Gentherm Incorporated (NASDAQ:THRM) Q4 2023 Earnings Call Transcript

Gentherm Incorporated (NASDAQ:THRM) Q4 2023 Earnings Call Transcript February 21, 2024

Gentherm Incorporated beats earnings expectations. Reported EPS is $0.9, expectations were $0.54.
THRM isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings. And welcome to the Gentherm Fourth Quarter and Full Year Earnings 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, Yijing Brentano, Senior Vice President of Strategy, Corporate Development and Investor Relations for Gentherm. Thank you. You may begin.

Yijing Brentano: Thank you. And good morning, everyone. And thanks for joining us today. Gentherm’s earnings results were released earlier this morning, and a copy of the release is available at gentherm.com. Additionally, a webcast replay of today’s call will be available later today on the Investor Relations section of Gentherm’s website. During this call, we may make forward-looking statements within the meaning of federal securities laws. Statements reflect our current views with respect to future events and financial performance, and actual results may differ materially. We undertake no obligation to update them, except as required by law. Please see Gentherm’s earnings release and its SEC filings, including the latest 10-K and subsequent reports, for discussions of our risk factors and other risks and uncertainties underlying such forward-looking statements.

During the call, we may discuss non-GAAP financial measures as defined by SEC Regulation G, including certain pro forma measures related to the Alfmeier acquisition. Reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures are included in our earnings release and investor presentation. On the call with me today are Phil Eyler, President and Chief Executive Officer, and Matteo Anversa, Chief Financial Officer. During their comments, Phil and Matteo will be referring to a presentation deck that we have made available on our website at gentherm.com/events. After their prepared remarks, we will be pleased to take your questions. Now I’d like to turn the call over to Phil.

Phil Eyler: Thank you, Yijing. Good morning, everyone. And thank you for joining us today. Let me start with slide 4 for our 2023 highlights. I’m extremely proud of what the Gentherm team achieved in 2023 despite a continuously challenging operating environment. Demand for our thermal comfort, massage and lumbar solutions continues to accelerate. We secured new Automotive business awards of $900 million in the fourth quarter, which brings us to $2.6 billion in 2023, setting a new quarterly and annual record. Our strong award momentum continued to drive revenue growth. We achieved record revenue for Automotive, Medical and total company for the full year of 2023. In addition, we also achieved record annual revenue for climate controlled seats, seat heaters and steering wheel heaters in 2023.

It’s worth noting that, adjusting for the impact from foreign exchange, the UAW strike and one-time recoveries, our core thermal product lines including CCS, seat heaters and steering wheel heaters, outperformed the production in our relevant markets by nearly 400 basis points in 2023. On the cost front, we continued our disciplined approach to managing operating expenses. We’ve reduced adjusted operating expense as a percent of revenue from 20% in 2018 when we launched our first fit for growth initiative to 16% in 2023. We delivered the highest annual adjusted EBITDA in company history, an increase of more than 30% compared to 2022. And we generated nearly $120 million of cash flow from operations and repurchased over $90 million worth of Gentherm shares.

The new business wins, record revenues and key product lines, improved profitability and solid cash flow generation demonstrate strong execution by the Gentherm team. Now turning to slide 5. Let me highlight a few key pillars that drove our record $2.6 billion in new Automotive awards in 2023. First, at the top left of the slide, our core thermal products continue to expand globally, particularly in high content product category categories, such as CCS and hands-on, detection-enabled steering wheel heaters. We won awards in 2023, which spanned across all ranges of vehicles from the likes of BMW, Cadillac, Mazda, and Li Auto and BYD in China. Second, in pneumatic lumbar massage, we are growing our market share and winning awards at a rate that is well above our original expectations.

We have won conquest pneumatic lumbar massage awards with BMW, General Motors, Jaguar Land Rover, Li Auto, Mercedes Benz, Stellantis, Volkswagen, and one of the largest global EV manufacturers. These wins confirm the strength of our combined product offering, leveraging the Alfmeier acquisition. It’s important to point out that a growing number of OEM customers want the combined thermal and pneumatic lumbar product, especially from an independent supplier who integrates with many seating providers. This is one of the unique value propositions that Gentherm offers. Let me remind you of a few key combined awards that we have won since the beginning of 2023. We won a highly desirable and contested award with BMW for CCS, seat heat and pneumatic lumbar and massage for their next generation electric and ICE X series SUVs, which include the X5, X6 and X7 and the iX5, iX6 and iX7.

We won a combined CCS, seat lumbar and massage whole system award with Jaguar Land Rover for their new Jaguar BEVs. We’ve significantly grown our contents with one of the largest global EV manufacturers, winning steering wheel heat, seat heat, CCS and pneumatic lumbar awards across multiple car lines. Finally, we won three CCS awards with Li Auto on their plug-in hybrid L9 nine and two future electric SUVs. In addition, we won two combined CCS and pneumatic massage awards from Li Auto on a future electric and plug-in hybrid SUV. Moving to the bottom left on slide 5, our proprietary innovations such as ClimateSense and WellSense, which I will elaborate more on the next slide, has helped us to increase content per vehicle. For example, our ongoing ClimateSense development project with Honda has demonstrated significant savings in HVAC energy consumption by combining seat heat, steering wheel heat and interior heat.

As a result, Honda awarded Gentherm multiple EV programs that include both heated interior solutions and our electronic control units. As we shared on the last earnings call, we won our first multifunction electronic control unit award from General Motors. And today, I’m pleased to announce one of the most important strategic awards in Gentherm’s history. In the fourth quarter, we won a break-through scalable ClimateSense software award for nearly all future architecture General Motors ICE and electric vehicles. Through this award, Gentherm’s proprietary ClimateSense software features will be enabled across all General Motors vehicles equipped with seat heat, climate controlled seats and steering wheel heating. This will allow Gentherm’s intelligent software solutions to bring increased comfort control and energy efficiency.

Let me summarize my discussion regarding our award momentum by reminding you of a key differentiator for our company. Gentherm is an independent partner that can cooperate with any combination of the 50-plus vehicle OEMs and 30-plus seat manufacturers globally, including those that are vertically integrated. To create truly differentiated solutions, our unique value proposition resonates with customers as demonstrated by our win rate of approximately 80% of our quoted pursuits for thermal and pneumatic solutions in 2023. Turning to slide 6, let me share a little more on how we’re leading the industry in key innovations. Starting with ClimateSense, the world’s first scalable software driven, automotive microclimate solution. It uniquely delivers personalized thermal comfort for each occupant in the car, by coordinating localized convective, conductive and radiant heating and cooling to provide optimal comfort, while also reducing vehicle energy consumption and extending range.

ClimateSense software seamlessly integrates with vehicle and HVAC controls to optimize the temperature for passengers individually. In addition to ClimateSense, our advanced engineering team continues to integrate our thermal products with lumbar and massage products to create innovative, full system solutions. The combination of heating and cooling the body with massage, including our industry’s first proprietary pulsating massage, Pulse A, is opening vast opportunities for solutions that promote health and wellness experiences. Also alertness enhancements and physical recovery in the car. As a result, at the Consumer Electronics Show in January, we unveiled WellSense, a software-defined consumer experience that delivers customized, in-cabin comfort sensations that promote alertness, wellness and wellbeing.

It was great to see some of you at our booth, experiencing WellSense firsthand. The technology leverages science-based physiology research as the foundation for proprietary software that orchestrates heating, cooling, lumbar and massage comfort effectors. The WellSense software development kit, which includes over-the-air feature upgrades, can be integrated into any software-defined vehicle architecture. Brands are shifting towards consumers using their vehicles as a third living space outside the home or office, offering an additional revenue opportunity for OEMs to address consumer health and wellness needs. The launch of our proprietary WellSense is the next evolution of our software-enabled technologies, which positions Gentherm at the nexus of health, wellness, comfort and energy efficiency.

Lastly, I’d like to officially introduce our next generation integrated thermal, lumbar and massage hardware system, ComfortScale. ComfortScale is a modular solution, which combines several distinct thermal and pneumatic comfort components into one integrated system. We believe ComfortScale will drive significant performance improvement for our customers, as well as labor costs and logistics reduction for the OEMs and seat manufacturers. ComfortScale can be integrated with any phone and with any seat. It’s adaptable for all OEMs and all tier 1 seat manufacturers. It’s scalable from an entry level lumbar and seat heat system all the way to a high-end Pulse A massage and CCS system. I’m proud of the Gentherm technology team for bringing to market innovative, differentiated, proprietary solutions such as ClimateSense, WellSense and ComfortScale.

These innovations are expected to significantly increase Gentherm’s content per vehicle and position us to be a strong contributor to software defined vehicles of the future. Now turning to our Q4 Automotive highlights on slide 7. In the fourth quarter, we launched our automotive solutions on 21 different vehicles across 13 OEMs, including BMW, Ford, Geely, Toyota and Volkswagen. We continue to see expanded application of our CCS solutions. In the fourth quarter, our CCS solutions were launched on the Ford Ranger, Mazda CX-90, Toyota Tacoma, and a BEV truck with one of the largest global EV manufacturers. I’m pleased to share that Gentherm’s ClimateSense was named a finalist for the prestigious 2023 Automotive News PACE Awards, with winners to be announced in April of 2024.

In the fourth quarter, Gentherm was also named a winner of the Business Intelligence Group 2024 BIG Innovation Award for our ClimateSense technology. And ClimateSense was also recognized as a winner of the 2023 Reuters D.R.I.V.E. Honours in the reducing emissions category. These awards are clear recognitions of the impact ClimateSense can deliver through personalized comfort and reduced vehicle energy consumption. I’d like to congratulate the Gentherm team for receiving these coveted recognitions. Now on slide 8, where, as I mentioned, we secured a quarterly record of $900 million of awards in automotive in the fourth quarter. We received 8 steering wheel heat awards across seven OEMs. Importantly, we won hands-on detection-enabled steering wheel heater awards with BMW, Geely, General Motors, Li Auto and Nissan.

We won several CCS awards in the quarter. Of note, we won the new Hyundai GRANDEUR, Hyundai QV, the Kia EV5, Nissan X-Trail, a midsize crossover for one of the largest global EV manufactures, a new Great Wall plug-in hybrid SUV and the new Rivian electric delivery van. I’m also pleased to share that we’re growing our business with our largest customer, General Motors, winning a highly contested CCS and multifunction electronic control unit awards for their next generation truck platform, including the Chevrolet Silverado and GMC Sierra. In addition, as I mentioned earlier, we also won our first ClimateSense software award for nearly all future architecture General Motors ICE and electric vehicles that will enable ClimateSense control thermal seeding and steering wheels.

This is truly a breakthrough win for Gentherm that showcases the value our proprietary software provides for our customers. With software-defined vehicles expected to grow in the global market in the coming years, Gentherm is perfectly positioned to increase hardware and software content to enable greater energy efficiency, personalization and novel comfort and wellness experiences. These wins confirm our strong market leading position in thermal and pneumatic comfort. I’d like to recognize the global Gentherm team for securing a company record of $2.6 billion of new automotive business awards in 2023. Now before I discuss the Medical highlights, I’d like to provide a brief update on our battery performance solutions. If you recall, Gentherm invented an innovative and proprietary tinfoil flexible circuits product line can be used as either a battery cell heater or a cell connecting device.

However, in the past year, we have not secured any new cell connecting awards based on the mechanical structuring process. There are two fundamental reasons for this. First, OEMs and battery makers are becoming more conservative in both technology selection and pace of production for EVs. Customers are choosing to remain with the current chemical etched and wire-based connection solutions, despite the environmental and technical benefits of our technology. Second, where we have had the opportunity to win, the margin and return profiles would have been well below our company business case requirements. Consequently, we have decided to pause our pursuit of cell connecting opportunities for the foreseeable future. Although we will continue to pursue select battery heating and cooling opportunities, we expect our VPS revenue to gradually decrease over the next few years.

We’ve reassigned the majority of our VPS resources to work on our unprecedented new business awards in thermal, pneumatic and electronics. Now let’s turn to slide 9 for a discussion of our Medical business. The Medical team delivered record revenue in 2023, with a strong finish in the fourth quarter, growing 15% year-over-year. In the fourth quarter, we added 26 new hospital customers in China, including Tongji, a top tier hospital. In the US, we successfully launched a group buy program with one of our key customers, Health Trust Performance Group. We were awarded Blanketrol system upgrades throughout their member hospitals in the fourth quarter. And in Europe, we’ve converted competitors’ convective warming accounts to resistive technology with our ASTOPAD as a result of increased demand for more sustainable solutions.

As we shared on previous earnings calls, we’ve adapted our go-to-market model in the medical business to leverage large partnerships, distribution channels, and white label opportunities. Consequently, we have reduced the size of our in-house sales team to improve our cost structure in Medical. We are laser focused on growing both the top and bottom line in this business. With that, I’ll turn the call over to Matteo for a little more color on the financial results and to discuss 2024 guidance.

Matteo Anversa : Okay. Thank you, Phil. Let me start on slide 10 and focus on the most significant items in our fourth quarter results. For the quarter, product revenues increased by 7% compared to the same period of last year. If we adjust for the impact of foreign exchange, our overall product revenue increased by 5%. Talking to the Automotive segment, Automotive revenues were $354 million, reflecting a 7% increase compared to the prior-year period. Adjusting for positive foreign currency translation and excluding the negative impact or the UAW strike, phasing out of the non-automotive electronics business, as well as one-time benefits from recoveries in both periods, Automotive revenues increased 10% against a difficult prior-year comparison.

Actual light vehicle production in our key markets of North America, Europe, China, Japan and Korea increased 13% year-over-year. It is worth noting that our regional revenue mix is different from the actual production market. Adjusting for our regional revenue mix primarily as a result of our smaller percentage of revenue from China, our revenue growth would have outperformed production growth by approximately 150 basis points. We saw growth in the majority of our product lines, and more specifically, our steering wheel heaters revenue increased by 22% compared to the prior-year period, due to higher demand of our hands-on, detection-enabled steering wheel heaters with VW and Buick. Automotive cables revenue increased by 15% due to higher volume with Bosch and Samsung.

BPS revenue increased 11% due to higher volume with Mercedes, primarily delayed timing from the third quarter, as well as higher price recoveries. TCS revenues increased by 6% due to higher volume with Hyundai Kia, BMW and the start of production at one of the largest global EV manufacturers. Seat heater revenue increased by 5% due to the ramp up on our electric vehicle for a global EV manufacturer in Europe and the ramp up of the MLA platform with GLR. Lumbar and massage revenue increased by 3% due to the start of production on vehicles with BMW and VW in Europe, as well as higher volumes with Ford. Cloud systems revenue increased by 1% due to the higher sales in Europe. Electronics revenue decreased 9% due to the phase out of non-automotive electronics, and other automotive revenue decreased by 8%, primarily due to the material inflation recoveries received in the prior-year period.

Turning to the Medical business. Medical revenues increased 15%, primarily as a result of higher Blanketrol sales in the US. Moving to adjusted EBITDA. Adjusted EBITDA in the quarter was $49 million, up from $41 million in the prior-year period. The adjusted EBITDA rate for the fourth quarter was 13.4%, the highest profitability rate in eight quarters. This compares to 11.9% in the year-ago period. The 150 basis points year-over-year improvement was driven by lower freight cost, fixed cost leverage on higher sales volume, productivity at the manufacturing facilities, and supplier cost reductions. These were partially offset by wage inflation and lower price recoveries relative to the prior-year period. It is worth noting that, sequentially, adjusted EBITDA margin rate rose 40 basis points, driven by higher manufacturing productivity and supplier cost reductions.

Operating expenses were $64.6 million in the quarter compared to $66.2 million in the prior-year period. If we adjust for acquisition, integration and restructuring costs, as well as non-cash stock compensation expenses in both periods, operating expenses were $59.5 million, up from $52.8 million in the fourth quarter of last year. The year-over-year increase of approximately $7 million was primarily driven by higher incentive compensation, partially offset by higher R&D reimbursement. Finally, adjusted diluted earnings per share in the quarter were $0.90 a shares compared to $0.47 per share in the fourth quarter of last year. Our effective tax rate for the year, adjusted by the impact of the medical goodwill impairment recorded in the second quarter, was approximately 23%.

This amount is lower than the guideline range of 28% to 32% due to the one-time benefit as a result of a tax entity restructuring in Europe that was implemented in the fourth quarter of the year. Moving to the balance sheet on slide 11. Our cash position at the end of the quarter was approximately $150 million, and our net debt stood at $73 million. Net debt increased sequentially by $20 million due to the $61 million share repurchases executed in the fourth quarter, partially offset by cash generated from operating activities. Our net leverage ratio was 0.4 at the end of the fourth quarter, well below our target of 1.5 times. Based on the trailing 12-month consolidated adjusted EBITDA ended December 31, we had $278 million of remaining availability in our line of credit, and the total available liquidity as of year-end 2023 was $428 million.

Now before I discuss the 2024 guidance, I would like to thank the global Gentherm team for the disciplined financial management in 2023 that allowed us to deliver a 200 basis point improvement in adjusted EBITDA margin rate year-over-year on a pro forma basis, despite significant inflationary headwinds. In addition, I’m proud of the team for the strong free cash flow generation, which enabled us to return approximately $90 million to our shareholders through share repurchases. Now let me turn to slide 12 for our 2024 guidance. We are expecting revenue to be in the range of $1.5 billion to $1.6 billion, assuming a euro to US dollar exchange rate of $1.1 and light vehicle production in our relevant markets decreasing at a low single-digit rate in 2024 versus 2023.

Adjusting for approximately 50 basis points of FX benefit year-over-year, the midpoint of our guidance implies an organic revenue growth rate of 5%. It is worth noting that if we exclude BPS, automotive cables and valve systems, our climate and comfort revenues are expected to grow more than 8% excluding foreign exchange. Our guidance assumes higher revenue in the second half compared to the first half as a result of the timing of new program launches. Adjusted EBITDA margin rate is expected to improve to 12.5% to 13.5%. Our guidance assumes a 50 basis point headwind associated with the startup cost at our new plants in Morocco and Mexico, and product engineering and launch cost associated with our record new awards. Due to the revenue cadence I’d mentioned earlier and the impact of contractual price downs, which will be offset in the second half of the year by supplier cost improvements and productivity actions, we expect the adjusted EBITDA margin rate in the first quarter to be below our full year guidance range and for the rate to steadily improve throughout the year.

As a result of above mentioned items and one-time cost associated with our new plants, we expect adjusted EBITDA margin rate in the first quarter of 2024 to be slightly lower than the first quarter of 2023. Our full-year effective tax rate is expected to be in the range of 26% to 29% and capital expenditures to be in the range of $65 million to $75 million. 2024 CapEx will be higher than prior years due to increased investments for the ramp up of new capacity, including the two new plants, to support our record new awards. Due to our decision to pause the pursuit of BPS cell connecting board opportunities that Phil mentioned earlier, combined with the decline in vehicle production forecast in our largest region of North America, as well as the uncertainty on the timing of ramp up of electric vehicles, we are revising our 2026 outlook that we provided in our strategy discussion in February of last year.

We now expect 2026 revenue to be between $1.9 billion to $2 billion. And as a result of the reduction in the revenue outlook, adjusted EBITDA margin rate is now expected to be approximately 16% in 2026. We continue to execute on our fit for growth initiatives. And specifically, we are targeting $80 million net savings by 2026 across workstreams, including SG&A, sourcing excellence, value engineering, manufacturing footprint, automation, and product profitability. In 2023, the team delivered over $10 million of savings, and we’re currently implementing additional projects that will yield another $45 million of savings by 2026. These actions are expected to deliver nearly 70% of our $80 million goal. And in addition, we have a pipeline of projects that positions us to achieve the remaining 30%.

As we continue to identify and implement additional fit for growth actions, we’ll gain momentum on our path to a high teens adjusted EBITDA margin rate over time. And with that, I’ll turn the call back to Phil for some closing remarks.

Phil Eyler : Thanks, Matteo. Now, let me summarize on slide 13. I want to thank the global Gentherm team for continued strong execution in 2023, delivering record new business wins, record revenues and record adjusted EBITDA. In 2024, our Climate and Comfort business is expected to grow more than 8% with expanding margins. In order to accomplish this and our long term growth, we’re laser focused on three priorities in 2024. First, we’re confident in our ability to continue the strong momentum of winning new Automotive business awards and maintaining our industry leading market share, given our large pipeline of opportunities. We will also execute on our unprecedented award backlog to ensure a successful ramp up with our key customers.

Second, as Matteo just mentioned, we will execute on fit for growth initiatives to expand margins in the near term and position the company to achieve high teens adjusted EBITDA margin rate over time. And third, we will aggressively bring to market and expand our industry leading and proprietary next generation solutions, such as ClimateSense, WellSense, Pulse A massage and ComfortScale. Now, let me wrap up with Gentherm’s unique investment thesis on slide 14. First, we’re a pure play leader in thermal and pneumatic comfort. It’s also important to highlight the benefit of being independent. We can work with any OEM and any seat manufacturer to create scores of innovative and unique configuration and solve for all of their applications. Second, the global automotive market is large.

And more importantly, the thermal and pneumatic comfort market is growing at a much faster pace than the automotive market. We expect to see a much higher rate of adoption of our products into vehicles, and we’re extremely well positioned to capitalize on this opportunity. Third, we provide unique, innovative and energy efficient solutions that are key to the vehicles of the future. Our technology is best-in-class and often a generation ahead of our competition. Finally, our track record of execution against our strategy, along with our robust financial discipline, will enable us to deliver high return growth outpacing the market. Now with that, I’ll turn the call back to the operator to start the Q&A.

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Q&A Session

Operator: [Operator Instructions]. Our first question comes from the line of Matt Koranda with ROTH-MKM.

Matt Koranda: Just wanted to start out with the award environment and the $900 million in awards that you reported for the fourth quarter. Looks like a pretty big uptick sequentially and year-over-year. Just wanted to get a sense for how much of that was combined thermal and pneumatic technology in the awards. And then also on the GM award, just wanted to clarify what exactly you mean by the term architecture? Not to dumb it down too much, but do you just mean GM vehicles that incorporate multiple Gentherm products like steering wheel heat and CCS, et cetera? Just a bit more on that software solution and sort of what it does for your growth for the next few years would be helpful.

Phil Eyler: I’ll start with the first question on the awards mix. It’s probably better to put it in terms of the full year than just a specific quarter. But as we pointed out, our pneumatic business is growing at a faster rate than we expected. Consumer pull, especially from our traditional Gentherm longstanding customers, to replace other competitors and to grow in those customers has been tremendous. And definitely, as I point out with some of the examples, we’re seeing this gradual shift to combined solutions for multiple reasons, the efficiency of supply and supply chain, plus improved performance being the primary drivers. But if you look at the total awards for the year, we would have had a record on the thermal products alone.

And then, of course, add on top of that the growing pneumatics and combined awards, really tremendous year. And the pipeline is still strong going forward. Let me shift to the ClimateSense question with General Motors. Essentially, what this means is that our ClimateSense software will be embedded in nearly all vehicles of the GM future architecture in the future, and that’s really the way they’re designing their vehicle around, allowing these kinds of features to be more prevalent. So we’re really excited about it. It really unlocks the ability to orchestrate any thermal seating or steering wheel application and really fits into our scalable view of how we’re implementing ClimateSense, so that really ClimateSense is going to be the fundamental control of these microclimate devices.

And that will help us to scale the content from, I would say, today’s kind of normal CCS all the way up to that full content of ClimateSense over time with that customer.

Matt Koranda: Maybe just one for Matteo. The fourth quarter, it looks like you made some adjustments or you provided sort of a hypothetical adjustment for what automotive revenues would have been without the UAW strike and then the non-automotive electronics phase out. Maybe just wanted you to provide a little bit more color on how you got between sort of the plus 5% to 10% adjusted revenue growth in Automotive. And then for the outlook, it does look like you guys are including some decent outperformance versus production, which would be a return to sort of the normal state for Gentherm. Can you just talk about how that phases through the year? I think you had mentioned more launches toward the latter half of the year. So any sense you could give us for relative growth rate versus production in the first half versus the second would be great.

Matteo Anversa: Maybe let me start with the first one. Actually, in the press release, we outlined a little bit with a table. You really have a couple of things happening, the impact of the strike in the quarter was about almost $9.5 million, which was clearly lower than what we had anticipated in the last earnings call. And then when we’re adding back the non-automotive electronics revenue, which was about $2.7 million, and then we had about $3.5 million of one-time customer recoveries, meaning that we’re not expecting those to repeat, and then the foreign currency impact. So when you break it down, this will how you get to the reported number of growth to be about 10% that we alluded in the press release and the comments.

On the cadence, I think was your second question, we’re expecting revenue for sure, as I mentioned in my prepared remarks, to be lower in the first quarter, and then we continue to grow progressively throughout the year. And so, it’s difficult to project and pinpoint what the outgrowth will be in every quarter. But overall, the reason why the second half revenue will be higher than the first half is primarily driven by timing of new launches, which are coming out in the latter part of the year.

Matt Koranda: Just last one for me and I’ll turn it over. But the 2026 guidance change that you guys made, looks like a change of about $250 million at the midpoint relative to your earlier guidance you provided. I think the battery performance solutions growth was supposed to be about $150 million of that. So just wanted to understand sort of where are we taking out incremental revenue? It sounds like you guys mentioned just a little more reticence on the part of OEMs on EV production. Any other items to call out in terms of the change there for 2026?