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Greetings, and welcome to the Gentherm First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Gregory Blanchette, Senior Director, Investor Relations. Thank you. You may begin.

Thank you, and good morning, everyone. 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 will make forward-looking statements within the meaning of federal securities laws. These 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 significant assumptions, risks and uncertainties underlying such forward-looking statements.

During the call, we will also discuss non-GAAP financial measures as defined by SEC Regulation G. 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 Bill Presley, President and Chief Executive Officer; and Jon Douyard, Chief Financial Officer. During their comments, they will be referring to a presentation deck that we made available in the Investors section of Gentherm's website. After the prepared remarks, we'd be pleased to take your questions. Now I'd like to turn the call over to Bill.

Thank you, Greg, and good morning, everyone. Let's begin on Slide 3. I want to start by saying that the Gentherm team demonstrated strong execution in the first quarter. Over the last year, we spent a lot of time improving our operating system. We've been focused on fundamentals that are core to operating in an efficient, consistent manner in all aspects of the business. I visited Gentherm sites in multiple countries over the last 3 months and was able to observe changes in how we operate in all locations versus last year. The teams are engaged in targeted actions for growth in new markets, factory floor space occupation and efficiency are increasing and the teams are adopting tools we put in place to drive financial rigor. I was pleased to see these efforts starting to produce tangible results in the quarter.

The first quarter also demonstrated our ability to execute in a dynamic environment, and we are confident in our ability to continually improve our operations. After spending the year with the team putting tools and processes in place, we concluded that realigning our operating model and structure will drive increased speed and transparency across the organization. Therefore, during the quarter, we initiated an organizational realignment that reduced spans and layers to increase agility and provides a concentrated focus on internal improvements as well as the ability to accelerate our growth platforms. This realignment positions us well to deliver key financial and operational priorities going forward.

Strategically, this quarter marked an inflection point in our journey to transform Gentherm. We took action to position the company for sustainable, profitable growth with our announcement to combine with Modine Performance Technologies. This transaction transforms the company with an expanded product portfolio and broader end market exposure. We continue to execute our priorities and strategy even though the environment around us remains dynamic. Since our prior earnings call, the macro and geopolitical environment has changed significantly and is creating an increased level of economic uncertainty. Despite these recent events and other macro issues over the last year, light vehicle production schedules have remained relatively stable, which has allowed us to focus on operational improvements.

We continue to assess key data inputs, including dealer inventory levels and customer schedules as well as collaborating directly with our customers to get real-time insights on future demand. That said, headwinds are beginning to emerge across the globe. These include direct cost increases in logistics due to lane disruptions and fuel surcharges as well as cost increases of petrochemicals used in raw materials. In addition, we are now starting to see cost inflation flow through to other materials, which are being indirectly impacted due to increases in processing-related costs.

We continue to monitor developments in real time, and we are working closely with our suppliers and customers on a variety of mitigation strategies. We are preparing to implement pass-through or reimbursement mechanisms on applicable costs. We have actions ready to execute both commercially and operationally. We will remain agile, and we are confident in our ability to navigate through volatility and uncertainty.

Now please turn to Slide 4, where I will discuss some of our first quarter highlights. The first quarter financial results were above our expectations. We secured $395 million of automotive new business awards, which were well balanced across region, customer and product. The pursuit pipeline looks robust for the remainder of the year. We made significant progress on our organic growth initiatives, including key announcements with KUKA Home and our new medical product, ThermAffyx, both of which I will discuss further in a few moments.

Our product revenues for the quarter were $394 million, a quarterly record for the company, driven by strong Automotive Climate and Comfort Solutions growth over market. We delivered solid first quarter margin performance, driven by continued progress on our operational excellence initiatives. The business systems we put in place are beginning to have a meaningful impact, driving improved execution and expanded margins. As we build on this momentum, we remain confident in our ability to deliver sustained performance improvements over time.

Turning to Slide 5. One of our top priorities over the last year has been scaling our existing products and technologies with new markets, new applications and nontraditional customers deliver strategic profitable growth. During the first quarter, we continued to prove the broad applicability of our technology beyond automotive through our achievements in home and office as well as medical. We officially launched and began supplying production parts to KUKA Home, which is a leading global furniture manufacturer. Since mid-2025, Gentherm played an important role as a collaborative innovation partner with KUKA, which led to co-branding of Enhanced Comfort by Gentherm. The launch this quarter also demonstrates our ability to generate revenue quickly in home and office market by utilizing our core assets and standard kit methodology to maintain the performance, quality and consumer experiences established in automotive applications.

In March, Jon and I spent time in China at KUKA headquarters with their CEO and senior leadership team discussing our partnership. There is mutual interest in scaling Gentherm products across additional KUKA Home platforms. Beyond KUKA, our momentum in home and office is accelerating. Earlier this month, we were selected by a leading North American furniture brand to supply our climate and comfort products. This marks our fourth consecutive quarter securing a new home and office customer. We anticipate starting production with this customer later this year.

Separately, in our medical business, we announced our FDA 510(k) submission for a new innovative product that is expected to redefine the standard of care for robotic surgeries. Our patented ThermAffyx system combines conductive air-free patient warming with securement technology to help prevent both hypothermia and patient movement on the inclined surfaces used during robotic procedures. We have been vocal about the importance of refreshing our product portfolio in the Medical segment and believe this innovative new solution will be a key contributor to accelerating our annual revenue.

The regulatory approval process remains on track, and we expect the ThermAffyx system to begin generating revenue later this year. Overall, we remain committed to repositioning the company for growth by taking our technologies outside of light vehicle markets, and we achieved several important milestones during the quarter.

Let's turn to Slide 6. In January, we took a major step in transforming Gentherm by announcing our agreement to combine with Modine Performance Technologies, creating a market leader in thermal and precision flow management. The more we work with the Modine team, the more excited I get about bringing this business into the Gentherm family. This is a well-run business with a great team. Through our work together, we are learning techniques and processes that Modine used to transform their business, and we intend to harness those lessons for the good of Gentherm. We have emphasized the importance of expanding our business beyond the light vehicle segment, and Modine is accelerating our access to critical growth markets, including power generation, commercial vehicles and heavy-duty equipment.

This intentional shift in our end market exposure positions us for increased value creation. We are particularly excited about the new product and market opportunities this partnership unlocks and are more confident than ever in our combined growth trajectory. When we map out the next 5 years as a combined company, we see a clear path to generating $3.5 billion in revenue and more than $0.5 billion of earnings. I will now hand it over to Jon to discuss an update on the transaction and highlights for the quarter.

Thanks, Bill. Now turning to Slide 7. Since the announcement, we have been working diligently with the Modine team to define and execute a project plan that ensures a timely, seamless closing of the merger. We have established an integration management office comprised of key stakeholders. And in March, we held a kickoff Integration Summit with business and functional leadership from both teams at our headquarters here in Michigan. Through the summit and ongoing interactions, the teams are focused on ensuring that the business can operate effectively on day 1 and that we are well positioned to deliver on value creation opportunities post merger. As we talked about that announcement, we intend to operate Modine Performance Technologies as a stand-alone division of Gentherm, similar to how the business is managed within Modine today.

Given this structure, the primary integration areas relate to corporate systems and functional support, not on highly complex integration of facilities or organizations. In terms of other recent transaction highlights, we were pleased to receive HSR clearance to close from the Federal Trade Commission in March, a key regulatory milestone. Our teams continue to prepare for the S4 filing and the inputs into that process remain on track. Overall, we still expect this transaction to close later this year and are excited about the potential for the combined business. We will continue to keep you updated as the year progresses.

Please turn to Slide 8 for a review of the first quarter financials. Overall, first quarter results were above expectations as revenue was higher, driven by stronger automotive volumes and outperformance in China. Revenue of $394 million was up 11.3% compared to the same period last year. Revenues, excluding foreign currency translation increased 7.2%. Automotive Climate and Comfort Solutions revenue increased 13.6% year-over-year or 9.8% ex-FX as we continue to see strong growth over market across all regions and product categories. We had particularly strong performance in China during the quarter, driven by the ramp-up of production on new program launches with domestic Chinese OEMs. This comes as a result of our intentional focus to shift revenue mix and better represent the local market.

In addition, we saw increased take rates in China from global OEM customers as they look to remain competitive in the market. From an automotive product perspective, it was another strong quarter of revenue growth for our lumbar and massage comfort solutions, which grew 33% year-over-year. As we have discussed in the past, we expect to see the strong growth trend continue in this product into the future as we continue to launch previously won programs.

Turning to profitability. We delivered $49.3 million of adjusted EBITDA or 12.5% of sales compared to 11.1% of sales in the first quarter of last year. The 140 basis point increase was primarily driven by operating leverage and strong net material performance, partially offset by annual price reductions and higher labor costs. On a reported GAAP basis, diluted earnings per share were $0.14 in the first quarter. This was impacted by approximately $0.70 per share related to merger and restructuring expenses. Adjusted diluted earnings per share were $0.84, up 65% compared to $0.51 per share in the first quarter of last year.

Cash flow continues to be a point of emphasis for the company. And while we did have a typical seasonal operational cash outflow, the team delivered an $8 million improvement year-over-year. Additionally, CapEx purchases of $5.6 million were down $9.2 million year-over-year as we continue scrutinizing new investments. From a balance sheet perspective, we ended Q1 with net leverage of 0.2 turns, and we had liquidity of $456 million, giving us ample capacity to support our strategic priorities moving forward.

Please turn to Slide 9, where I will discuss our 2026 guidance, which excludes any impact related to our planned combination with Modine Performance Technologies. As Bill mentioned in his opening remarks, the operating environment has been dynamic since we introduced guidance in February. Despite the stronger first quarter performance, given the high level of uncertainty in the macro environment, we are maintaining our full year guidance at this time. We expect revenue to be between $1.5 billion and $1.6 billion, representing approximately 3% growth for the year against the recent industry report where our key markets are expected to decrease approximately 2%, positioning us to deliver mid-single-digit revenue growth over market.

For adjusted EBITDA, we expect to be in the range of $175 million to $195 million, which implies a midpoint adjusted EBITDA margin of approximately 12%. From a quarterly perspective, we expect the revenue profile to be spread fairly even throughout the year. However, we do expect margins to be depressed in the second and third quarter, and there are a couple of factors driving this. First, building on Bill's earlier comments, inflationary impacts stemming from the current geopolitical environment are expected to drive approximately $20 million in incremental costs during the year, recognizing that this estimate remains fluid and is evolving real time.

Although we expect to mitigate a meaningful portion through commercial and operational initiatives, including benefits from the realignment, timing differences between cost realization and recovery are likely to create additional margin pressure. Additionally, as we work to finalize our global footprint transition later this year, we will begin depleting our inventory bank build in the second quarter, which will have a negative impact to gross margins.

Turning to cash. Our estimate of adjusted free cash flow remains between $80 million and $100 million with CapEx in the range of $45 million to $55 million or approximately 3% of sales. Overall, we were pleased with our start to the year and are focused on strategic actions to accelerate profitable growth and reinforce operating discipline to drive long-term value.

With that, I will hand it back to Bill for some closing remarks.

Thanks, Jon. Turning to Slide 10. I want to outline what we've accomplished, the key priorities today and how we will evolve. We are on a multiyear journey to deliver sustainable value creation. 2025 was reinforcement of the foundation that we will build on going forward. We established our strategic framework to deliver shareholder value, which focuses on profitable growth, operational excellence and superior financial performance. This drives everything we do. To drive profitable growth, we simplified and segmented into 4 technology platforms to clearly define our core competency and identify attractive markets outside of the light vehicle market where our products are applicable. This product and market alignment was a catalyst for reshaping our M&A funnel.

We also saw opportunities in the business to operate more efficiently. During 2025, we focused on building core components of an operating system through business process standardization and increased utilization of assets to drive margin and cash generation improvements. We started reaping some of the benefits of that stronger operational rigor during the first quarter of 2026. With this foundation now in place, Gentherm is at an inflection point. The addition of Modine Performance Technologies accelerates our transformation. This action is the first step in establishing a product portfolio of mission-critical components across broad end markets. Our shared core competency of precision thermal and flow management allows us to scale into attractive markets together through cross-selling and integration.

In addition, our complementary product expertise allows us to gain broader customer insights and provide more integrated solutions to pursue new high-growth opportunities. Gentherm continues to focus on the core business as we are confident in our ability to scale revenue and expand margins. We are actively launching products into new markets to deliver profitable growth while realigning the organization to drive speed, efficiency and accountability. As we move into the future, Gentherm will scale into attractive markets while improving profitability and cash flow, and we will leverage best practices from Modine Performance Technologies to outperform our peers.

Despite the risk we may have in front of us during the months ahead, we are confident we have the right strategic plan established to drive performance improvements in the long run. We have built the foundation, we have a clear vision, and we are focused on execution. We will continue our relentless pursuit of building a more resilient company. We are at the beginning stages of transforming Gentherm into more than an automotive component supplier, where we will grow sustainably with differentiated and scalable technologies.

With that, I'll turn the call back to the operator to begin the Q&A session.

The first question is from Nathan Jones from Stifel.

I guess I'll just start off with a question about the $20 million incremental costs you talked about. Can you just maybe provide us a little more color on how much of that passes through contractually to customers versus what you've got to go out and renegotiate versus potentially methods that you can offset that internally? Just any more detail you can give us on that.

Yes. Contractually, we're not on a simulator or escalator with any customers just because the scale of what we buy in any one product isn't large enough to be meaningful to them. So we'll have to go out, Nathan, and we'll have to work through recovery mechanisms with the customers on all of that. We will give some perspective...

And so you'll -- sorry, the cost will hit pretty much immediately or it will take a couple of quarters to catch up with that pricing?

Yes. Timing-wise, we expect the costs to start hitting in Q2. So we think Q2 is going to be a definition of recovery mechanisms with the customers that we agreed to. And then there'll just be that timing disconnect that will start flowing in Q3, Q4.

Okay. I guess my second question then I'm going to ask one about the internal operating structure changes. I think those are kind of important things to highlight. You talked about reducing spans and layers to increase focus. Can you maybe just provide a little more color on what you're doing there, how you think that catalyzes either whether it's growth or it's margin expansion or it's both? Just more color around those changes and how you think they improve the business, please?

Yes, absolutely. So it's intended, first of all, to do a couple of things, as we mentioned, and I'll get into some quick detail for you, Nathan. A lot of -- if you remember, Jon and I both started at the same day last year, right? So we took a year to thoughtfully understand the plumbing of the organization and how things were running. And one of the big messages we got from the broad organization was there's too many hoops. There's too many barriers. We're not moving fast enough. We're not making decisions fast enough. So we went through an organizational realignment, and we realigned it really based on product.

So we segmented out valves as a business unit. So now we have Climate Comfort, Valves and Medical as a business unit within Gentherm Technologies. And over top of that, we'll have a very lean corporate structure. So that was intended to put focus on high-growth opportunities that was intended to drive continual improvement on key initiatives. So we're more aligned functionally now as opposed to a complicated matrix across regions. And we did -- we do expect that, that will have cost benefits. But it primarily was to segment the business to focus on high-growth opportunities, to continue to push the operational improvements and the sustainability there. For the year, though, it will -- annual run rate will be about $10 million-ish better on the OpEx, and we expect half of that to hit this year.

The next question is from Ryan Sigdahl from Craig-Hallum Capital Group.

I want to start with the outperformance versus light vehicle production. This is as strong as we've seen in many years here, which was nice. Curious when I look at guidance, so 14-point outperformance in Q1, you're guiding to 5 points on the year. It implies a pretty meaningful deceleration kind of throughout the rest of the year versus the industry. Curious if you could elaborate on what the outperformance in Q1 was, why that's going to decelerate, anything from a onetime production orders, et cetera, standpoint?

Yes. We wouldn't point to anything from a onetime perspective, and we really did see strength across all products, all regions. We pointed to China in particular. There was some outperformance there based on some launches that we did in the fourth quarter for some of the domestic OEMs that continue to show strength through the first quarter. As we look at the balance of the year, we certainly do not expect to outperform in the teens range. We'd expect it to moderate. I think at the top end of our guidance, it could push into that high single-digit range. But there's nothing specific to point to in terms of Q1 outperformance other than really just broad growth across regions and products.

And then GM yesterday or earlier this week, I guess, is suspending its next-gen electric truck program that was set to launch or start in 2028. Curious how much Gentherm's award backlog was from this program? Do you think you can offset that from a shift with more volume back to the ICE programs? Just curious kind of net positive, neutral, negative, how you guys think about that?

Yes. Overall, we just think it's neutral for us, Ryan. We've also won the ICE content for the platforms. So we just anticipate and based on everything we're seeing, the ICE volumes will compensate for the EV losses.

Very good. Maybe just a quick clarification, and then I'll hop back in the queue. But the $20 million of cost increase, is that a gross number? Or was that net of mitigation?

That's a gross number and our best view of annualized impact or annual impact based on what we see today.

The next question is from Matt Koranda from ROTH Capital Partners.

Not to beat the dead horse here with the $20 million on incremental cost that you highlighted. But I guess I was curious, how much of that is incremental shipping versus material cost inflation that you're factoring in? And then on the pricing front, is it all offset via pricing? Or are there operating efficiencies that you think you'll offset the $20 million with as well?

As you look at it, certainly a big piece of it is freight related. I'd say maybe 1/3 of it with the rest coming from commodities, and it's commodities that Bill -- or the product that Bill called out specifically, but it's also incremental processing costs. And so there's a downstream impact from increased petroleum prices. I think as we look at it, our mechanism from a recovery perspective will primarily be from recovery with the customer. We did point to the fact that the $5 million benefit that Bill talked about from the realignment will likely help offset pieces of that as well. I think we'll continue to push operationally, but we've got our teams focused on commercial recovery at this point.

Okay. That makes sense. And then curious to hear a little bit more about the furniture market opportunity and how it's developed this year, I guess, just given the announcements around KUKA and the incremental wins that you highlighted. Have those catalyzed more discussions for you? Any way to characterize the opportunity funnel and how that contributes to '27 revenue?

Yes. I mean we'll start -- and again, we like the furniture business because of just super quick time to revenue that the industry has accepted and really bought into our standard methodology, our standard kit methodology. So we're getting good scale there on our assets with little to no investment. So we expect by '28 that that's clipping somewhere between $50 million and $100 million. So you can probably draw a line between now and then to figure out where '27 is. But we expect that to add 1 or 2 points of growth at accretive margins in the coming years.

There are no further questions at this time. This concludes the question-and-answer session as well as today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Greetings, and welcome to the Gentherm Fourth Quarter and Full Year 2025 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions].

It's now my pleasure to turn the call over to Gregory Blanchette, Senior Director, Investor Relations. Please go ahead.

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 will make forward-looking statements within the meaning of federal securities laws. These 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 significant assumptions, risks and uncertainties underlying such forward-looking statements. During the call, we will also discuss non-GAAP financial measures as defined by SEC Regulation G. 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 Bill Presley, President and Chief Executive Officer; and John Douyard, Chief Financial Officer. During their comments, they will be referring to a presentation deck that we've made available on the Investors section of Gentherm's website. After the prepared remarks, we'd be pleased to take your questions.

Now I'd like to turn the call over to Bill.

Thank you, Greg, and good morning, everyone. Let's begin on Slide 3. During the year, we made significant progress on our long-term strategic initiatives while executing against our 2025 financial and operational priorities. To drive strategic growth, we provided a thesis early last year on the broad applicability of our technology beyond automotive. We purposefully broke out our technologies into 4 platforms: thermal management, air moving devices, pneumatic solutions and valve systems so that our commercial team could go out and conquest business with the technology in other markets. We provided updates and wins throughout the year to validate our hypothesis and continue to believe this will drive growth going forward. Operationally, we continued our work to strategically realign our footprint, which will continue through 2026. And despite the near-term headwinds, these actions will play a significant role in our margin expansion over time.

During the year, we began laying the foundation to drive improved efficiency and performance across the organization through business process standardization and the global rollout of our company operating system. We are starting to gain traction and reap benefits from stronger operational rigor. These improvements will drive better financial performance and cash generation, allowing us to deploy capital aligned with our strategic framework. To be clear, 2025 financial results are not indicative of what Gentherm can deliver as a business. We remain focused on executing our plans to grow and increase margins. As we enter 2026, we are confident that we have the right plan established to drive performance. We are executing our strategic priorities to build a more resilient Gentherm.

Let's turn to Slide 4. I took this role with a strong belief that Gentherm was at an inflection point to enter its next phase of growth by scaling its core technology beyond its existing applications, and we have proven that ability in a short period of time. The team is focused on reigniting a profitable growth trajectory through both organic and inorganic opportunities. In January, we announced a key part of transforming Gentherm into a precision flow management company that serves diverse markets through our planned combination with Modine Performance Technologies, which is expected to close by the end of the year. This combination creates a $2.6 billion market leader positioned to grow to over $3.5 billion with a compelling financial profile and end market diversification. I am confident that this is the right transaction at the right time for Gentherm, and we'll talk more about the benefits later in the deck.

Turning to organic. When I first joined Gentherm, I was impressed by the portability and scalability of our 4 core platforms. We saw great growth potential in scaling our existing products and technologies with new markets, new applications and nontraditional customers. We tested that thesis very quickly in 2025 and validated that Gentherm products have broad applicability. Within months, we generated a commercial funnel totaling over $300 million of lifetime revenue in markets outside of light vehicle. That funnel enabled us to successfully expand into commercial vehicles, powersports and Home & Office. Beyond just winning awards, Gentherm began supplying products in rapid time to revenue markets.

During the fourth quarter, we were selected by another leading global furniture brand to supply our climate and comfort products. Our momentum in this market is accelerating. Our first discussions in this market began in the middle of 2025. We have already started manufacturing and delivering components in January, demonstrating shorter development cycles and rapid time to revenue compared to our automotive business. For our customers, these represent innovative next-generation product offerings centered on wellness, a major and growing trend across these markets. For Gentherm, we are leveraging our existing assets and core technologies to drive this incremental revenue growth with accretive margins.

In Medical, we have prioritized reinvigorating our product life cycle road map. Refreshing the product portfolio remains a key focus, and we are advancing these efforts by leveraging existing automotive intellectual property to accelerate innovation, improve time to market and support sustainable growth within the segment. Earlier this month, we announced our FDA 510(k) submission for a new innovative product. The way surgeries are performed is changing. Robotic positioning, which allows the surgeon to move the patient for better access is becoming more common. Our first-of-its-kind solution, the ThermAffyx system combines conductive air-free patient warming with securement technology to help prevent both hypothermia and patient movement during procedures.

Given our strong relationships and deep engineering capabilities, medical professionals came to us to help solve this unmet gap in the markets. The ThermAffyx system will begin generating revenue later this year, and we expect this product to be a key contributor that accelerates Medical's annual revenue growth into the high teens. This is the first new product on our road map, and we will continue to leverage Gentherm's core technologies to develop solutions for the medical market. These are just a few examples of how we are executing against our plans. We said we would reposition the company for growth by taking our technologies outside of light vehicle, and we provided several proof points in 2025. We are just getting started, and the combination with Modine Performance Technologies will play a key role going forward. We are taking bold, decisive actions that will position Gentherm for sustainable, profitable growth.

Turning to Slide 5. I am very confident in our path to improve financial performance. Though revenue has plateaued over the last few years, we have a high level of visibility to growth accelerating, driven by strong automotive launch activity and our pursuits in adjacent medical markets. We have said before that we expect Gentherm's growth trajectory to be mid-single-digit growth over market, and our belief in that has only strengthened. On margins, we consistently shared our views on the major levers driving future margin expansion. We are investing in footprint optimization. We are launching lumbar and massage comfort solutions at improved margins, and we will be able to leverage scale as growth accelerates. Our road map to delivering improved financial performance is clear. We are now well positioned to deliver meaningful revenue growth and margin expansion.

And with that, I will turn the call over to John to review some business highlights and our outlook. John?

Thanks, Bill. Now turning to Slide 6. Our team delivered another strong year of automotive new business awards, finishing 2025 with $2.2 billion, including $485 million in the fourth quarter. For the year, these awards were highlighted by the Ford F-Series, high-volume platforms with Mercedes-Benz and further adoption of our innovative Pulse A solution. These wins demonstrate the strength of our industry-leading technology as we defend existing business, launch innovative new products and create new market opportunities.

We generated record revenue of $1.5 billion in the year, which increased 2.9% compared to prior year or 1.8% when excluding foreign currency translation. Automotive Climate and Comfort Solutions revenue increased 5.8% ex FX, which was offset by declines in other automotive products of $28 million, driven by our previously discussed planned exits. We continue to see strong growth over market as we ended 2025 with fourth quarter Climate and Comfort Solutions revenue outgrowing light vehicle production by 820 basis points, excluding FX, with strong performance globally and across product categories.

Turning to profitability. We delivered $175 million of adjusted EBITDA in 2025 or 11% -- 11.7% of sales compared to 12.6% last year. The decrease was primarily driven by higher material costs, including unfavorable mix as well as expenses related to our footprint realignment, partially offset by operating leverage. We generated $117 million of operating cash flow, an increase of 7% compared to 2025. This was despite the fact that we were building inventory throughout the year to support the ongoing footprint transitions. Capital expenditures for the year were $56 million, down from $73 million in the prior year as our team did a nice job focusing on asset utilization and scrutinizing new capital expenditures.

As a result of our team's efforts, we further strengthened our balance sheet and ended the year with net leverage of 0.2 turns. We continue to emphasize cash flow as a key business priority and believe we are well positioned to generate increased levels going forward. I'm confident that our increased financial rigor will drive improved results into 2026.

Please turn to Slide 7 for a discussion on our guidance for 2026 and a preliminary revenue outlook for 2027. At this time, we have not factored in any impact regarding our planned combination with Modine Performance Technologies, which is expected to close by the end of 2026. We will provide better visibility on timing and impact as the year progresses. For 2026, we expect revenue to be between $1.5 billion and $1.6 billion, which is up approximately 3% at the midpoint when excluding slight year-over-year FX tailwinds. According to S&P Global Mobility's mid-February 2026 report, light vehicle production in our key markets is expected to decrease approximately 1% for the year. This positions us to grow above market by mid-single digits in the year, consistent with our long-term view. We expect the impact of strategically exited businesses to decline approximately $10 million year-over-year.

On margins, we expect adjusted EBITDA for 2026 to be in the range of $175 million to $195 million, which implies a midpoint adjusted EBITDA margin of approximately 12% or 30 basis point expansion year-over-year. The ongoing footprint transitions will continue to be a profit drag, which we expect to be approximately 60 basis points for 2026. As we think about the 2026 cadence, we expect the second half revenue to be slightly stronger than the first half, driven by new program launches. On margins, we expect the first quarter will be similar to prior year with expected improvement throughout the year as the impact of contractual price downs is offset by material savings and productivity actions as the year progresses.

We estimate that adjusted free cash flow will be in the range of $80 million to $100 million, assuming CapEx is in the range of $45 million to $55 million or approximately 3% of sales. This results in an adjusted free cash flow conversion rate of approximately 50%. While this marks an improvement from the last few years, we continue to believe there are opportunities to increase conversion to 60% or higher moving forward. In addition to 2026 guidance, we are also introducing a preliminary 2027 revenue outlook. Based on current visibility, we expect 2027 revenue of $1.7 billion, up approximately 10% versus the 2026 midpoint guidance. This growth is supported by strong launch activities and adjacent market pursuits.

While we continue to believe that our automotive new business awards is a leading indicator of the long-term revenue of the business, we appreciate the challenge in connecting these awards to a near to midterm outlook given the lag in start of production in the varying program lives. In order to provide additional visibility to the revenue trajectory, we believe it is important to communicate revenue projections beyond the current year at this time, and we'll continue to look for other opportunities to increase transparency moving forward. Overall, we believe that the strategic actions we are taking to accelerate profitable growth and drive operating discipline provide us a clear road map for value creation as we move forward.

And with that, I will hand it back to Bill for some further color on our recent announcement to combine with Modine Performance Technologies.

Thanks, John. Moving to Slide 8. Our combination with Modine Performance Technologies accelerates the execution of our strategic framework by expanding our technologies and capabilities in thermal and precision flow management. The combined company will have an attractive financial profile with revenue of approximately $2.6 billion, pro forma synergy adjusted EBITDA of 13% and a strong balance sheet. We believe Gentherm is the ideal home for Performance Technologies and will provide it with a renewed focus to drive growth in attractive markets, including power generation, heavy-duty equipment and commercial vehicles. This is a well-run organization, has a high-performing culture and a strong industrial leadership team in place. We expect continued strong execution upon closing. The team brings a continuous improvement and lean mindset that Gentherm is excited to leverage.

Now let's turn to Slide 9. As we talked about on our January call, there are significant value creation opportunities with this transaction. First, we have identified actionable near-term run rate cost synergies of approximately $25 million through efficiencies in direct materials, indirect purchasing and logistics as well as supported costs related to the overall company operating model. As we work closely with the team, we are looking to introduce additional cost savings initiatives that could increase the run rate over time. That said, we believe the real power of this combination is in the product and end market opportunities that are unlocked. And we have strong conviction that together, we can greatly accelerate our growth path. This is an area where I have personally spent a significant amount of time, and I want to highlight a few specific examples.

First, Modine brings established commercial relationships in industries that Gentherm has not historically participated in, including commercial vehicle and heavy-duty equipment. Based on early discussions, we expect this will accelerate Gentherm's progress as we pursue these markets. Furthermore, Modine has footprint in regions like India, which Gentherm has been evaluating over the past year as an area of potential expansion. As one company, we will now be able to sell directly into these geographies without the need for incremental footprint investment. While we have high levels of confidence in those areas, the most value creation opportunities relate to product integration, particularly where Gentherm's valve technology has applicability.

To be more specific, in markets such as power generation and power generation for data center specifically, Modine Performance Technologies has a leading position supporting the thermal needs of customers as they build out necessary infrastructure. As part of their solution, valves are required to regulate the flow of fluids and air through the thermal management systems of the power generation architecture, which Gentherm as a premier valves manufacturer is able to supply. In addition to supporting power generation needs, Gentherm valves are mission-critical components with applications inside the data center as well. These are tangible and sizable opportunities that we will continue to develop together post closing. Merging Gentherm and Modine Performance Technologies opens key new markets for Gentherm's product, including one experiencing significant growth.

Together, our combined capabilities put us in position to capitalize on this expanding opportunity and rapidly scale our highly attractive valves business. On our January call, I highlighted that in a very short period of time, our collective team identified a commercial synergy funnel of over $100 million. It's important to note that valves made up more than half of that number given their broad applicability, mission-critical nature, close adjacency to and integration with the products that Modine Performance Technologies produces today. These are just a few examples from the initial work we have done, and we expect to significantly increase the funnel size once we close the transaction and are able to work together as one company.

These product integration efforts will strengthen our ability to meet the rising demand for our combined mission-critical offerings. It is important to remember that none of these commercial opportunities were factored into our base assumptions and represent incremental upside to the transaction. Together, we can accelerate each other's growth path and margin improvement beyond what either could accomplish as a stand-alone business.

We summarize the growth of Gentherm and the power of bringing these 2 companies together on Slide 10. We are charting a new course by creating a company that can grow substantially with differentiated and scalable core technologies. We see a clear path to generating $3.5 billion in revenue and more than $0.5 billion of earnings by 2030, driven by our disciplined commercial strategies and continued focus on operational excellence. We are on a relentless pursuit to build a more resilient company.

Wrapping up on Slide 11, I want to reiterate my excitement about Gentherm's future. We remain confident in our growth trajectory and look forward to welcoming Modine Performance Technologies later this year. We are focused on closing the transaction, ensuring we hit the ground running on day 1. We will update you on our progress throughout the year. As we enter 2026, our team is invigorated and operating with a clear focus on strategic priorities. We are acting with a strong sense of urgency to build on the momentum achieved in our adjacent market initiatives and margin expansion efforts. We are taking decisive actions to position Gentherm for sustainable, profitable growth and long-term value creation.

With that, I will turn the call back to the operator to begin the Q&A session.

[Operator Instructions] Our first question today is coming from Ryan Sigdahl from Craig-Hallum Capital Group.

I appreciate all the commentary on kind of the current business this year, but also going out to 2030, it's helpful from a pro forma standpoint. I want to start with the adjacent end markets, knowing that there's a lot of synergy potential with the merger combination. But curious kind of how you view the next couple of quarters, if you guys are continuing to lean in there or if there's a better kind of more opportunistic wait and see on certain end markets once you're combined? And then kind of second to that, if you're able to quantify the percentage of revenue in '26 and '27 for the expectations you gave that are representative of those adjacent markets?

Yes. So I'll start. Look, we'll continue to lean into the adjacent markets. I would say Home & Office, which we previously called Motion Furniture, we're not calling Home & Office as we're getting a lot of pull in that market, driven by trends in health and wellness. So we'll continue to lean into that market. And just to put a little color on that, with the pipeline we have, with the engagements we have, we would expect that Home & Office would be contributing somewhere between $50 million and $100 million in revenue by 2028. So very rapid time to revenue and margins are, as we've discussed before, not quite at medical, but above what we have in light vehicle. So accretive there.

We will continue to lean into medical. We announced the new product introduction this quarter and submitted the 510(k). We anticipate that, that product will begin contributing revenue this year. But that product is going to be a leading contributor, we believe, to doubling the size of the medical business before 2030.

And then we continue to see some traction in the other adjacent markets with our climate and comfort solutions for what we would call other mobility, so really around commercial vehicle. So we're not slowing anything down, Ryan. The attractive part for us with the Modine Performance Technologies mergers is it is a true, what I would say, accelerator for our plans to grow our valve business. Our valve business is very attractive to us. It is above company margins, and we want to scale that. And Modine Performance Technologies gives us a really nice runway to scale valves.

John, anything else you would add?

Just we've historically said, I think that the adjacent markets will bring 1 to 2 points of growth year-over-year. I think Bill's comments are consistent with that. And so we're certainly not taking the focus off that as we look to close the Modine transaction.

Helpful. Then on the footprint realignment, last quarter, it was substantially by the end of 2026. Now it's completion in 2027. I guess has there been a shift out from kind of your expectations from a timing standpoint and what you're all doing from an alignment standpoint? And then kind of second point to that, as I look to 2027, you gave revenue but not EBITDA expectations. I get a lot of moving pieces. But are you at least willing to say if margin expansion is expected to accelerate with that revenue growth acceleration as a lot of this alignment and kind of cost efficiencies start to flow through?

Yes, Ryan, I would say no change to the timing of footprint transitions. And so we remain on track to be done in '26 with benefits coming in '27. So as you look at the $1.7 billion number next year, which is 10% growth at the midpoint. We didn't put out an EBITDA number, but we do expect to see the benefits of the footprint transition flow through as well as the benefits of more favorable mix, both from pneumatics pricing as well as the adjacent market becoming a bigger piece. And so we would expect to see a bit of a step function change in '27 from a margin perspective.

Next question is coming from [ Matt Garza ] from ROTH Capital.

This is Joseph on for Matt. Just want to hop back on a previous question asked. Flow-through, I guess, for 2026 on the sales outlook is coming in a little bit lower than expected. Just outside of the realignment on your footprint, is there any other incremental investments we're kind of factoring in for this year?

As we look at 2026, just to walk through it, right, I think the growth from a top line perspective being in the mid-single digit over the automotive industry volumes. I think as you look at it from a productivity and gross margin perspective, we continue to make progress within the plants in terms of driving operational rigor. We continue to make progress in driving material savings to offset pricing. We do have the footprint headwind in the year, which will be relatively consistent with last year, but we did see that start to increase a little bit towards the end of the year and expect that to continue into '26.

I'd say the only other dynamic out there would just be from an FX perspective. We do see some headwinds from the peso in particular, just how that's moved in the last couple of months. But other than that, we're not expecting any sort of incremental investments beyond the footprint piece and our continued focus on the adjacent market, which has really just been reallocating internal spend.

Got it. Okay. And then as you guys provided the 2027 guide, given Gentherm's majority of the core revenues coming from automotive, where is the confidence coming from? If you can just highlight any key line items that you want to highlight for the 2027 guide, excuse me?

Yes. Look, I would say we continue to have strong launch activity. So we are confident in our core automotive business as we have been. So we continue to see adoption and penetration of both our climate solutions and our pneumatic solutions. So we're confident there. And then we're also starting to see just some traction in the adjacent markets, right? We'll start getting contribution, as we said, from new product launches in medical. We'll start getting contribution more from home and office and the other things we've been working on. So we have very strong visibility, and we're very confident in the 2027 revenue number.

Our next question is coming from Luke Junk from Baird.

I wanted to start with maybe backwards looking in terms of China specifically, you cited strength across geographies in the quarter. Just hoping you could double-click on China. Maybe back up and talk about just broadly your China positioning exiting 2025. And then in the near term, just some turbulence from a production standpoint in China, just how you're thinking about it in terms of the setup for Gentherm.

Do you want to take the first part?

Yes. I mean we saw, I'd say, really strong growth from a China perspective and really across Asia in the fourth quarter. I think -- the interesting thing, and I think we talked about this on a prior call, we actually saw strength with the global OEMs in China in the quarter as they increased take rates to expand not just the passenger seat, but the second row as well. And so that changed some of the dynamics there. So we really -- we saw very strong growth above market with both local and global OEMs. And I think we expect that to continue at least through the first half of this year.

Yes, I would agree with that. And we did remain focused on rebalancing our mix to represent more domestic OEMs in China. We finished the year with about a 60%. 60% of our awards in China were domestic. So good progress there. But again, we remain focused on winning with the right business. We're not interested in buying top line growth. So we'll stay focused on shifting the mix. As John said, that we saw a big pickup from the global OEMs in China. That was really driven by the China market having a high level of adoption of our products. So that will slow the mix adjustment down a little bit, but doesn't change anything strategically that we're focused on.

And then just China nearer term, does that contribute at all to your comment that revenue may be a little more back half weighted? Or is that just really launch cadence?

I would say that's more launch cadence.

Okay. Second, Bill, just hoping to dig into the ThermAffyx patient safety system a little bit more. Assuming you do get FDA approval in the first half, just how quickly you can start to build out that business? I don't know to what extent you've kind of got potential awards in hand or now you've got a license to hunt. And then looking over the next few years, your comment that this is the -- for the bridge to medical doubling by 2030, should we assume that there's more launches like this that are coming that kind of build to that expectation?

Yes. So I would say we've already started the voice of customer and clinical work with the ThermAffyx system. So we're already, what I would say, priming the pipeline loop, which is why we anticipate revenue starting this year. So again, this will be a big driver towards us doubling the medical business by 2030. Adoption curves in medical take a little longer, but we're already out there in front of that is my feeling, and we'll push that. You absolutely can expect more new product introductions. We anticipate another significant announcement sometime early 2027, and it will once again leverage technology that we've been utilizing in the automotive industry for 30 years. So again, it will be another minimal investment, leveraging existing technology. But yes, we'll continue to refresh that product line.

Yes. And then lastly, you mentioned opportunities within data center for valves. And yes, just want to expand on that. Would that be liquid cooling? Or just what would the application there be?

Yes. The application would be liquid cooling. That's an area we have to explore. I would just say in our work with Modine Performance Technologies on the power gen side, that was a market that we gained visibility into. So it's not one we've been traditionally in. It's one that we're early in understanding. But Modine Performance Technologies gives us a lens and an avenue in, but there are true liquid cooling applications that require valve technology in data centers.

We reached the end of our question-and-answer session. Ladies and gentlemen, that does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.

Greetings, and welcome to the Gentherm Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Gregory Blanchette, Senior Director, Investor Relations. Thank you, sir. You may begin.

Thank you, and good morning, everyone. 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 will make forward-looking statements within the meaning of federal securities laws. These 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 significant assumptions, risks and uncertainties underlying such forward-looking statements. During the call, we will also discuss non-GAAP financial measures as defined by SEC Regulation G. 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 Bill Presley, President and Chief Executive Officer; and Jon Douyard, Chief Financial Officer. During their comments, they will be referring to a presentation deck that we made available on the Investors section of Gentherm's website. After the prepared remarks, we'd be pleased to take your questions.

Now I'd like to turn the call over to Bill.

Thank you, Greg, and good morning, everyone. Our third quarter results showcase improved execution across Gentherm, allowing us to deliver record quarterly revenue and strong operating cash flow. We are committed to the execution of our strategic priorities while focusing on the day-to-day actions required to drive financial results.

Now let's turn to Slide 3 to discuss highlights. Third quarter Automotive new business awards of $745 million puts us at $1.8 billion year-to-date and on track to deliver a full year above $2 billion.

Momentum for lumbar and massage comfort solutions continued as we secured another important strategic conquest win with Mercedes-Benz on one of their highest volume platforms, which includes the S-Class, GLS, GLE and CLS vehicles. It is important to note that this is 100% incremental revenue for us as we were able to displace a competitor for this award. The platform will include a proprietary pulsating massage system, Puls.A, marking the fourth global OEM to adopt our innovative technology since we introduced it to the market last year.

Securing this award demonstrates we have innovative, highly desirable and value-added solutions that customers demand from the OEMs, driving continued market adoption, increasing take rates and revenue growth for our Automotive business.

Additionally, we achieved record quarterly revenue of $387 million, driven by high demand for our products and improved third quarter light vehicle industry production versus our prior expectations.

Automotive Climate and Comfort Solutions outperformed actual light vehicle production in our key markets by 160 basis points, excluding FX. And we were pleased to see improved performance in China during the quarter. In addition, our operational excellence initiatives are gaining traction, which contributed to operating cash generation of $88 million year-to-date.

Before I finish this slide, I want to share my perspective on recent supply chain news. We are keeping a very close eye on the supply chain and the potential impacts across the industry. There will likely be an impact on OEM production, though it is too early to call at this time. Our teams are working with customers and suppliers to mitigate potential exposure and maintain visibility. The situation continues to evolve, and we'll keep you updated as necessary.

Now turning to Slide 4. We continue our relentless focus on our strategic priorities to drive long-term shareholder value. We spoke earlier this year about our strategy of scaling our core technologies across multiple end markets to drive profitable growth. We saw success in the second quarter with wins in powersports and commercial vehicles, and we made further progress on this initiative during the third quarter.

Our efforts in the past 90 days have generated a commercial funnel of over $300 million of lifetime revenue, and we are still early in our efforts. I'm excited to say that we were selected by a large global furniture brand to supply our comfort solutions and are preparing for production to start in Q1 of 2026. The product we will be supplying utilizes existing plant, property, equipment and installed capacity. We are in discussions with several other furniture brands for our thermal and pneumatic solutions and see this as an attractive adjacent market given the annual volumes, margin profile and limited incremental investment.

As mentioned, we are preparing to deliver components in Q1 of 2026, demonstrating that the development cycles and time to revenue in these markets is much faster than our traditional automotive business.

Moving to Medical. Our new product development is progressing, and we are on track for a significant product announcement near year-end. The refresh of the product line in Medical is a priority, and we are accelerating plans by leveraging existing automotive intellectual property. Operationally, we continue the rollout of our standardized company operating system across the globe, and we are starting to see early signs of traction. This is the type of foundational work that will maximize utilization of our existing assets, deliver expanded margins, lower CapEx requirements and generate increased cash flows.

In September, we brought Gentherm's top leadership together for an in-person summit. We used this time to align on strategic initiatives and key priorities, including the standardization of global business processes. We understand that people are Gentherm's most valuable asset and ultimately drive performance of our business. The leaders left with a clear vision of how we will drive value creation and the sense of urgency at which we must move to deliver the required results.

Our global strategic manufacturing footprint realignment plans remain on track to be substantially complete by the end of next year. We have made significant progress relocating and launching manufacturing processes in Tianjin, China and Tangier, Morocco. Customers have been supportive, and we are actively shipping production components from both facilities.

As we think about deploying capital to achieve superior financial performance, we believe that M&A will serve an important role for the company in achieving our strategic priorities. We are cultivating a wide range of opportunities that are aligned with our core technology platforms and provide access to new markets and expand our product portfolio. We will evaluate these opportunities as a lever to accelerate our strategy.

And with that, I will turn the call over to Jon to review third quarter highlights and results. Jon?

Thanks, Bill. Now turning to Slide 5. In the third quarter, we secured $745 million of Automotive new business awards, one of the highest quarters on record for the company.

As Bill discussed earlier, awards were highlighted by a significant win with Mercedes-Benz. Our team did a fantastic job securing this conquest business, which will more than double the annual lumbar and massage revenue with this customer after it goes into production in 2028, and it will also support lumbar and massage growth into the future.

Additionally, we had another strategic win with GM for our ComfortScale solution, which is our patented next-generation integrated thermal and pneumatic hardware system. Last year, we secured our first ComfortScale award on the full-size GM truck platform, including the Chevrolet Silverado and GMC Sierra. And in the third quarter, GM expanded this solution to its midsize truck platform, including the Chevy Colorado and GMC Canyon through a mid-cycle change in 2026.

ComfortScale is a win-win for all involved as we receive more content and value add, OEMs reduce their labor costs and end consumers get an improved in-vehicle experience. This award highlights our close partnership with General Motors and our ability to provide value-added innovative solutions to our customers.

Next, I want to highlight our success in partnering with Japanese OEMs as we look to drive growth and customer diversification across Asia. We secured multiple awards in the quarter, including one for climate control seats on a Honda platform for the Indian market. Although Gentherm has not historically prioritized this market, on our hunt for strategic profitable growth, we are evaluating the broader opportunity India may present for our products, and we'll provide updates as we progress.

Moving on to the third quarter launch activity. We again made progress in China as our solutions were included on several new programs with Chinese domestic OEMs, including our thermal solutions with Xiaopeng and our full suite of thermal and pneumatic solutions with Li Auto on the i6, both of which contributed to improved growth over market performance in China.

Coupled with a focus on winning new business with domestic OEMs, these launches will shift our customer mix and result in our business being more closely aligned to the overall Chinese market over time.

In Europe, we launched thermal and pneumatic solutions on the all-new Jeep Compass. Stellantis first introduced this vehicle to the European market in September, and we will soon launch it with our content in other regions. This vehicle will be offered in a variety of powertrain options, highlighting the powertrain-agnostic nature of our solutions.

Finally, our Climate Controlled Seat solution is included on Subaru's high-volume Forester. This is another great example of the success we have had in expanding our business with Japanese OEMs.

Please turn to Slide 6 for a more detailed review of the financial results. Overall, third quarter results were above expectations as revenue came in higher, driven by increased industry volumes. We also delivered sequential adjusted EBITDA improvement in the quarter.

Overall, revenue of $387 million was up 4.1% compared to the same period last year. Revenues excluding foreign currency translation increased 2.4%. Automotive Climate and Comfort Solutions revenue increased 8.6% year-over-year or 7% ex-FX, which more than offset planned revenue decreases from previously discussed strategic exits. Medical revenue decreased 0.4% year-over-year or 1.6% ex-FX.

Turning to profitability. We delivered $49 million of adjusted EBITDA or 12.7% of sales compared to 12.9% in the third quarter of last year. The 20-basis point decline was primarily driven by higher material costs, including a minor impact from tariffs, expenses related to our footprint realignment and higher operating expenses, partially offset by operating leverage and favorable foreign exchange. Consistent with our prior communication, the impact from tariffs has been minimal, and our team has done a nice job of working with customers to mitigate our exposure.

Adjusted diluted earnings per share was $0.73 per share compared to $0.75 per share in the third quarter of last year.

On cash, we have generated $88 million of operating cash flow year-to-date, further strengthening our balance sheet. Net leverage stands at 0.2x at the end of the quarter, providing us with ample access to capital to deliver on our strategic priorities.

Please turn to Slide 7 for a discussion on our guidance for the remainder of the year. Based on our year-to-date performance and current visibility into OEM production schedules, we are increasing the midpoint of our revenue guidance while narrowing our EBITDA range.

For the full year, we now expect revenue to be in the range of $1.47 billion to $1.49 billion, with the increase driven by improved second half light vehicle industry production versus our prior expectations.

Our outlook for the fourth quarter includes the assumption of seasonally lower revenue versus Q3. This revision does not include the potential impact of supply chain disruptions that Bill discussed earlier.

Year-to-date, we have delivered 12% adjusted EBITDA margin and are narrowing our adjusted EBITDA margin range to 11.9% to 12.3% for the full year. The EBITDA range primarily accounts for the impact of volume as well as the potential timing of year-end initiative spending, including expenses related to footprint transitions and new product introductions.

On CapEx, we are again reducing our expected range of spend from $45 million to $55 million, which reflects an ongoing focus on optimizing current plant and equipment while also scrutinizing new projects.

In closing, we are pleased with the results year-to-date, and our team is focused on finishing the year strong.

With that, I will hand it back to Bill for closing remarks.

Thanks, Jon. Our third quarter results demonstrate improved execution and progress toward our long-term strategic initiatives. We delivered record revenue with strong cash flow and have made notable progress entering into adjacent markets.

With innovative solutions and a strong balance sheet, we are well positioned to deliver profitable growth, margin expansion and increased levels of cash flow. We remain focused on these strategic imperatives that will result in long-term value creation for our shareholders.

With that, I will turn the call back to the operator to begin the Q&A session.

[Operator Instructions] Our first question comes from Matt Koranda from ROTH Capital Partners.

Good to see the further conquest award with Mercedes. I'm curious if maybe you can just point to a few of the factors that are giving you momentum in winning that conquest business. Is it technology superiority? Is it sort of having the full suite of comfort and thermal? Maybe just touch base on sort of some of the factors that are at play there.

Yes, Matt, it's Bill Presley. I would start with it's certainly an innovative edge, right? Our solutions provide the OEMs with an experience that they can pass on to their customer and price for us. So there's a true value-added proposition there, and we have an innovative lead there. Our commercial relationships with our customers are very strong. So I would say our commercial model of interacting directly with the OEMs to impact their product plan versus attempting to sell through a Tier 1 gives us a position with the OEMs, I think, that maybe not a lot of our competitors share.

And I think a really interesting one here is, it included Puls.A. So this is the fourth OEM to adopt our Puls.A technology globally since we introduced it to the market last year. So in order, I would say it's the innovative edge, the value proposition it provides to their end users and our customer relationships.

Okay. I appreciate the clarity there. And then just on the adjacent market opportunity, good to see the $300 million funnel that you guys highlighted. Maybe curious how that breaks out between some of the opportunities that you have mentioned in prior calls, powersports, commercial vehicles, furniture, I believe.

And then how do we think about that converting to commercial wins that could impact 2026 or 2027? I know you mentioned there's some shipments on furniture in the first quarter of '26, but I would imagine that it builds into '27. So maybe just level-set us on sort of how to think about that.

Yes. So that $300 million pipeline, as you mentioned, I mean, that was with just 6 months' worth of work, right? So teams moved very fast there, which is very encouraging. I would say in rough numbers, it would be roughly 1/3 what I would call the furniture, 1/3 what I would call specifically commercial vehicle and 1/3 what I would call other mobility.

In order of excitement in that space, the furniture industry seems to be actually growing rapidly. So they're talking exciting adoption rates. Their speed to market is quite impressive. I anticipate further awards in that space that we'll be able to announce, but that revenue will start flowing in '26.

On the commercial vehicle side, they're very interested in our fluid systems. So that's a new market that we're quoting with the valve business that came with Alfmeier. So fluid systems is gaining traction there. And steering wheel technology, specifically like heaters, hands-on detection, which we supply in the light vehicle market. And then other mobility, things that we've talked about, like 2-wheelers, construction vehicles, that's the other 1/3. That one, we'll have to see how it develops. But I would say, motion, furniture -- or sorry, furniture and commercial vehicle are really gaining traction.

Yes, Matt, I would just add in terms of time to revenue, I think we did talk about Q1 production on the furniture award. We think that's a $3 million to $5 million opportunity just that one award as we look at 2026. And so to the extent that the team can continue to stack these up, we think it can be a meaningful growth driver, certainly a couple of points here as we get maybe later into '26 and '27.

And just piling on to that to make sure it wasn't lost in the script, that's capacity that we already have installed equipment we already have installed. So it's incremental dollars on existing assets.

Our next question comes from Ryan Sigdahl with Craig-Hallum Capital Group.

I want to start on kind of the near-term production environment. I know there's some noise out there. You called it out in your prepared remarks, but Jaguar Land Rover, you have an aluminum supplier. I don't know if there are others, but curious if there are others beyond those 2.

And then I guess the question -- second question would be, why you're not including it in guidances. One, are you not expecting it in Q4? Or is there just not visibility on kind of the magnitude to put it in numbers, but curious that decision.

Yes. I would say -- so you touched on the JLR cyber issue. That seems to be behind us now. They're ramping back up. That was more heavy for us in Q3. You touched on the Novelis fire, which impacts aluminum. I can tell you that that's heavy Ford, maybe Stellantis based on what they've said publicly. We talk to them on a daily basis. Right now, they are working to mitigate the issue. So it's difficult for us to see or say what the impact will be. Certainly, we haven't seen any meaningful impact in the schedules yet with regard to that.

And then the third one, which is widely known that we're watching very closely is just the Nexperia issue going on between the Dutch government, the Chinese government and that company and the U.S. trade barriers.

Nexperia for us right now, our supply chain team has done a phenomenal job of mitigating any direct Gentherm impacts. So we don't see any near-term Gentherm impacts. We've done a good job of finding alternative sources for what we need. The bigger question there will be who does it impact in the industry because they're widely used components. It's likely that somebody will be impacted, not sure who. You want to talk about the guidance piece?

Yes. I mean I think to Bill's point, the Jaguar piece certainly impacted us. There was a headwind for us in September. There'll be a little bit of hangover from that in fourth quarter. We've contemplated that in the guidance. I think as you look at the fire as well as the Nexperia piece, we're really looking to our customer ADI schedules to adjust our forecast. So there's been a little bit of movement here, I would say, in the last week or 2 that has been contemplated, but we don't want to speculate more broadly than what we have with communication we have from our customers.

And so it's really the latter of what you said in terms of just visibility that we have today and the impact on the business. So we're trying to be transparent as to what we see, but we haven't seen any significant schedule shifts to this point.

Helpful. Then India, I don't know that I've heard that before. I guess as you think about adjacencies, I always thought of adjacent sectors, adjacent market opportunities. Can you maybe provide a little more? I know you said you'll give more color there in the future. But are there other markets around the world, whether you want to be specific or not, but that could be potential pockets of opportunity as you hunt for profitable adjacent opportunities?

Yes. I mean the Indian market, as you heard Jon say, talk about the conquest win, that was with a Japanese OEM in the Indian market, but that's our first entry into the Indian market. And although we haven't historically looked at the India market, we're actively evaluating that.

Look, it's an attractive market to us for a couple of reasons. One is scale, and we have no presence there. Number 2 is if you look at some of the proof of concepts we're developing on what we call alternative markets, 2-wheelers is a huge market in India. And there's a desire there for cooled seats. So that's a market that we're evaluating, and it looks like a very good market for us with regard to our valve technology.

So it's something that we're exploring and considering, but it could certainly open up alternative streams of revenue for us. Jon, I don't know what else you want to add?

[Operator Instructions] Our next question comes from Ryan Brinkman with JPMorgan.

I thought to ask first on the strategic footprint alignment plan. Now that you are growing near its completion by the end of 2026, what is the latest in terms of how you anticipate the layering on of the incremental savings with the phaseout of the associated spending to drive those savings? How should we expect the cadence of margin to progress throughout and beyond 2026 on account of both of those factors?

Yes. I think a couple of points there. I mean we talked about the impact in the year being about 50 basis points. I think it will come in a little bit higher than that just based on the timing of where we are. And the fact, frankly, that we've seen higher volumes in the year that's impacted some of the ability to build inventory.

I think as you look at 2026, we will start to see some of the legacy costs fall off, but we'll also see the impact of sort of the inventory build that we've had this year. And so the real savings from that is probably late '26, but really more like 2027 in terms of when we see the benefit of the footprint transitions.

That's helpful. And then with regard to the M&A pipeline, given all the traction that you're seeing expanding into nonautomotive end markets in a really capital-light way, should we think about M&A being aimed more at product expansion rather than channel diversification? Or what are the strategic priorities that you're most looking to accelerate through M&A?

Yes. I mean when we think about M&A, we look at it, I would say, through a threefold lens, right? I mean ultimately, we're trying to build a more resilient company, right?

So we're looking for 2 things. We're looking for something that provides access to markets that we're interested in, and we've been very vocal about becoming more than a light vehicle producer alone. So markets are important. Number 2 is it has to fit our core strategy, which means they are products that align with our current mission. So you won't see us take any wild left turns. So product expansion is important as well, right?

So more resilient company. So it has to fit the right margin profiles. It has to create value. Number 2 is access to other markets; and number 3 is broadening the product portfolio.

We have reached the end of our question-and-answer session as there are no further questions, which now concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.

So it looks like the webcast has started. Once again, I'm Ryan Brinkman, the U.S. automotive equity research analyst here at JPMorgan. Thanks for joining us for our next presentation with a relatively new management team of Gentherm. Bill Presley, President and Chief Executive Officer on the end; and seated next to me, Jon Douyard, Chief Financial Officer and Treasurer. Bill and Jon, thanks so much for coming to the conference.

Thank you...

Great to be here. Thank you. So we said, so... Go ahead and...

Do we have a slide presentation loaded for Gentherm?

Nope, I don't see it on screen.

I apologize.

I thought we had a deck. But listen, I can -- let me make a couple of comments here. So as Ryan said, Jon and I joined Gentherm on January 1 as CEO and CFO. So at the same point in time. But let me just tell you a little bit about Gentherm.

So Gentherm is a $1.5 billion global leader in thermal and pneumatic comfort solutions. What that means is, let me give you some examples of what that means is if you have a vehicle that has heated and cooled seats, that's likely our technology given the market share. If you've ever had general anesthesia in a surgery and you've laid on a heated pad or you've had the blanket over you that blows warm air to control your body temperature, that's the type of technology Gentherm does.

Our systems, our comfort solutions are built off of four core technology platforms. Those would be thermal devices, which are the heating pads. There's pneumatics, which are basically air-filled bladders. There's air moving devices which are a fancy name for fans and then there's the valves which either control fluid or airflow. And again, we put those four core platforms together to build out those comfort solutions.

Right now, as a company, we're $1.5 billion, 97% auto, 3% in Medical. However, we know that, that technology has the ability to scale to other markets. As an example, construction vehicles, agricultural vehicles, 2-wheelers, we're starting to see demand in those markets for those types of solutions. In addition, there's something called motion furniture, which if you have a power recliner in your living room. Those are the types of furniture that are now starting to ask for these types of solutions.

So part of our strategic proposition and the strategy that we're pushing is to scale our technology into these adjacent markets. We need to be very clear on something though, our focus in doing that is to scale through existing plant, property and equipment. So it's not a bespoke solution for a unique market. It's scaling our core technologies through existing plant, property and equipment to drive that growth.

Our commercial model is kind of unique. We -- even though we generally integrate into a Tier 1 supplier, so we would integrate into, let's say, an automotive seat. We sell directly to the OEMs. So we are working with the OEMs to spec our product and to get it into their product plan before the product launches happen. So we are in control of our own commercial destiny. So that's kind of a unique proposition for us.

We're not a small player, we have global reach, 14,000 employees working in 13 different countries and they're producing and engineering in region for the customers in that region. We work with over 50 OEMs globally. And as a result of doing that, we're in over 1,500 makes and models in over 150 different countries. So we have global scale. We have what I would consider a very innovative product that the market demands. So given that we're very confident in the automotive growth, I'm going to touch on the other adjacencies in a minute, but we're very confident in the automotive growth. As an example, if you look at lumbar and massage, which would be the pneumatics in the seat. In 2024, that business was about $175 million. We know based on awarded business that by 2027, that business line is well over $300 million. So we have a very clear growth path in the light vehicle market.

However, we're interested in scaling beyond the light vehicle market. And our core strategy to drive shareholder return is based on three very specific pillars. It's profitable growth, strategic profitable growth, which I'll touch on; it's operational excellence; and its superior financial performance. So off to a good start. As I said, Jon and I joined January 1.

On the profitable growth front, we've laid out the strategy that scales us from just light vehicle and medical into other markets. Since April, we've engaged with about 30 different manufacturers in those markets, and in the second quarter, we won our first 5 awards in adjacent markets. So we won two awards with commercial vehicle, which were Thermal Solutions, and it's the exact same thermal solutions that we sell in light vehicle, but now they're using them in heavy over-the-road trucks and we actually won three power sports platforms, think like ATVs, off-road vehicles and [ their valve ] solutions. So that's a catalog part. And again, the numbers are small right now, but it proves that just we went out there organically knocked on the doors. The doors opened, and we're pushing into those markets.

We expanded our distribution network for our medical business with DUOMED in Europe and opened up the full portfolio of our product there. And again, on the strategic growth side, we've continued to invest in new product development in our medical business, and we expect to have some significant announcements before the end of the year, that will be another proof point of transitioning the automotive technology into the medical market. So just a pure read across.

On the operational excellence front, First 6, 7 months in the business, we've been very focused on standardized operating systems. Gentherm is a young company. For those of you that don't know, it's only about 34 years old. So we're in the process of standardizing operating systems. In the second quarter alone, I visited 5 different manufacturing sites in Asia, Europe and North America. And it's really going there best practice read across ensuring the KPIs are all aligned, making sure we're driving standardization across the business, so that we've instilled that mindset of continuous improvement.

On the financial performance piece, earlier in the year, Jon and I announced that we are accelerating our footprint consolidation plans. We have plans in every region to consolidate footprint. So Europe, North America, specifically Mexico and then Asia. And we're confident that even after reducing our footprint by 30%, we can still fit $2 billion-plus revenue into that existing footprint. So again, $1.5 billion today. We have a very clear path. We feel to the $2 billion in existing plant property and equipment. I'm going to keep harping on that because I think it's very important that we don't need to make large-scale investment to grow the business.

And then the last thing, I've kind of talked about the organic channels we're pushing into, but we spent a lot of time building out the M&A funnel. So even though, like I said, light vehicle, we're confident in the growth. We see a very clean path to the $2 billion. M&A could be part of that, will be part of that to accelerate us beyond that. So that's something we're focused on as well.

So if somebody was to say to me, "Why Gentherm?", I would say, given our innovative product portfolio and given our access to the markets being a product that customers want, we're very well positioned for growth. We've instilled that continuous improvement mindset. So we know that we will continue to expand margins while we grow. And we're in a very strong financial position. $1.5 billion, 12.5% EBITDA were levered less than half a turn. So we have the ability to strategically deploy capital to accelerate our plans for growth. So as we sit here 7 months into the job, Jon and I are very confident in the path for auto. We're very confident in our ability to scale into the adjacent markets to maximize utilization of existing plant property and equipment. And we have the financial assets to give us the maneuverability that we want.

So I would say, Ryan, that's it in a nutshell there.

Great. Maybe starting with the quarter just completed. And with regard to business awards, you touched on the exciting -- the exciting strategic awards in the nonautomotive area. Maybe just on the automotive side, too, there was a lot of development like you had award with the F-Series right before the Tier 1 was selected. What can you tell us about this award and about the award environment generally and what your potential of your pipeline of even automotive awards might look like?

You want to take that, Jon?

Sure. Yes. I mean the Ford win is a great example for us for a number of reasons. It's a platform that we've been on for a number of years. I think, Ryan, as you talked about, we were announced before this board even announced who the seat supplier is. So we don't -- we know that we're going to be shipping parts. We actually don't know where we're shipping them to yet. And I think that speaks to sort of the power of our commercial model, the importance of our technology, importance of the customer relationships that we have.

I think the other piece there is when people look at us, they sometimes think luxury or high-end products in terms of customer acceptance and those types of things. The F-Series platform is top 5 in the world, very broad-based. And so as you think about the applicability of where our products are, and the reach that we have. We think it's very important to highlight that platform as an example.

And another thing that stood out about the quarter, I thought was that while you very slightly outgrew production in your key end markets. If you unpack it a little bit further, actually, you had some of the fastest outgrowth of any company we cover in North America and Europe, where you're up like 8 points versus the industry. It was weighed down, though by continued underperformance in China. So can you talk about the drivers of the outperformance in those markets where you are outperforming? And then touch on the headwinds in China, too, and the steps you may be taking to better align that business to where the growth is taking place in that market?

Yes. Let me take the first shot at that and then Jon can layer on. So if you look at North America and Europe, the outgrowth is really driven by adoption. We see a high adoption rate of our products continuing to roll on, both heating as well as the lumbar massage and the pneumatic solutions continue to gain market acceptance. So we're actually growing in those markets through take rate. China is a little bit of a different story. China is a market mix dynamic, and I'll give you just a little bit of a background. But if you look at the China market in 2022, 50% of the vehicles sold were domestic OEMs in China, 50% of the vehicles sold were global joint ventures. So it was a very balanced market at that point in time. Today, it's 70% Chinese OEMs in China, and it's 30% global. JV is selling in China.

Our customer mix is actually opposite the market. So right now, we sell to 70% global JVs and only 30% domestic OEMs in China. So the lack of growth you saw from us in China was just a result of the Chinese OEMs taking share from our customer base. So we've been very conscious of that. We've been very focused on that. And our sales conquest maps since the beginning of the year have been tailored to correct that dynamic. The awards that we had in China this year to this point have been with 70% Chinese OEMs. So we are actively shifting the mix to represent the market.

With that said, the China market is actually very important for us because working in the China market, we believe, is a competitive edge. And what I mean is the Chinese OEMs turn their product every 18 months. So it's a very, very fast development cycle. So that gives us the opportunity to accelerate our product line management. Second, it's the most cost-competitive market in the world. So by us being there, we're actually getting insights into what the Chinese suppliers are doing to maintain a cost advantage. And we're learning from that and reading that into our product plans and our sourcing plans in China so that we can remain competitive everywhere in the world.

Jon, is there anything else?

I would just add, as you look at the company historically, it's been really a mid-single-digit grower over the automotive market. And I think we certainly have a path back there just over market in the second quarter. We talked about sequential improvement as we go from Q2 to Q3 and expect the second half to return to something that resembles more of a low to mid-single-digit increase. And so not worried about our positioning. I think Bill highlighted the actions, particularly in China, appropriately as the big initiative there to change the construct of the business.

Thank you. And it's great to hear the progress that you're making and the new business bookings, but those faster-growing domestic Chinese automakers are sure help your global growth over market performance. I wanted to ask, though, because we do see some headlines from time to time about the fastest-growing Chinese automakers commanding very favorable pricing and payment terms with suppliers, perhaps because they know all the suppliers want to realign with them. So can you talk a bit about your approach to balancing the opportunity for growth and portfolio realignment on the one hand with maintaining commercial and financial discipline on the other?

Jon?

Yes. I mean I would say, generally, we're not in the business of buying growth, right? I mean we are looking at these on a case-by-case basis, understanding where we have differentiated products or can frankly offer a range of products with different technologies in order to meet the markets. And at the end of the day, it needs to be acceptable margins to the business.

I think in terms of the cash flow side of it, to Bill's point about being in country for country, I mean an advantage for us is being able to push some of those terms in terms of the payment terms from the customers down through the supply base. But we're very conscious of scrutinizing each and every one of these opportunities to make sure that it's aligned with -- as Bill talked about, strategic profitable growth being one of the three pillars that we're focused on as a company.

Yes. And I would just -- a little more on that is I've said that the China market is very important for us to learn from and I'll give everybody a very concrete example. China for China, I think a problem that a lot of Western companies make is they try to take their Western product and push it into the China market. The China market, while our products there perform the same function are not necessarily the same product. As an example, on a ventilated seat, there's a fan or an air moving device that circulates the cool air through the seat. In Western markets, noise vibration and harshness is a very important aspect. So they're measuring the vibration in the fan, so you have to dampen the fan. You have to have a different phase of electricity to make it run very smooth. In China, the requirement is, can you blow cool air through the seat. So you can engineer the fan differently and more cost effectively and still move air, but now you're price competitive and an acceptable margin. That's a very concrete example of how that works.

Interesting. And maybe to circle back on your nonautomotive comments. This has probably been the most surprising thing, I think, since you took over is just how large do you see the opportunity being. I think one point in dinner, I don't know if you said $1 billion, okay? And then also how quickly it's kind of coming to pass. I didn't hear you say before today. I don't think that you've had discussions with 30 different manufacturers. It seems to have happened very quickly. What is driving the progress that you've got there? And what can we expect in the back half of the year? I mean, could something happen that soon, given that you're in talks with so many -- and in coming years, do you think, how material can this get? How quickly? And then talk to about like the conversion into earnings from this incremental revenue because I think there's a lot of perception that where you have to spend money to make money, right? But you've been emphasizing your ability to leverage existing capacity.

Yes. So I'll start with -- in the company previously, there hadn't been a focus on adjacent markets. The focus had been primarily light vehicle. And then there was a medical business, like I said, that's a very small piece of it. I'm a big proponent of utilization and maximizing utilization of assets. So when we look at these adjacent markets, we know that we can push the same technology with the same equipment because those markets are demanding it. An example of a conversation we had with a construction vehicle manufacturers, my customer who buys my equipment has heated and ventilated seats in his $60,000 truck and wants to know why he can't get in this $300,000 skid steer, right? So we're seeing a pull from these adjacent markets. It's out there, but a lot of the volume is fractured and they look at what we do at scale and light vehicle and they're saying, okay, you guys can deliver with quality. That's very attractive to those markets.

The second thing is two-wheelers. We're seeing a great deal of interest in motorcycles, mopeds for cooled seats. So we're actually in proof of concept now with some 2-wheeler manufacturers showing them what we can do. And then motion furniture has been similar to the other near adjacent that I mentioned. It's like people have this feature in their car, they come home and want to know why they don't have it in their living room.

So we're actually seeing a pull from the market, which I think is unique. The development cycles in these markets is much faster. And some of the stuff we're working on now, the -- these can launch as soon as 6 months from the time of award as opposed to, like I said, the Chinese OEMs turned it around in 18 months, some of the western OEMs, it's 36 to 48 months. So these adjacent markets have much smaller development cycles, which is good.

The one hurdle that we had to overcome was in these other markets, the volume is generally low because you have so many different manufacturers. And that's been a hurdle in the past commercially if you try to tool up specifically for them. So what we've designed in our product line management are what we call standard kits. And what we've told them is, as long as you use the standard kit, you don't have to guarantee any volume, we already have plant profit and equipment in place, stick to the standard kits. That's been very, very well received from the adjacent markets. So anything else you'd like to...

Yes. I mean I think in terms of what this could mean from a magnitude perspective, we haven't come out and said anything specifically from a company standpoint, I would say we're confident in where the growth is on the core automotive light vehicle business. We think there's more growth in the medical business that's been untapped, and we think adjacencies can be on top of that.

I think if you think about it aspirationally, we would say 5 years from now, this company is less than 70% light vehicle as you look at the entire portfolio. And so that's really the objective and focus that we put on the team.

Very interesting. And what about your vision for the remainder of the company over the next several years? Do you see going in any different directions or in a bigger way with the medical side? And what about automotive to, where would you kind of like to take the business over the next several years, the whole business?

Yes. So the medical is definitely a focus for us. I mentioned it in my comments earlier that we've been very focused on reinvigorating the product portfolio on the medical side and there have been advancements in the surgical front that require new solutions for patient warming. And we found an answer to that in our automotive technology. So we're in the process now of actually working through new product development on the medical side, we expect some announcements by the end of the year once 510(k)s and other things are formally submitted. But in the past, the company said that they believe the medical business could be $100 million, we believe that really underwhelms the opportunity. We think that the medical business could be a multiple of $100 million. So definitely focused on the medical side. The light vehicle side, again, we continue to win new business in the first half of the year, $1.1 billion of new business awards. So we see the adoption continuing, which is why we're so comfortable in the light vehicle trajectory. But as Jon said, that adjacent market provides an additional opportunity for us at higher margins, utilizing existing assets to scale the business. And anything else?

Just -- I mean, to hit the margin point, I think if you look at our medical business today, it's a $50 million business, gross margins closer to 50%. And versus the total company gross margin is about 24%, 25%, right? So the flow-through from incremental volume in the medical business is it can have a substantial impact to the company, particularly as we -- as we get to the magnitudes that Bill is talking about.

Very interesting. I wanted to ask next on M&A. You mentioned recently on the 2Q call that M&A is an important part of our capital allocation strategy. You mentioned that you have progressed the funnel, the M&A funnel development and are evaluating opportunities. Can you talk about what you look for in acquisition candidate? And while I know you've stressed expansion into nonautomotive end markets can be attractive financially because of the aforementioned ability to leverage existing technology and plant capacity, would you, though, be potentially willing to consider using M&A to grow your nonautomotive business in a more step-change fashion?

Yes. The short answer to that is yes. I think the nice part about where Gentherm is as a company is we've got an amazing balance sheet, right? At the end of the second quarter, we're levered about half a turn and so very high level of liquidity for us and provides optionality and flexibility in terms of where we want to invest in the business. I think as you look at it strategically, we've touched on a lot of it. It's how do we shift the portfolio to be something that's closer to 70% light vehicle with 30% in adjacencies and medical. How do we get access to different channels that are in some of either the commercial vehicle markets or other markets, whether it's ag or otherwise? And then it's how do we expand the product portfolio beyond sort of the current offerings. And so we think as we've looked at funnel development that there are a number of opportunities out there that complement that very well. And I think as you look at it from a financial perspective, again, the balance sheet is there. We want to make sure the return profile is there as well. We're looking to drive incremental ROIC for the company. We're looking for things that are margin accretive overall to where we are today. Ultimately, we see this business in that mid-teens range from an EBITDA perspective. And we think M&A is an avenue to help that.

Great. And Bill, maybe going back to your first call as Gentherm CEO, right, 4Q '24 back in February, amongst the things that stood out to me the most beyond the obvious excitement about the nonautomotive opportunity was the emphasis on business process standardization. You stated that you wanted to "Build operational excellence through business process standardization". And just given your observation, right, that the company was doing things differently in different regions, which might have been natural given how the company grew over time, including the acquisition, but that things could be done more efficiently if harmonized. Are you able to provide any examples of that? And then do you have a sense yet because I don't think you've quantified how great the margin savings might be from process standardization.

Yes. So just a little bit of background history. Again, I said Gentherm is less than 35 years old. It was done as an innovation startup in California back in 1991. So it's been built through that, there's been some acquisitions. So I wasn't surprised by the state of the company. I come from some pretty established companies, 6 years at Aptiv, 10 years at Lear, 14 years at Chrysler. So when we walked in, what we saw wasn't a surprise, right? There were kind of different KPIs in different locations, different processes.

So some of the first things we focused on is Jon and I are big believers in minimizing utilization of net working capital. So one of the first plans we put into place was with supply chain management, we established what we call a plan for every part, and that was for every raw material part number and every finished goods part number, how many days on hand should you have based on certain criteria and then you run your master production plan schedule according to just replenishing inventory. That was a new concept at Gentherm, but it's yielded results very quickly as we've rolled that out because we're actually reducing inventory related to production, kind of offset by the inventory we're building for the footprint moves, but it's instilling a discipline on reducing net working capital.

The second thing was, is program management in each region was different. So we standardized the program management process, which was important because we have programs that transfer from region to region on global platform. So it's important to standardize that.

And then the third thing was we standardized all the KPIs. Oddly enough, different locations had different key performance indicators. When we standardize those, we were actually able, for lack of a better term, pit sites against each other and figure out which site was better in one category versus the other and take what the better site was doing and read that across to the site that was perhaps not optimal. So I know it sounds fundamental but in a 30-year-old company, those were kind of new concepts, and it's starting to yield fruit now.

Jon, do you want to talk about the margin piece?

Yes. I think as we think about we're at 12.5% adjusted EBITDA last year, getting to that mid-teens number, we would say that operational excellence is about 1/3 of that bridge. In conjunction with a number of footprint actions that we have going on right now. And so it's a meaningful contribution.

I think the other example that Bill highlighted beyond just profitability. I think the cash conversion on the inventory side, I mean, we should be driving improvement here as we're able to get through these cycles. We've also taken a different view on CapEx and back to utilization of capacity. We've been able to scrutinize CapEx as well. We took down our full year guidance there in our last earnings call. So we'll continue to focus not just on the profitability side, but how can we drive that efficiently through the company.

I wanted to ask on tariffs. I think you've done a good job outlining your mitigation of any direct impact maybe on the margin side, but not on the EBIT side, right? What about the indirect impact? What do you think could be the impact of tariffs on consumer demand or the level of production as automakers raise prices?

I mean I think our concern, given our structure -- the biggest impact for us would be North America. We do all of our North American manufacturing, or most of our North American manufacturing in Mexico. But we are more than 80% USMCA compliant. And so that's certainly helpful. And where we're not, we've got agreements with the customers to be able to pass it on. So from a direct impact, we think it's minimized. W set 15 basis points in the second quarter. It's roughly the impact. We think it's about the same for the full year. So not hugely material for the company, and the team has done a nice job there.

I think the most interesting thing, which we've been sort of questioning all year is what that -- what's going to happen to the demand side from a consumer perspective. And it's probably been one of the more stable periods that we've had in a long time. We are not seeing big swings from an OEM scheduling perspective or our production schedules are not changing quite a bit. So we have not seen any real change in demand from that standpoint, which I think has been positive and certainly gives us confidence as we look at the second half of the year right now.

Yes. No, I think that's well said. And I think we look at multiple inputs for volume. So we look at the IHS, but we also look at the customers, what they call schedules, and those are long-range material planning schedules so that those go out maybe 12 to 18 months. then they send us what they would call their weekly EDIs or their orders. That's a firm goods order 6 to 8 weeks out, depending on the OEM, and then we look at the weekly call offs. The weekly call offs are what they actually pick up. Any disconnect between any two of those is usually a red flag for us. Those have all been floating in what we would call standard deviation or standard norms for production. So there's nothing on the horizon that gives us pause or fear right now with regard to volume. So it's not -- we trust what the customer tells us, but again, we verify through other sources, right? So everything is kind of floating as it should.

I'd like to ask on your outlook for electrification also given the recent changes in the regulatory backdrop, limiting the $7,500 consumer tax credit, relaxation of the penalties around greenhouse gas and cafe. Obviously, electrification was front and center in your role at Aptiv. But how does the trend in electrification impact Gentherm?

So the great thing about Gentherm's technology is we're powertrain agnostic, whether you have in ICE vehicle, a hybrid vehicle or an electric vehicle, the comfort solutions that we provide are the same. We actually provide the same part number on an EV platform that has an ICE counterpart platform. So we actually can't differentiate from that customer, whether that part is going on an internal combustion engine or an electric vehicle. So great news for us is whichever way that trend goes. It's great. What we're really focused on and watching is to take rates in the adoption, and we see that continuing to increase well out into 2035.

And on the competitive landscape, what have you seen in terms of the impact of Lear's acquisition of Kongsberg Automotive? Has your share of the heating, cooling, ventilation, lumbar massage market gone up or down since they vertically integrated those features?

Yes, we don't see, frankly, any direct impact of Lear's vertical integration on our market share. I'll just go back to our commercial model is we engage directly with the OEMs ourself. And I think one of the most telling things and Jon talked about it right off the bat is the F-Series we just won, still don't know who the seat supplier is, right? So we were sourced that business before they chose the Tier 1. So haven't seen any meaningful change in our competitiveness as a result of that.

Great. I've got some more questions for these guys, but are there any in the audience? There is.

Over the next three years, what financial metrics are you focused on driving the company so we can kind of track them along with you?

So I think as you go back to the pillars, right? I mean from a growth perspective, growth over market and just growth in general, right? We need to move the top line of this company. From a margin perspective, taking us from that 12.5% up to more of a mid-teens from an EBITDA standpoint. And then cash conversion would be the third that I would say, and we've adjusted internal compensation along these lines as well but really focusing on cash.

Last year, our cash conversion was something like 30% of EBITDA. I think if you go back historically, it's 50%, 60%, 70%. And through the operational excellence actions Bill talked about, that's a clear target for us to get back to.

And if I could just follow up. I think return on invested capital is part of your LTIP at the company. I don't know if it is now going forward. And if it is, is that also a financial metric that you're going to look to improve year-over-year?

It certainly is a metric we'll be looking to improve. I think it gets back to just the efficiency as well as how we're looking at M&A. I believe I'd have to go back and see the year that was removed from the calculation or from the compensation, but it was -- it's been a couple of years. But it's something that we talk about every day.

Another question upfront.

It's interesting to hear about your adjacent market efforts, and they sound like they're interesting. At the same time, sometimes these add -- start adding operational complexity to the business when -- [ great ] take the box, the standard get, but then product road map start to get developed while listening to your clients, seasonality of one industry versus another, maybe an outdoor -- an ATV vehicle. People are -- or snowmobile, it's a winter dominant marketplace. How do you make sure that those costs and those complexity costs don't start to drift out of wack compared to where you were today.

I think that's a great question because I think, frankly speaking, it was one of the sins of two administrations ago within the company and it generated a lot of bespoke solutions. And as a result, no asset was, I would say, fully utilized.

So when we revamped the product line management, right, when Jon and I came to the company, things were talked about in terms of seating systems or steering wheel systems, it was talked about in terms of systems. That's why we broke it up specifically into the platform of thermal, pneumatic air moving devices and valves, right? So when we broke the product line management up like that, we put monuments in place that said these things are unchangeable. In other words, this is your base material, you must use this base material. This is the base, say, copper that goes into it, you must use this. Now whether it's a square or a rectangle for our machines and our processes, it doesn't matter. It's a form factor, right? But it's about driving scale without investing in new plant property and equipment for a bespoke solution that you never get to pay back on.

Okay. Maybe just a quick one in the 20 seconds. We can go a little bit over. I wanted to ask about the potential for normalized growth over market. I don't know if it's just as simple as looking at the regions outside of China and say, once you fix China, this is what you can do. What is your book of business that you've got today? Your awards? What does that tell you about the growth that you might be able to expect relative to the market in the next several years?

And then we're talking about relative to the automotive market. And as you start to get into these nonautomotive categories, that's going to be a driver. Have you given any thought to what you might be able to grow in relation to the auto industry going forward?

Yes. I mean I think -- as I mentioned, I think our focus is on growth, first and foremost. I think as we look at growth over market, as we look at the award backlog that we have, we were confident in our ability to outgrow the market, even as I mentioned, starting here in Q3 or the second half of the year. We've got, particularly in the pneumatic solutions business, we've significantly outpaced the market in terms of award activity. But if you listen to the numbers that Bill talked about earlier, going from $175 million to over $300 million of revenue over the next three years, that's massively above when any other markets are going to do. And so it's continuing to push our technology from North America and Europe perspective. I think we've got a number of launches here in China in the third quarter even that will help rebalance the mix there. And I think longer term, having the team focus on the alignment with the Chinese OEMs is certainly a critical piece to that as well.

Great. Thank you. That's all we have time for. So please join me in thanking Bill and Jon.

Thank you.

Greetings, and welcome to the Gentherm Second Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Gregory Blanchette, Senior Director, Investor Relations. Please go ahead.

Thank you, and good morning, everyone. 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 will make forward-looking statements within the meaning of federal securities laws. These 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 significant assumptions, risks and uncertainties underlying such forward-looking statements. During the call, we will also discuss non-GAAP financial measures as defined by SEC Regulation G. 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 Bill Presley, President and Chief Executive Officer; and Jon Douyard, Chief Financial Officer. During their comments, they will be referring to a presentation deck that we've made available on the Investors section of Gentherm's website. After the prepared remarks, we'd be pleased to take your questions.

Now I'd like to turn the call over to Bill.

Thank you, Greg, and good morning, everyone. I want to start on Slide 3 with a few key performance highlights for the second quarter. The Gentherm team delivered results in line with our expectations in a highly dynamic environment. We improved adjusted EBITDA margin performance versus the first quarter by more than 100 basis points and achieved another strong quarter of automotive new business awards with over $600 million secured in Q2 and $1 billion year-to-date. This keeps us on track for another robust year. We received a significant award from Ford on their F-Series platform, and I would like to use this as an example of how Gentherm is strategically positioned as a differentiated solutions provider. We have industry-leading technology and strong customer relationships, which position us well for this highly contested award. We secured all of the heat, ventilation, lumbar and massage systems on Ford's next-generation F-150, F-250 and F-350 platforms, making us the full comfort solution provider on one of the most significant platforms in the market.

The F-Series truck platform is the #1 volume vehicle in North America and is in the top 5 globally. This reinforces that Gentherm thermal and pneumatic products are not just focused on the luxury vehicle segment, but they are becoming the customer standard and applicable to large volume platforms. Additionally, it's important to note that Gentherm was awarded the program prior to the selection of a Tier 1 seat supplier, demonstrating the strength of our commercial approach, which is built around direct OEM engagement. Our products are an essential component in the OEM product planning process, and we work closely with them to deliver capability and value to the end user. I am grateful to the team for securing the significant new business award. We continue to innovate thermal and pneumatic solutions that allow us to create a highly desirable value-added feature for the market.

Turning to revenue. In the second quarter, Automotive Climate and Comfort Solutions outperformed actual light vehicle production in our key markets by 10 basis points, excluding FX. While we are not pleased with the overall result, we did have strong outperformance in North America and Europe, weighed down by underperformance in Asia, where our share does not currently represent the market. We recognize the importance of shifting our customer mix and are actively tailoring our pursuit maps to close the gap in Asia. To demonstrate progress we have made to proactively grow our business with Chinese domestic OEMs. If you look at our awards year-to-date, 70% of our Chinese awards were with Chinese domestic OEMs compared to 50% over the last 2 years as a result of the team's efforts. Historically in China, our customer revenue mix was about 80-20 in favor of the global OEMs, and we expect next year to be closer to 60-40. It remains a key strategic priority for us to shift our China customer mix toward domestic OEMs to be more closely aligned to the overall market. Operationally, we are laying the necessary foundation for driving improved operational and financial performance, which will allow us to strategically deploy capital.

Now on to Slide 4 for an update of our progress against our strategic priorities. We are committed to driving strategic profitable growth and confident in the growth trajectory of our core automotive business. Pneumatic, lumbar and massage adoption rates are accelerating. In 2024, the product line grew more than 20% from the prior year. And year-to-date, we've grown more than 15%. We expect that trend to continue. We project that our lumbar and massage product line will grow from approximately $175 million in 2024 to well over $300 million by 2027. Growth will be driven by increasing adoption and recent awards that have not yet gone into production. These include GM full-size truck platform, a Hyundai vehicle with Puls.A technology as well as multiple domestic Chinese OEMs, including Leapmotor.

Separately, we are executing on our strategy to expand into near adjacent markets and are gaining momentum. Over the first half of the year, our global team has engaged with over 30 customers across a variety of end markets, and the feedback has been overwhelmingly positive as customers are now expecting the same comfort solutions as those in the light vehicle market. We demonstrated quick progress and secured 5 new awards in the quarter, including 2 new commercial vehicle programs with our thermal management solutions and 3 valve awards for powersports platforms. These wins validate that our products have broader application, and we see additional early opportunities in these markets as well as 2-wheelers and motion furniture. I am impressed with our team's ability to quickly pivot beyond the light vehicle market, and we do believe this is just the beginning.

Second, we continue to position the medical business for future growth. We announced an expanded strategic partnership with DUOMED to enhance European distribution, increasing market access for our existing product portfolio. And we progressed our work on new medical product development and expect announcements in the coming quarters.

Operationally, I spent time with the leadership team in 5 of our manufacturing sites during the quarter, performing workshops, sharing best practices and standardizing business processes. In my visits, I have observed best-in-class capabilities and will drive these across the company as part of a standardized company operating system. Our global strategic footprint realignment plans remain on track and expect to be substantially completed with our announced plans in late 2026 as previously communicated. M&A is an important component of our capital allocation strategy. We have progressed the M&A funnel development and are evaluating opportunities aligned with our strategic priorities and core technology platforms.

And now I will turn the call over to John to review second quarter highlights and results. John?

Thanks, Bill. Please turn to Slide 5. For the second quarter, we secured $620 million of automotive new business awards. A few highlights include the Ford F-Series program, which, as Bill mentioned, is an important strategic win that secures our content on the highest volume platform in North America for the next decade. Our technology leadership was further reinforced as we secured additional Puls.A awards on 4 vehicles with JLR and BMW as they scale the technology across their platforms. Puls.A, our proprietary pulsating massage system, is gaining traction and its performance remains unmatched in the market. With increasing momentum among OEMs, we expect this innovation to drive profitable incremental growth of our Lumbar and Massage Comfort Solutions business for years to come. We are also winning in China with Chinese domestic OEMs, including BYD, Great Wall and Leapmotor. These awards will drive incremental growth in China, resulting in a shift of our customer mix over time to be more aligned with the overall Chinese market. To that end, we launched 9 new programs in the quarter, including several programs with Chinese domestic OEMs, highlighted by the launch of a steering wheel heat with hands-on detection program with Xiaomi on the YU7, which is expected to become one of the highest volume vehicles in China over the next several years.

Additionally, as mentioned earlier in the year, we won a thermal control unit program across several Stellantis vehicle platforms for both seat and steering wheel heat control. And in the quarter, we were excited to launch on the Ram 1500.

Please turn to Slide 6 for a more detailed review of the second quarter financial results. Second quarter revenue decreased 0.2% compared to the same period last year. Foreign exchange adjusted revenues decreased 1.6%. Automotive, Climate and Comfort Solutions revenue increased 3.8% year-over-year or 2.5% ex FX, which partially offset planned revenue decreases from previously discussed strategic exits. Medical revenue decreased 3.8% year-over-year or 4.8%, excluding the impact of FX.

Turning to profitability. We delivered $45.9 million of adjusted EBITDA in the quarter or 12.2% of sales compared to 13.3% in the second quarter of last year. The decrease was primarily driven by higher material costs, which includes unfavorable product mix as well as higher labor costs and expenses related to our footprint realignment. As we discussed previously, we experienced timing disconnects between tariff expense and recovery as well as dilution from the pass-through revenue, which collectively impacted margins by approximately 15 basis points in the quarter.

Overall, our team has done a nice job of running the playbook to mitigate tariff exposure. Adjusted diluted earnings per share in the quarter were $0.54 per share compared to $0.66 per share in the second quarter of last year. Our balance sheet remains strong, and we have generated $32 million of operating cash flow year-to-date. We repurchased $10 million of shares in the second quarter, and we'll continue to balance repurchases with other strategic priorities moving forward. Overall net debt stood at $81 million, while our net leverage ratio remained flat at 0.5 turns. Our available liquidity was $416 million at the end of the quarter, an increase of $15 million from the prior year.

Please turn to Slide 7 for a discussion on our guidance for the remainder of the year. Overall, sentiment has improved since April. We continue to diligently monitor the market, including industry reports as well as customer production schedules, which have remained relatively stable throughout the entire year. Based on the latest available information, we have updated our guidance and increased the revenue midpoint. We now expect revenue to be in the range of $1.43 billion to $1.5 billion. On EBITDA, given our results year-to-date, increased clarity on the impact of tariffs based on what is in place today as well as the expectation of improved performance in the second half, we have narrowed the adjusted EBITDA margin range to 11.7% to 12.5%. On capital expenditures, we are reducing our expected range to $55 million to $65 million to reflect the focus on optimizing the utilization of current plant equipment while also scrutinizing new projects. As we think about the cadence for the remainder of the year, we expect third quarter overall results to be roughly in line with the second quarter despite industry reports suggesting a mid-single-digit decrease in light vehicle production sequentially.

In closing, we remain on track to deliver our financial commitments for the year while positioning the company to drive shareholder value over the long term. With that, I will hand it back to Bill for closing remarks.

Thanks, John. I want to wrap up on Slide 8, reiterating our belief that Gentherm is uniquely positioned for long-term value creation. We remain focused on driving profitable growth of our innovative and differentiated core technology platforms. In a short time, we have proven these are scalable and portable to adjacent markets. Next, we are committed to driving margin expansion through continuous improvement and have a clear path with our strategic footprint realignment and focused efforts on the margin profile of the Lumbar and Massage Comfort Solutions business. Lastly, we are operating from a strong financial position. We remain flexible and opportunistic with our capital allocation priorities to drive shareholder value.

In conclusion, we are acting with a sense of urgency on the execution of our long-term strategic priorities to deliver enhanced shareholder returns. With that, I will turn the call back to the operator to begin the Q&A session.

[Operator Instructions] Your first question comes from Ryan Sigdahl with Craig-Hallum.

Nice quarter update. Let's start on guidance since you ended with it. You mentioned Q3 expected to be similar to Q2 results despite the industry decline of mid-single digits. Is that a different -- or I guess, is that a company-specific outperformance you expect given the visibility from new launches? Or do you have a different view from an industry production standpoint than where the forecasts are at?

Ryan, I think, I would say it's company-specific to you. I mean we do have a number of new launches that are going to come out in the third quarter really across the regions. But also, as we look at -- as we've talked about throughout the year, we've been very consistent from a customer production schedule standpoint. So the visibility we have here in the short term solidifies our view that Q3 looks a lot like Q2 from a top line perspective and expect the P&L to follow.

Very good. Then just switching over to Ford. Nice to see that new F-series. Full Comfort Solutions portfolio on Ford F-Series. I guess, can you compare and contrast how that compares to -- because you guys had a lot of content on the previous or the current F-Series, but what's new, what's different current versus the next gen?

Yes. For us, Ryan, this is Bill. That was continuation really of our current platform. So similar content as previous F-Series. It just solidifies the desire of the customer to have our features because of the value that it provides to the end user. And significant for us because of our strong relationships with the customer, because of our innovative product line, we're able to work with the customer while they're doing their product planning and be sourced into the product before they've even chosen a seat supplier.

Yes. And certainly nice to have that extension with a core customer, especially given some of the noise in the market. Last question for me, and then I'll turn it over to the others. Just on the adjacencies, I believe you called out 3 powersports platforms that you have awards. Anything you can expand on that, who the OEMs are, what the content provided, et cetera?

I can't expand on who the OEM is. I'll tell you that they're UTV-style vehicles. So -- and it just proves the thesis that our valves really being a, what I call a catalog component, read across to other industries, and our teams have been out there calling directly on those other end markets, right, to provide our solutions. So we're very positive on what we think we can do there. We're just building the channel, but we think this is a great opportunity for us in the future.

Just to clarify, you said single OEM with 3 platforms.

Yes.

Next question, Ryan Brinkman with JPMorgan.

One thing that I think really stood out from your earnings call last quarter was the large opportunity you saw in the nonautomotive end market. So it's great to see the awards already in powersports and commercial vehicles. Thought asking questions around that. Starting with powersports, I'm recalling an award early in the pandemic for heated and cooled seats on Indian motorcycles. Is that what you're doing as well heated and cooled seats? You mentioned utility vehicles. I'm not sure -- snowmobile seems obvious candidate. And then on the commercial vehicles, are these commercial trucks?

And can you remind us what, if any, business you do today in commercial trucks? And then also on some of the less obvious adjacencies, thank you for helping us with furniture being another. I hadn't thought of that, but obviously makes a lot of sense. Did you mention another end market, too? I might have missed that. And then finally, you mentioned valves. And I just want to be clear, is valves separate from these other awards? I imagine that furniture, commercial trucks, utility vehicles, whatever, that would be heated and cooled seats. Is valves somehow different? And what are you looking at potentially supplying there, if not heated and cooled seats?

Yes. So let me try to take those. My team will keep me honest here on the number of questions. I think I'll hit them all. So let me just start with saying, look, our alternative -- our commercial vehicle is extremely small today, almost like negligible in the company. So the commercial vehicle wins that we're talking about here are specifically thermal solutions, and there were 2 awards on commercial vehicle. One of them is actually a heavy truck, so a Class A over-the-road truck. So that's a big win for us there. And the other one is a last mile delivery van. So both commercial vehicles, both good wins, so new wins for us. The valves specifically were in the powersports platforms that was separate of any thermal and pneumatic solution. And again, that was a good win. The team engaging directly with the OEM there. The valves for us, we view valves as a separate core strategy or a separate core technology platform, right? If you think back, we said we have 4 core technology platforms. They were thermal solutions. They were pneumatic solutions. There were valves and they were air moving devices.

We view valves and air moving devices as catalog parts, meaning it's a flow equation and a dimension. So we go out to the OEMs. We show the value that we can provide, the performance that we can provide, and that's how we're trying to win, and that's what the team brought home this quarter. The other end markets that we specifically mentioned were 2-wheelers. So 2-wheelers would be applicable to our thermal solutions. They would also be applicable to valves. We're in some early proof of concepts, I would say, there with 2-wheelers. And then motion furniture is anything that's not stationary. That's the doors there have opened well. The communications there have been very positive, and we're in early proof of concepts with 2 equipment manufacturers in motion furniture right now.

And I would just add, Ryan, I think we did talk about this on the last call, but this is us taking current product lines and opening up to existing markets. So minimal investment. We're not offering really new products, but tailoring them and looking for opportunities to just enter adjacent markets.

Yes, I think super good point to clarify, right. Ryan, these are not us creating a bespoke solution for a unique market. This is us scaling our core platform technologies and components. So utilizing literally the same plant property and equipment that we have today out there, pushing what our teams on the thermal and pneumatic side would call standard kits and pushing on the valves what our teams would call catalog parts.

Okay. Very helpful. And then just lastly, on the EBITDA margin change in the guide. Obviously, some good traction year-to-date, you're a little bit better than consensus here in the quarter. And just curious if you can comment on that. And I understand it's a little bit of a narrowing, but kind of midpoint down slightly. And then just curious if tariffs have influenced at all. You're one of just a handful of suppliers to have reported 1Q earnings before the April 29 USMCA compliant part exemption from tariffs. Is there maybe like less pass-through of 0 margin tariff costs? Or what are the puts and takes there on -- not a big change, but puts and takes on the full year margin revision, please?

Yes. Let me start on tariffs, Ryan. I mean I think we talked in the quarter about being about a 15 basis point headwind. I would say, generally, the tariffs have played out exactly as we have expected in terms of the cost incurred as well as our ability to pass through and recover. There is also the timing difference between when we do incur the expense and when we do recover it from the customer, and that's really the headwind that we're seeing here. That will fluctuate month-to-month in terms of the magnitude just based on goods movements. But I think we've got better clarity -- certainly better clarity today than we did in April just on the fact that we've been living through it now for a couple of months. So that is a piece of narrowing the EBITDA guidance range as well as having additional clarity on what the tariff impact is overall. I think the other piece to that is you look at the first half of the year, we're 11.7% of EBITDA -- adjusted EBITDA year-to-date. We did see sequential improvement from Q1 to Q2. We expect second half to be in the same range or a little bit better. And as you look at that math, it really sort of narrows it around that low 12s range.

[Operator Instructions] Next question comes from Matt Koranda with ROTH Capital Partners.

Just on the guidance, I guess I wanted to clarify that to hit the midpoint of the guide on EBITDA, it does look like in the second half, you do need to show a little bit of EBITDA margin expansion relative to the second half of last year. Should we expect that in the third quarter? Or is that more of a fourth quarter event? Maybe just the puts and takes around that.

Yes. I think just to clarify what we said, I think the -- we expect the third quarter to look a lot like the second quarter did. And so it should be similar from an EBITDA margin perspective. We will see an increase as we get into the fourth quarter, and that would be where we see more of the margin expansion. But really, we've got the teams focused on incremental improvements quarter-over-quarter, how do we get better in the factories from a manufacturing and efficiency perspective. And that's really what we're pushing on to see a better second half here.

Okay. And the fourth quarter improvement comes mostly from a mix improvement? Or is that a vendor negotiation thing? What are the kind of buckets where you see the improvement coming from?

No, I would say it's operationally.

Operations. Okay. Got it. And then just I was curious on Asia. You mentioned sort of one of the reasons for the underperformance relative to production is kind of lower exposure to the China domestic OEMs. I guess that would suggest that it's going to take time to sort of close the gap on outperforming China production. Maybe can you speak to that and just sort of how long it may take before you're consistently outperforming production in China over time?

Yes. I would say if you look at our revenue, what we've been winning, we say by next year, we're at that 60-40 customer split. So 60% global, 40% domestic. So that starts improving actually for us next year, Matt, the Chinese OEMs, their development cycles are much faster. So when we win programs, we can often add revenue anywhere from 6 to 18 months. So as I said in my comments, for the first half of the year, the team has done a phenomenal job. 70% of the wins in China have been with Chinese domestic OEMs. So if you project that out, we're quickly shifting toward what I would say is the mix in the market there. So our plan is to represent the market there sometime in the next 18 to 24 months.

Okay. That's great to hear. Maybe just last quick one. The adjacent market revenue, it's exciting to kind of hear all of the potential adjacent market products that you could be in. Maybe I missed it, maybe you covered it, but just in terms of cycle time for that, I would assume that's much faster than the typical automotive program in terms of sort of when to launch. But could you touch on that really quickly?

Yes, I think you're spot on. It's surprisingly much faster. So like I said, we're working on proof of concepts now. And these industries and the parts that we're showing them, the components we're showing them because they're already available, their launch times are there 2 market times they talk about in terms of less than a year.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may now disconnect your lines.