Gentherm Inc J.P. Morgan Automotive Conference

Thanks. Glad to be here today. Just to tell you guys a little bit about Gentherm, in case you do not know. We are a $1.5 billion global leader in thermal and precision flow management technologies. Our technology and systems are deployed really through four core platforms. That would be thermal fans, which are called air moving devices, pneumatics, which are pillows or baffles where air moves in and out of, and valve systems. We have about 14,000 employees worldwide. We operate in just about every region in the world. Primarily automotive and medical today, 97% automotive, 3% medical, but we have very definitive plans to diversify into other markets and change our mix to be more favorable than just so heavy light vehicle. In automotive, you would know our products as heated/cooled seats, heated steering wheels. That is something very typical.

We sell to over 50 different automotive manufacturers, and we created the market in 1996. Today we are 50% of the market, intend to hold our position there. Medical is about a $50 million business. We have intentions of growing that. Products that you would know in medical, if you have ever been in surgery, would be the warm air blankets that go over you, or the heated pads that go underneath you, or fluid warming devices that keep temperature of fluids that go into the human body. All of the core technologies between those two businesses are the same. We are very confident in our growth path. Very confident in our growth path for two main reasons. Number one is we know the automotive business is going to continue to grow.

We are a penetration and take rate story, and we see our market share continuing to grow there in all regions. Number two, we know that our core technology and our four core platforms can push into other markets and other products, which we will talk about in a little bit. That is proving out to be true in both home and office, where we are gaining market share in home and office and pushing our products into home and office, as well as the medical business, where we are using core automotive technology to refresh the product line in that business. We are also very confident in our tangible plans to expand our margin. At the end of this year, we will have completed a two-year footprint consolidation plan, where in every region, we are reducing the floor space that we have to maximize revenue and operating income per square foot in our plants.

And over the past 18 months, we've been focused on implementing an operating system that's driven by KPIs that maximize utilization of assets. So we're focused on improving direct labor efficiency, overall equipment effectiveness, and we've put inventory on what we call a plan for every part model that will lower net working capital. The reason that we're doing that is so as the growth that we're confident comes, that we can convert that volume at an appropriate conversion rate. So as we were working last year, Jon and I both joined January 1st of last year on putting in the operating system, strengthening the core platforms. We started rebuilding the M&A funnel. As we were rebuilding the M&A funnel, we had two very specific criteria.

We wanted companies that were core to what our technology is, which is thermal management or flow management, and we wanted access to attractive markets, which we considered to be commercial vehicle or off-road, because we knew we could create a value proposition in those markets. So in January, we announced the major step in transforming the company. We will be combining with Modine Performance Technologies, who is a large heat exchanger company, and they are primarily in commercial vehicle and off-highway, which is ag, construction, as well as power generation, which are large diesel and liquefied natural gas generators that provide backup power to critical infrastructure. That market right now is really being driven by data center expansion. So very excited about what we can do there together. On day one, we'll be a $2.6 billion company with a 12%+ EBITDA and a very different market mix.

So we will be less than 70% light vehicle at that point and strong cash flow generation. Both of the business units have a very strong line of sight to mid-single-digit growth over market, as well as EBITDA expansion plans to 15%+. So by 2030, we're very confident in our ability to be a $3.5 billion company generating over half a billion dollars in EBITDA. Once the companies are combined, our leverage will be very manageable. We'll be about one turn levered, and by 2030 we'll generate $1 billion in cash, and we intend to use that to continue to fund our strategic investment in M&A, as well as return some value to the shareholders. So overall, we're at an inflection point. The team is executing the strategy well to diversify our markets and to expand margins.

We're excited about where we're going, and we think it's a great time to invest in Gentherm.

Yeah. So when we started, as I said, rebuilding the M&A funnel, we said thermal management. We said markets that we find attractive. We knew at that time that Modine was planning on divesting of the light vehicle business. So we actually approached Modine, and we said we would be interested in the entire Performance Technologies division. And we had a couple of reasons for that. One is we believe that there are substantial cross-selling opportunities. We believe that by us selling into the markets where they are and them selling into the markets where we are and can help them, there's $100 million additional revenue between those synergies to be had by 2030. Secondarily, we have the opportunity to open up geographic expansion. We've been interested in opening up the India market.

We've been pushing on that hard over the last year, and every time we talk to the Indian market, the message is clear. "Love your products. We make 20 million two-wheelers a year here. We can see a market for your valves. We would love to have the cooled seats over here. We see a market for your fans, but if you do not have infrastructure here and you don't have a business development and commercial team here, can't do business with you." Modine has manufacturing floor space there. Modine has a business development team and a commercial development team there. So on day one of close, the Indian market is open to us, so that was another opportunity.

The third thing was, if you look at Modine's heat exchangers and the valve circuits that they play in or how they operate, they need valves and air moving devices to work. Their heat exchangers require two of the building blocks that are in Gentherm's portfolio, so putting those together creates natural synergy. We know that there are valves that they use today that we have in our product catalog. We know that there are opportunities that they do not quote today because they have no valve catalog, and we know that between their heat exchanger technology and our valve technology and air moving devices or fans, we can open up other markets that neither of us are in today. All the pieces fit. Modine Performance Technologies is a well-run company. The entire division is coming over with leadership intact.

John and I felt like now was the right time for all the right reasons. I do not know, John, if you would add anything.

Just in terms of structure, this is going to be a Reverse Morris Trust. We announced the transaction in January. We have gotten through all the regulatory approvals. There are a couple outstanding items in terms of IRS ruling. We announced yesterday that our shareholder vote on this transaction will be on September 10th, but we feel like all the building blocks are in place. We have secured committed financing, as Bill talked about, in terms of our capital structure, and we have $800 million of secured financing. We said this is targeted to close early Q4, and we are very much on track for that to happen.