective customer?

Dan Coker

Well, not really. In fact, there has been impact on our business. In fact, it’s kind of a fortunate -- unfortunate situation. Because of the stress of the conflicts in Ukraine, the Ukrainian economy and hence its currency have been under pressure. And the majority of our cost coming out of our European business in terms of cost goods is based in that local currency in terms of content. So we’ve actually had some pretty good look in terms of the gross margin improvements, some of what you see is an impact on our European businesses, cost advantage because of the fact that there is a conflict in Ukraine and there is price pressure on their currency.

But in terms of other customers looking at us, I don’t think there is any issue. To be honest with you, we’re continuing to look around the world for additional markets and one of those markets that we see is a very early stage developing market for the auto industry is Russia. So when we look at Russia now, we do have a slightly different view of that extension opportunity. But our current customers and the new customers that we’re currently quoting are not necessarily concerned about the fact that we are in Ukraine or not.

Matt Koranda - Roth Capital

Great. And really, quick as I could, anybody quantify the benefit of the gross margins from the weaker Ukrainian currency?

Dan Coker

Yeah, Barry, I’ll give that to you.

Barry Steele

And it’s about little under $1.5 million or around 50 basis points to 1%, somewhere in that range for the quarter, for the quarter.

Matt Koranda - Roth Capital

Great. Thanks guys. I’ll jump back in queue.

Dan Coker

Hi. Thanks a lot, Matt.

Operator

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

Steve Dyer - Craig-Hallum

Dan, very good morning nice quarter.

Dan Coker

Good morning. Thank you sir.

Steve Dyer - Craig-Hallum

Dan, you’ve historically been, I guess, reluctant to kind of raise the gross margin bar. And I understand sort of the conservatism there but as I look at the moving parts, the higher margins CCS business is growing significantly faster than any other piece of the business you’ve got. You got the Chinese facility which will only get better as we go along here. I mean is 29% and 30%, the way to think about it plus it sounds like it was impacted by 63 bps in the quarter. I guess maybe a little more commentary in that going forward?

Dan Coker

Sure. Steve, well yeah, any business game plan has to start with a long-term strategy. Our long-term strategy when we consolidated two different companies, three years ago and we were round up with business that had operating gross margins around 24%, we set a target for ourselves to try to achieve 28%. After three years of hard work by a lot of people. We just about hit that threshold and we might have actually because of the lot of variety of reasons been able to slipup. Now we believe we’re close to saving. We’re a 28% gross margin company. Another couple of quarters of this type of performance and will be confidently saying we’re in the 28% range and our new target range will be as you’ve heard me talking today in that 28% to 30% range.

So those of you who are taking notes. We're not quite declaring victory but we certainly see clearing sky ahead of the summer gross margin range. And there are lot of contributing factors to that. Many of those which are result of hard work, a couple of them are fortuitous us impacts of things that we can control like the Ukrainian currency. But we still see solid fundamentals generating something in that 28% to 30% range.

Steve Dyer - Craig-Hallum

Okay. Great, thanks. And then Barry, how much you are able to quantify kind of the gross margin tailwind that Shenzhen provided this quarter and maybe even comparatively to our last quarter?

Barry Steele

We’ve not given our operating results for the individual locations nor do we plan to. That is essentially, currently a component source location, we don't even manage that to P&L in the way that we could be able to quote that to you. So it’s not something we prepared to get into.

But I would say in general, we’ve been able to achieve our goals of being able to provide ourselves with very important sophisticated electronic control modules for all of our own internal consumption. We’re beginning to hit those goals and in fact, we’re actually ahead of those goal slightly out of our Shenzhen facility and also now beginning to see positive impact from our new electronics been so down, sorry, Acuña, I’m heading to Acuña next week, So I’ll be able to say that straight but we hit in Acuña as well.

Steve Dyer - Craig-Hallum

So is there -- are there more synergies, I guess, to come from there or have you kind of realized from an internal buy perspective kind of all the benefit that you’ll see?

Barry Steele

There’s lot more volume that we can get into that facility.

Dan Coker

Actually, the strategy of course is to provide all of our own internal components and that gets us somewhere in that $75 million to $100 million buy rate from our own facilities. So there is a lot of room for us to go over the next two to three years as we continue to push further into the market with our own components.

Steve Dyer - Craig-Hallum

Okay and then, and when would you expect external revenue potentially, is that a ‘15 -- kind of ‘15 news?

Dan Coker

But we haven't made any announcements on where we are. But we are now very actively engaged with outside customers as well because we believe that the fairly unique facilities and equipment and people that we put in place will be quite appealing to certain characteristics. And as an example, the automotive industry where we think we’ll be able to secure some pretty significant external business as well.

We are being well received by the market and they -- we've been getting very good reviews of our facilities as our automotive customers have come in and done their initial quality audits and process audits to our facilities.

Steve Dyer - Craig-Hallum

Okay. Housewarming -- housekeeping question, Barry, you had indicated there was a one-time charge for purchase accounting in OpEx in Q2 that would repeat in Q3. How much was that exactly?

Barry Steele

Yes, $0.5 million, this is -- we had a value of the backwater for Global Thermoelectric, and it was about $900,000. Half of it was amortized in this quarter, half will be amortized in the third quarter.

Steve Dyer - Craig-Hallum

Was there anything one time in nature that increased the operating expenses this quarter or is this just short of the new run rate, maybe less than 500K, given Global?

Barry Steele

You asked is there anything that increase, I think the main one-time, actually the benefit in this quarter is the currency. It continues to be a good new for us. I wouldn’t -- there was obviously nice things we said, one-time negative things which were primarily the purchasing accounting items but other than that, I think it is significant.

Steve Dyer - Craig-Hallum

So this should sort of be the news operating expense run rate going forward?

Barry Steele

That’s correct.

Steve Dyer - Craig-Hallum

And then last question and I’ll hop back in the queue, just kind of touching on Ukraine, it sounds like chance of disruption there as very, very remote. But if I’m correct, you guys have built a 100% or so redundancy -- can very quickly, if you needed to in your other facilities. Is that right?

Dan Coker

We certainly have taken steps and measures to try to bolster our ability to satisfy our European customers’ needs. That includes new capital allocation and capacity allocations as we see that are needed in the future. So we believe we have a reasonably conservative approach to what could happen but we again based on all the information we have and I have a nearly daily call with folks about how things are going in Ukraine. But it’s something that we feel comfortable with our position at the moment, the situation changes as those of you who subscribe to CNN know, things change there everyday.

It's not a good position for any people or economic regions to be under where you have rebels or terrorists or Russian separatists or whatever you call them causing trouble in the region. So we are far from the conflict. We believe that we are currently in a good, stable solution. We have taken all rational and reasonable measures to protect our customers flow material and we are continuing to monitor the situation. So I think we’re okay.

Steve Dyer - Craig-Hallum

Thank you.

Dan Coker

Thank you sir.

Operator

Our next question is from Gary Prestopino with Barrington Research. Please proceed with your question.

Gary Prestopino - Barrington Research

Good morning. Can you guys hear me because I’m on the cellphone?

Barry Steele

Okay. We hear you.

Dan Coker

We hear you just fine, Gary.

Gary Prestopino - Barrington Research

Good. I’m new to this. First of all, could you give a breakdown of the revenues by category like seat heaters and heated and cooled, is that something you get out of Q?

Barry Steele

It’s in the earning release.

Dan Coker

Actually, it’s in the earning release.

Gary Prestopino - Barrington Research

It is. Okay. I must (indiscernible) on all my pages. I will go back and check that. And then just getting back to this whole issue with the gross margin. Could you just elaborate on why couple of quarters ago, was it 26%, 27% rate or they drop down, was it something -- is it actual auto production or something to do internally with your what you were doing?

Barry Steele

There are three main factors, Gary. One is to simply covering fixed cost. We have much higher revenue than we did three quarters ago. So that helps. Secondly, we have the benefit from the currency we mentioned. And thirdly, the mix, if you see again the kind of proceeds is gone now. It is the higher number than we see in this quarter for seat heating and it has been a help for us. So it’s a combination of thing.

Dan Coker

It is a combination. But if you’ll think -- again I hate to keep relying and hammering on our strategy. But one of our kind of over writing strategies within the companies are to expand the availabilities of our more technologically advanced products like the climate control seats and heat and ventilated systems over the more commoditize seat heater business and we've been quite successful at that in terms of gaining access to new customers through our new alliance with our more broadly global company.

And we’ve been quite pleased with response to that. If you’ll note, the first quarter we said that was the first solid quarter where we had a full quarter where all of our revenues for the CCS products were higher than the traditional more commoditized heater business and that trend continued in the second quarter and we're working very hard to maintain that proportional relationship.

Gary Prestopino - Barrington Research

Okay.

Bud Marx

Hey, Dan, this is Bud. The second part of our long-term strategy which you talked about is to acquire new business, growth business and keep our operating expenses growing more slowly. So we kind of grow into a more efficient operating model and that part is also coming on.

Dan Coker

That’s okay.

Gary Prestopino - Barrington Research

And then I just reiterate mostly hear you that you said you’re comfortable with the $200 million plus run rate over the next couple of quarters?

Dan Coker

Yeah. That’s definitely. One of our key goals is to try to establish kind of a new plateau of revenue for our business. We worked very hard to get in position to do that. The team is ready. We’ve expanded our facilities in China and in Mexico. We've added facilities in China for electronics and Mexico for electronics businesses. We’ve also acquired a very good business in Global Thermoelectric out of Calgary, Canada. That will also be contributing and continuing to grow as a business as we move forward. So yeah, we like that $200 million run rate right now.

Gary Prestopino - Barrington Research

Okay, thank you.

Dan Coker

Thank you, sir.

Operator

Our next question comes from Frank DiLorenzo with Singular Research. Please proceed with your question.

Frank DiLorenzo - Singular Research

Good morning and thanks for taking my call. Good quarter. I had a question regarding your products in the automotive market. You seem to have done a good job of penetrating at the midrange of the automotive space. I was wondering what your thoughts are longer-term on making more inroads into the lower end of the automotive market for your products? Thanks.

Dan Coker

Sure. Well, we have three product categories that we’re focusing on the main seat comfort business. The high end vehicles, the more luxury or the consumer who is very keenly interested in comfort and convenience, we target our heated and cooled and heated and ventilated business. These products are very sophisticated. They're technically complex. They try to deliver and they also provide a very, very good time to comfort type of ratio in terms of cost.

For the entry-level product lines, we have seen the seat heater business now migrate pretty far below the average midrange of vehicle lines. So we’re beginning to see some of the entry-level businesses cooled and heated seat elements as part of our business and we continue to try to work with our customers to find adaptations of those products to go down. Broadly, we also see that the kind of the broader midrange market for us will be a very kind of an ideal sweet spot for us for our heat ventilated product which is kind of a step between the heat cool and the basic heated business.

So we don't really have a hard plan to go into the very low level -- entry-level automotive market but we do have plans to saturate and spread out as much of the upper end and midrange market as possible and that does take us down into a little bit of the entry-level market with our heated seat product.

Frank DiLorenzo - Singular Research

Okay. Great, just one other quick question. Europe seem to be pretty strong this past quarter. Do you have any insights to longer term if this is the trend that is going to continue or this maybe is one-time thing you’re seeing in the middle of the year. What are your thoughts there? Thanks.

Dan Coker

Sorry, your phone kind of blurt on me and I didn’t hear what you are…

Frank DiLorenzo - Singular Research

I apologize. My question was if Europe seem to be very strong in the second quarter, wondering if that’s temporary. Do you think this is start of the more positive trend for the Europe team based….

Dan Coker

Thank you. Thank you for repeating. I’m sorry. I have heard some of the dialog. Sometimes I listen that way as well. We’ve seen some very good response out our European unit. The market is beginning to turnaround there. We happen to be very strong in the German market, which has a very high concentration of global luxury car manufacturers and they are continuing to have a very good year selling their products out of Europe into North America and into Asia.

Broadly throughout Europe, we are also very pleased with the response of the rest of Europe to our product offerings. And we’re beginning to see new market penetration into some of the new areas that our alliance in our full market product assortment has allowed us to pursue in the European market for the past couple of years. So we think that is the beginning of a kind of a longer-term trend and we do believe that the European economies are beginning to recover a bit and the automotive sector as well.

Frank DiLorenzo - Singular Research

Thanks.

Dan Coker

Bob, do you see more questions? Bob?

Operator

I am right here. Our next question comes from Chris Van Horn with FBR Capital Markets. Please proceed with your question.

Chris Van Horn - FBR Capital Markets

Good morning. Thanks for taking my questions. Would you mind just give me sort of an update on kind of the new products strategy around just kind of the steering wheel, armrests, the jewel box? And then just kind of follow-on on that, any new opportunities you’re seeing for the seats maybe moving further back in the vehicle even to the third row or maybe any other applications outside of a passenger vehicle for your seating products? Thanks very much.

Dan Coker

Sure. Well, our strategies for new products are to try to find applications where either our existing technologies or our skills and thermal system management would be advantageous to our customers. We’ve taken the basic seat heating and cooling technologies and adapted that to heated and cooled cup holders. We’ve also adapted it to cold storage bins. We have very good customer, sales revenue right now and new customer, that’s inspection or approval process undergoing globally for those products.

We are seeing a very positive response for our new heated steering wheel product and of course as a result of the fact that we’re now resident in the steering wheel area, a lot of people are asking us for a heat cooled or heat wind steering wheels. So our advanced teams are working on that as well. But in general, we try to find something that we can do that would help our customers sell their products or make their products more comfortable or convenient for the consumer. And that is part of our strategy to try to expand the range of products.

Chris Van Horn - FBR Capital Markets

And then just quickly if you could, is there any new opportunity for the seats? They are thinking about like I said maybe moving further back in the vehicle or any other applications out there for the…

Dan Coker

Yes, sure. I'm sorry that is a part of a normal kind of the cascade of technology down to the automotive world. We originally designed the seat heating ventilated and cooling systems for the front seats, but we are seeing many programs, now forgot how many it is, we have I think over 10 programs where we also offer the heated and cooled seats in the rear seats of many cars.

The new Range Rover has all seat options available with heating and cooling in it and many of our traditional luxury and midrange vehicles are now offering heat developments in the front and rear seats. So that trend is very good for us. We are also continuing to look even outside of the traditional automotive market for applications for seat heating and cooling, including some industrial applications and other forms of transportation. So as we continue to push into these new markets, we continue to stress not only existing technologies and product packages but also new things as well.

Chris Van Horn - FBR Capital Markets

Great. Thanks, again.

Dan Coker

Thank you, sir.

Operator

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

Steve Dyer - Craig-Hallum

Hey, guys, just a couple follow-ups. Dan, can you give any commentary maybe on now that you digested global first quarter here kind of what you found and sort of it did I guess 8 million in change this quarter, but any thoughts on revenue contribution from that going forward?

Dan Coker

Yeah. We actually haven't tried to digest them at all. What we’ve done is we made an investment in a very good solid company that exploits thermoelectric technology and has deep relationships in the oil and gas and other industrial markets providing what we would call remote power generation. So what we’re following out there was a very good team of people, that’s a number one thing. We always invest in businesses based upon what we see in terms of people. They have lots of very good solid products that had been tested and had been delivered with extremely high levels of quality and endurance in a very tough environment.

The oil and gas field businesses are notoriously difficult to survive the environment. And we see an opportunity for business that currently is at a say low-to-mid $30 million annual run rate. That has the capacity to expand with a little bit of help in terms of technology, global reach and even perhaps a little capital investment. So we see a very good team, a very good product line, a very good market and we think that that's going to be a good path for growth for our combined companies going forward.

Steve Dyer - Craig-Hallum

Great. That’s a good segue. So speaking of capital investments, it’s been a CapEx heavy a couple of years as you guys invest for the growth that you are experiencing. What’s sort of a normalized number? Or how do you think about that CapEx number this year and then maybe even next year, just the ballpark?

Dan Coker

Well, I think that our current run rates, we did invest a lot of money in the former W.E.T. businesses. As we came in they were pretty tight to capacity and we had very strong growth goals in mind for all the businesses, including bringing into our own manufacturing facilities some of the previously outsourced materials that we used to market for the old Amerigon sites.

So we cheerfully invested in these businesses and expanded the capacities to be able to support our global strategies of growing the business at least 10% to 15% per year. So, that has run our capital rate at a slightly higher than normal rate for the old Amerigon, but it’s a very sustainable rate and we’re quite pleased with that rate. And we see somewhere between that $25 million and $30 million as a good solid rate for us.

Steve Dyer - Craig-Hallum

All right. Thanks guys.

Operator

Our next question comes from Eugene Fox with Cardinal Capital Management. Please proceed with your question.

Eugene Fox - Cardinal Capital Management

My questions had been answered. Thank you.

Michael Mason

All right. Rob, we are running long on time and we don't want to halt any questions. If anyone else has any additional questions, please feel free to dig through the press release and the 10-Q will be available very shortly. If anybody has any questions, refer to that. Rob, any last question?

Operator

Yes. We have a question from Josh Goldberg with G2 Investment Partners. Please proceed with your question.

Josh Goldberg - G2 Investment Partners

Hey, guys, good morning. Just a couple quick ones. One, on the heated steering wheel, obviously 40% growth seems like you’re gaining some traction there. Could you give us any visibility on? Do you expect that growth to continue? And how big the heating steering wheel opportunity for you in the back half of this year and into ’15? And I have a follow-up.

Dan Coker

Yeah. We are actually -- we’ve been working very hard on the kind of an innovative approach to heating steering wheels. It's been reasonably well accepted in the marketplace. We’re quite pleased with the response to an adaptation of our designs. We see this as a very big opportunity for the company. It also means us to a heated vent or heated cooled opportunity as we go forward. So we are putting some resources into better understanding that opportunities of business, but we see it being a big new product for us.

Josh Goldberg - G2 Investment Partners

So we will continue to grow here, it’s not kind of a one-time 40% grower?

Dan Coker

We certainly hope. Well, I don't know that we’re going to see it’s going to grow 40% quarter-over-quarter, but it is an area that adds a new element of business opportunity for us and we plan to exploit it to as close to saturation point as we can get it in the market.

Josh Goldberg - G2 Investment Partners

Okay. And then obviously climate control seats continue to grow nicely, and I assume that there is a combination of more designs where your climate control seats are installed as well as some of your seat heater designs moving to climate control seats. Can you talk a little about that in terms of how much things coming from just open space where you’re getting climate control seat adoption and how much is coming from moving from the seat heater to CCR side?

Dan Coker

Well, actually that’s a very good part and another key element of our strategy is that we have those three basic categories. We have the basic heater element. We have the heat vent as a midrange product and the heat cool actively heat cooled businesses are high end. For us it's and for our customers, we believe there is a natural evolution for particularly midrange customers, midrange product customers as that have been offering a seat heating element only. The natural transition or segue there is to move and add additional features and they can add a ventilation design to the existing seat heaters and provide a dramatic improvement in comfort and convenience to consumer.

So we believe that over time the traditional, particularly the up middle market customers will convert over from a pure seat heater over to the heat vent business. Many of the heat vent customers also likely will continue to convert over to heat cool, but heat cool is continuing to grow on its own, as more and more of the high end and luxury focused customers continue to adapt to kind of the very high end customer comfort features.

Josh Goldberg - G2 Investment Partners

Assuming you know car sales were roughly flat even in the next year or two, you could generate growth as people migrate from heated seats to the climate control? I think the difference is what like 2 to 3 extra pricing give or take.

Dan Coker

Yeah, that’s true, and we plan to continue generating some of our targeted 10% to 50% per year growth by this conversion. We are working very hard to make that -- make that happen.

Josh Goldberg - G2 Investment Partners

Okay. Just two last one for me. One is on the tax rate, any sense on obviously a little bit higher than last year. Is there a number that you feel comfortable with kind of going forward as tax rate to the company?

Barry Steele

Yeah, we have some extra charges in this quarter to catch up on some audits that we are working. The actual rate is forecasted closer to 27%, maybe slightly lower.

Josh Goldberg - G2 Investment Partners

For the year or just for the remainder of the year-over-year?

Barry Steele

For the year.

Josh Goldberg - G2 Investment Partners

So it would be lower than 26% and to the rest of the next two quarters?

Barry Steele

Yes, it’s likely be a little bit lower than 27%.

Josh Goldberg - G2 Investment Partners

Last one for me. I mean, obviously, it’s been a great year for the company and shareholders have been happy. And I just want to kind of -- I don’t want you to get too aggressive, but I feel like you said new kind of level of growth and I know 10% to 15% is your goal, but it doesn’t seem like you still on your growth for’15, I having such a good’14. So I feel like you talked about another strong double-digit year in ’15. Just wanted to get your thought on that with some of the new products you have and obviously, the opportunity in Global Thermoelectric?

Dan Coker

Sure. Well, that’s actually something. Growth comes in ways. You work very hard and some of the things you work on kind of come out at a very planned and orderly fashion. 2013 and 2014, we’ve seen lots of our hard work done in the previous three years come to fruition at kind of a very tightly focused spot. We’re very happy with that. We've been able to manage that so far reasonably well, even running our factories at pretty close to overheated range as we continue to have to look at our expansion plans as we go forward.

We continue to think of our business as something that we want to grow 10% to 15% a year. We will not be growing our business at the 20% to 25% a year run rate that we’re at today, but we still see a very good solid business. We’ve had a very good half-year so far. We haven’t had a full year. We’ve had a good half-year and we think that year has established us at a new plateau of $200 million a quarter.

That's very good for us. And we want to see that solid growth of at least 10% to 15% in all segments continue for ‘15, ‘16 and beyond.

Josh Goldberg - G2 Investment Partners

Got you. And kind of last for me if that’s okay. Was there anything kind of one time that guide your revenue to $206 million this quarter and then it will proceed down in the back half of the year? Usually, your back half of the year is reasonably good in terms of growing sequentially.

Dan Coker

Yes. We certainly don't see our business going down in the second half of the year. There are still some opportunities for us and we plan on as you kind of think you might have seen from our earnings release. We have indicated that we believe that we’ll finish the year in excess of 20% over 2013. So, we do still see a very good solid second half and that is the basis for our going forward in ’15 and ‘16.

Josh Goldberg - G2 Investment Partners

Got you. Okay. Congratulation and thanks again.

Dan Coker

Thanks a lot.

Operator

(Operator Instructions) Our next question is from Jeff Bernstein with AH Lisanti. Please proceed with your question.

Jeff Bernstein - AH Lisanti

Congratulations from me as well on a good quarter. Just a couple of quick ones. You cautioned a little bit last quarter around the Ford F-150 transition. Just wanted to hear about what the impact was if any in this quarter? What do you think it might be for next quarter?

Dan Coker

I think there was essentially no impact in the second quarter. We were cautioning the fact that that might impact the third quarter and maybe the fourth quarter in a slightly different way. So the question was we’ve had a very strong first quarter in the F-150. That business continues to be strong, but there is a major changeover coming and is beginning now actually.

So we will not know how that will go until they start the lines all back up at full capacity and full speed and the new product hits the market and that will be happening during the third quarter.

Jeff Bernstein - AH Lisanti

So far so good.

Dan Coker

Right.

Jeff Bernstein - AH Lisanti

And just with regard to Europe, I think we’ve talked about in the past and you alluded to this in your comments that a lot of your European business has been for the luxury exporters and actually does not end up getting purchased in Europe. Can you size that at all and has that changed much at this point?

Dan Coker

Okay. That’s a very good question and I may have misled the world here. The primary luxury car producers in Europe are concentrated in Germany and something slightly under 50% of their production gets exported. So somewhere between 50% and 60% of the products that they produce in Europe are sold and consumed in Europe. But a very healthy margin of percentage of their business goes oversea targeting China and North America in particular.

And so we benefit from their brand names being very strong as a global brand as opposed to just being a European brand where they are limited to selling in the European market. There are other customers that are much more European centric. These companies are primarily in France and Italy and England. So but we do have a strategy to try to increase our penetration at the non-German markets as well.

Jeff Bernstein - AH Lisanti

So, at this point the headline European number that we see. We should probably thinking about maybe 60% of that actually being consumed in Europe?

Dan Coker

That would be I think a good reasonable safe number, yes.

Jeff Bernstein - AH Lisanti

Okay. And now you did allude to that you think you’re getting some traction with some of those Italian and French manufacturers, but that has not change things significantly at this point?

Dan Coker

We’re beginning to see some progress. So we’re beginning to see some revenues from some of these markets. More significant revenues outside of Germany than we ever had in the past.

Jeff Bernstein - AH Lisanti

Terrific. Thanks so much.

Dan Coker

All right. Thanks a lot.

Operator

Our next…

Dan Coker

Rob, we better be coming to the end of the calls because we don’t know no much more.

Operator

Our next question comes from Michael Schneider with Artisan. Please proceed with your question.

Dan Coker

Okay.

Michael Schneider - Artisan

Good morning.

Dan Coker

Good morning.

Michael Schneider - Artisan

Can you just update us on your progress in -- with German OEMs, you’ve laid out before that there is big opportunity to take those mid range customers into the actively cooled area? Could you update us on that?

Dan Coker

Well, for us the process is gaining the confidence of the teams, working with the advanced engineering and product planning teams, and providing technical support, components, prototypes, testing that helps them see the advantages of our products over any alternatives.

We have a very solid team of engineers and technical support people working with these German manufacturers. People who have in many cases 15, 20 years of experience working with the same companies.

So our progress is we’re very pleased with the response and the reception that we’re receiving, and we’re getting more and more engaged with these teams and explaining a very broad and technical product to a bunch of very keenly technical consumers.

So I'm happy with the progress. But what my job is actually to worry about everything and to be sort of impatient. So I would have rather seen some more practical response, but we are making very good head roads and we have continue to build very good relationships and very good working knowledge with each of these key customer targets.

Michael Schneider - Artisan

Would you expect to announce a platform win or new OEM this area?

Dan Coker

I'm an optimistic kind of guy. I don't know that we would see any announcements this year because the typical response in the industry is our customers do not allow us to announce a decision that they’ve made until their product is coming to market.

And that process does take in many cases, a couple of years to get ready. So we --I am not going to tell you whether we are going to make an announcement this quarter or third quarter out. But we are working very hard to try to gain that, I would say new penetration.

Michael Schneider - Artisan

Well, let me rephrase that, would you expect to win whether you announce it or not, would you expect to win a platform or new OEM in Germany yet this year?

Dan Coker

I do expect to win European contracts for all of our product lines and I don't really give the teams a time target to achieve it. I give them long-term strategies that we want to achieve and I give them whatever resources necessary to make that happen.

Michael Schneider - Artisan

Thank you.

Dan Coker

Thank you.

Operator

There are no further questions at this time. Would you like to make any closing remarks?

Dan Coker

Yes and certainly would. We have finished the first half of a very good year. Our revenues have [grown] very, very nicely and we've had some very strong progress across the Board in all segments of our business.

We also have added a new team of people, a new branch of products and a new market for us with the acquisition of Global Thermoelectric. We would like to welcome them and their teams to our family.

We have 8,400 people working worldwide including thousands of other people at all of our partners and vendors who help us support the business. These folks have worked very, very hard in the past few years and certainly in the last six months to achieve these results at very high and I get the pleasure of sitting here and telling you about. So we're very pleased and very proud of the performance and we are now challenging them to finish the year strong and get ready for 2015.

So we would like to thank everyone for your time and attention, and we invite you to come back in about 90 days to hear how things are going in the story of Gentherm. Thank you very much.

Operator

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.

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