Greetings, and welcome to the Gentherm Fourth Quarter and Year-End 2022 Earnings Conference Call and Strategy Update. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the call over to Yijing Brentano, Senior Vice President of Strategy, Corporate Development and Investor Relations. Thank you. You may begin.

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. In addition to discussing fourth quarter and full year 2022 results, Phil Eyler, our President and CEO; and Matteo Anversa, our CFO, will also share Gentherm's strategic plan for 2023 and beyond. You will be able to see the slides on your webcast screen when we advance through them here in the room. A copy of the complete slide deck will be posted under the Events tab in the Investor Relations section of gentherm.com immediately following the completion of Phil and Matteo's prepared comments. In addition, an audio replay of this event will be available for 90 days. Additionally, a webcast replay of today's call will be available later today on the Investor Relations section of Gentherm's website. During this call, we may make forward-looking statements within the meaning of federal security laws. Statements reflect our current views with respect to future events and financial performance, and actual results may differ materially due to a variety of important factors and risks. All statements that address future operating, financial or business performance or Gentherm strategies or expectations are forward-looking statements. In making these statements, we rely on assumptions and analysis based on our experience and perception of historical trends, current conditions, and expected future developments as well as other factors we consider appropriate under the circumstances. We undertake no obligation to update them except as required by law. Please see Gentherm's earnings release and its SEC filings, including the latest 10-K and subsequent reports, for discussions of our risk factors and other risks and uncertainties underlying such forward-looking statements. During the call, we may discuss non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures are included in our earnings release or investor presentation. After Phil and Matteo's prepared remarks, we will have a Q&A session. Now, I'd like to turn the call over to Phil.

Thank you, Yijing. Good morning, everyone, and thank you for joining us today. First, let me outline the agenda for our enhanced earnings call this morning. We will begin with a brief review of Q4 and full-year 2022 results and 2023 guidance. We'll then review our mid-term strategic plan in detail and provide 2026 financial goals. We would encourage you to follow along on the webcast as we will kick off the strategy update with a short video. And finally, we'll conclude with a Q&A session. Now turning to Slide 4 for some 2022 highlights. I am extremely proud of what the Gentherm team achieved in 2022 despite a continuously challenging operating environment. During the year, we closed the acquisitions of Alfmeier and Dacheng Medical, which expanded Gentherm's value proposition in both automotive and medical. We also achieved record revenue in the fourth quarter and for the full year 2022. Of special note, we achieved record annual revenue for climate control seats, steering wheel heat, and battery performance solutions in 2022. With the addition of Alfmeier and Dacheng, revenue grew 38% year-over-year in the fourth quarter or 43% excluding the impact of foreign currency translation. Adjusting for both foreign currency translation and the Alfmeier acquisition, Automotive revenues increased 23% year-over-year in the fourth quarter, outperforming actual light vehicle production in our key markets by nearly 20 percentage points. For full year 2022, revenue rose 15% year-over-year or 23% adjusting for the impact of foreign currency translation. Adjusting for both foreign currency translation and the Alfmeier acquisition, Automotive revenues increased 11% year-over-year in 2022, outperforming actual light vehicle production in our key markets by over 600 basis points. In addition, we secured new automotive business awards of $1.8 billion in 2022, setting another record in company history. Our milestone achievements on revenue and awards are strong proof points of increasing demand for our thermal and pneumatic massage and lumbar comfort solutions, especially in the EV market. In addition, we continue to innovate with differentiated proprietary solutions such as ClimateSense and our thin foil cell connecting systems. These innovations are expected to significantly increase Gentherm's content per vehicle as electric vehicles expand in the market. On the cost front, we continued our disciplined approach to managing operating expenses. After adjusting for restructuring, acquisition, and divestiture expenses, operating expense as a percentage of revenue improved nearly 100 basis points from 2021 and over 500 basis points from five years ago. Before I turn the call over to Matteo to briefly review the Q4 and full year results, as well as our guidance for 2023, let me touch upon a few key operational highlights in the fourth quarter on Slide 5. In the fourth quarter, we launched our automotive solutions on 20 different vehicles across 11 OEMs, including CCS launches on the Chevrolet Trax, several Great Wall models, the Honda Pilot in the US, the Kia Optima, KX5, and Sportage. Since the announcement of the Alfmeier acquisition, our customers have resoundingly expressed support and excitement to see Gentherm further expand its value proposition beyond thermal, to include pneumatic solutions and comfort, health, wellness, and energy efficiency. Since the close of the acquisition, our teams have presented a number of technology days at multiple OEMs showcasing our latest innovations in both thermal and pneumatic comfort. It's clear that customer interest in our extensive product portfolio continues to grow. In the fourth quarter, we secured $560 million of automotive new business awards, bringing us to $1.8 billion of wins in 2022, including three full quarters of Alfmeier, setting another company record. A highlight in the quarter was two important wins with our long-time customer Stellantis. We were awarded an intelligent closed cabinet neck conditioner and a conquest thermal electronics and software module, our first with this OEM, which we believe will open the door for many future opportunities. We won multiple CCS awards, including on the Ford Mustang Mach-E, the Buick Enclave, Land Rover Defender, and Li Auto's e-SUV. In the fourth quarter, we also received 12 steering wheel heater awards across seven OEMs. In addition, we won a significant multi-car line award for our pneumatic lumbar and massage solution with Volkswagen. This is another strong proof point of our ability to grow market share by winning business from competitors, as well as grow penetration of pneumatic comfort solutions into vehicles that do not offer the feature currently. On the medical front, hospitals continue to face financial pressures and are carefully managing their capital spending. Medical revenue grew 4% excluding FX year-over-year in the fourth quarter, primarily driven by our acquisition of Dacheng Medical. In the fourth quarter, the University of Colorado and Denver purchased 10 Blanketrol units to expand usage throughout their facility. In addition, Meijer Heart Hospital in Lansing, Michigan, a part of Spectrum Health, has adopted our patient temperature management product based on resistive technology, ASTOPAD, in their cardiac operating rooms, replacing competitive air blankets. And with that, I'll turn the call over to Matteo for a little more color on the financial results and to provide 2023 guidance.

Okay. Thank you, Phil. Let me turn to Slide 6 and focus on the items that most significantly impacted our fourth quarter results. For the quarter, product revenues increased by 38% compared to the same period of last year, including the contribution from the acquisitions. If we adjust for the impact of acquisitions and FX, our overall product revenue increased by 21%. Starting with the Automotive segment, Automotive revenues were $332 million, reflecting a 40% increase compared to the prior year period. Adjusting for the $58 million contribution from Alfmeier and foreign currency translation, Automotive revenue increased by 23%, and this compares to a 2% increase in the actual light vehicle production in our key markets of North America, Europe, China, Japan, and Korea. As Phil mentioned, we outperformed light vehicle production volume by nearly 20 percentage points. We have provided the detail on revenue growth by product category in our earnings press release and associated materials that are available on our Investor Relations website. Turning to adjusted EBITDA. Adjusted EBITDA in the quarter was $38 million, up from $31 million in the prior year period. The adjusted EBITDA rate for the fourth quarter was 11.1%. This compares to 12.5% in the year-ago period. The 140-basis points decrease was driven by higher material and wage inflation, negative impact of foreign currency exchange, primarily due to the appreciation of the US dollar compared to the euro, as well as the impact of Alfmeier, which has a lower profitability rate than the legacy business. These were partially offset by fixed cost leverage on higher sales volume as well as cost recoveries and negotiated price increases from customers. It is worth noting that the dilutive impact on the adjusted EBITDA margin rate of Alfmeier in the quarter was approximately 170 basis points. Legacy Gentherm adjusted EBITDA margin rose to 12.8% in the quarter compared to the prior year. Operating expenses were $66.2 million in the quarter compared to $45.5 million in the prior year period. If we adjust for impairment, acquisition, and restructuring costs in both periods, operating expenses were $55.6 million, up from $45.1 million in the fourth quarter of last year. A year-over-year increase of approximately $10 million was primarily driven by the additional expenses from the acquired businesses. As a percentage of revenue, the rate improved 200 basis points compared to the fourth quarter of 2021. Finally, adjusted diluted earnings per share in the quarter was $0.47 per share compared to $0.61 per share in the fourth quarter of last year. Our adjusted earnings per share for the total year 2022 was $1.82 per share compared to $3.01 per share in 2021. Our effective tax rate in the year was approximately 36%, above our guided range of 31%, primarily due to the impact of the impairments related to the exit of the non-automotive electronic business. Now, moving to the balance sheet on Slide 7. Our cash position at the end of the quarter was approximately $154 million, up from $139 million at the end of September. We closed the quarter in a net debt position of $81 million compared to net debt of $96 million at the end of the third quarter. The reduction in net debt was primarily driven by approximately $20 million of cash received from the sellers of Alfmeier in connection with the finalization and settlement of actual working capital adjustment. As a result, our net leverage decreased from 0.99 in the prior quarter to 0.63, well below our target of 1.5. Based on the trailing 12-month consolidated adjusted EBITDA ended December 31, we had approximately $265 million of remaining availability on our line of credit, and the total available liquidity as of December 31, 2022, was $419 million, up from $404 million at the end of September. Now, let me turn to Slide 8 for our 2023 guidance. For comparison purposes, we included the actual results as reported for 2022, as well as the pro forma 2022 values if we had incorporated the result for Alfmeier since the beginning of the year. Additionally, starting with our 2023 reporting, we will exclude the impact of non-cash stock-based compensation from our adjusted EBITDA results. We are presenting comparable data for 2022 for your reference. So, for 2023, we are expecting revenue to be in the range of $1.45 billion to $1.55 billion, assuming a euro to US dollar exchange rate of $1.05 and light vehicle production in our relevant markets to grow at a low-single digit rate in 2023 versus 2022. Adjusting for approximately 150 basis points of FX pressure year-over-year, the midpoint of our guidance implies an organic growth rate of 13%. Our guidance also assumes higher revenue in the second half compared to the first half as a result of new program launches. Adjusted EBITDA margin rate is expected to improve to 11.5% to 13.5%. We do expect our profitability in the first quarter to be below our full-year adjusted EBITDA margin guidance range due to the revenue cadence I discussed earlier and the impact of contractual price downs, which will be offset in the second half of the year by gradually increasing price recoveries, supplier cost improvements, and productivity actions. We expect the adjusted EBITDA margin rate to steadily improve throughout the year. At the midpoint of our guidance, we expect our adjusted EBITDA dollars to increase nearly 3 times the revenue growth rate versus pro forma 2022, a strong proof point of our value creation for shareholders. We expect our full-year effective tax rate to be in the range of 28% to 32%, and capital expenditures to be in the range of $60 million to $70 million. This is higher than prior years due to the full-year impact of Alfmeier and increasing investments for the ramp-up of new capacity as a result of the higher win rate of new awards. With that, I'll turn the call back to Phil to start our mid-term strategy update.

Thanks, Matteo. Before we begin a detailed review of our mid-term strategic plan, we will present a short video about Gentherm. We invite you to join us via the webcast, where you will be able to see the video and slides. If you are on the phone line, there will be a few minutes of silence during the video playback. We will then move into a comprehensive review of our mid-term strategic plan and our financial goals for 2026, followed by a Q&A session. In 2018, we established our mission to create and deliver solutions that significantly enhance everyday life by improving health, wellness, comfort, and energy efficiency. This has been our guiding principle. We are truly a purpose-driven company, and we believe that our purpose sets us apart from the competition. Health, wellness, comfort, and energy efficiency are at the core of everything we do, from our long-term strategy to daily operations. Our mission inspires our innovative efforts globally. You will remember our thermal solutions on cold winter mornings or when our temperature management products help improve patient outcomes in hospitals, facilitating faster recovery for you or your loved ones. Today, you'll learn more about why Gentherm represents a compelling investment. We will provide additional details on the key points presented here. We are a leading company in thermal and pneumatic technologies and are continuously refining our portfolio to enhance our core strengths. There are significant growth opportunities in a largely untapped market due to rising consumer demand for our features. Our innovative technologies not only enhance consumer experiences but also improve energy consumption in electric vehicles, particularly by extending driving ranges. Our talented product development team has produced outstanding results in developing new products and technologies that will drive future vehicle demand. Our global presence supports every customer seeking our innovative solutions worldwide. Over the last five years, we've consistently met our milestones while adapting to unprecedented challenges. We're proud of our ability to achieve results during turbulent times on the cost front. We've transformed the talent and culture at Gentherm through growth and renewal. Talent is our competitive edge. Our Board and executive team have collaborated to ensure we maintain strong governance while continuing our forward momentum and delivering results. We have all been tested, and we have proven our resilience. This unique combination of attributes positions us for high-return growth that exceeds market trends. Our diverse Board is active and contributes expertise from various relevant fields to guide our strategy, providing robust oversight. We have a prudent mix of experienced Gentherm Board members who have helped us navigate our transformation and the challenges we faced. We also refreshed several key positions to enhance governance and oversight. Our executive leadership team boasts a wealth of managerial experience from companies like BMW, Pepsi, Infineon, General Electric, General Motors, Visteon, Sprint T-Mobile, and HARMAN Samsung. This diverse group has successfully transformed Gentherm and fostered a resilient company culture as we progress into the next chapter. While our comprehensive global customer base is a significant competitive advantage, we uphold that advantage by ensuring we provide localized technical support, sales, engineering, manufacturing, and distribution. Our remarkable global footprint, with 14,000 employees across more than 30 locations, has proven to be especially beneficial during the significant supply chain challenges we've faced in recent years. Our team has quickly adapted to support customers in real-time, leveraged a multi-regional network, and adjusted our local supply as necessary, regardless of location. In the last five years, our global ecosystem has improved our regional revenue mix. For example, our revenue has reached $1.3 billion, with Asia, comprising China, Japan, and Korea, growing from just over 20% of our total revenue in 2018 to nearly 28% today. We are exceptionally well-positioned to drive even greater growth thanks to our extensive global reach. With our industry-leading technology and market presence, we serve over 50 different OEM customers worldwide. Our customer list continues to grow as manufacturers incorporate thermal and pneumatic applications to enhance comfort and battery efficiency. I'm very proud of our ongoing international expansion in Asia and Europe. Our strong, trusted relationships built on innovative, value-driven products continue to strengthen as we partner to help our clients navigate global COVID disruptions and supply chain volatility. We've proven to be reliable partners, and our customers acknowledge this. For example, General Motors has recognized us as Supplier of the Year for two consecutive years, and Honda honored us with their Excellence in Value award. Although our core Thermal Comfort solutions remain our largest segment, we've significantly diversified our product offerings over the past five years by adding solutions that create additional value for our customers while remaining true to our mission. For instance, in 2018, Thermal Comfort represented 87% of our revenue, compared to 65% today. As we move forward, these new product segments will contribute additional growth to support our goals. Five years ago, we formalized our sustainability journey by establishing a framework centered on people, planet, and places, which we have implemented at every Gentherm location. Since then, we have enhanced that framework to highlight our commitment to developing technologies that improve energy efficiency and driving range by reducing power consumption in electric vehicles. Our approach is aligned with scientific standards and conforms to industry benchmarks such as the Sustainability Accounting Standards Board (SASB) and the Automotive Industry Action Group. Although we are still early in our sustainability journey, we achieved our initial seven-year environmental targets in less than half the projected time. Additionally, we are receiving recognition for our sustainability efforts, having been named one of America’s Most Responsible Companies by Newsweek and one of Investor's Business Daily's 100 Best ESG Companies, while also being recognized on Detroit Free Press's list of Michigan Top Workplaces and as a Top Employer for Engineering by Germany's Top Employers Institute, to name a few. At Gentherm, we strive to make a positive impact in people's lives. I'll discuss later in the presentation how our products significantly contribute to sustainability. ESG initiatives are central to Gentherm's identity. Our industry is undergoing a transformation, and Gentherm is committed to exceeding customer expectations, often anticipating their needs. Almost every major trend in our sector favors profitable growth for Gentherm. A significant factor driving purchasing decisions for automotive consumers is the in-cabin experience. It’s easy to see OEMs highlighting their improvements in entertainment, user experience, comfort, health, and wellness to differentiate themselves through these sought-after features. Gentherm is at the forefront of health, wellness, comfort, and energy efficiency with our leading thermal and pneumatic solutions. Our human-centric design combined with software integration and intelligent algorithms positions us as an attractive partner for delivering personalization, which is critical for the cars of the future. As electric vehicles become mainstream, our comfort and battery performance solutions, with proven capabilities to reduce power consumption and enhance EV range, are exceptionally well-positioned. In the medical field, increasing clinical studies indicate that maintaining the optimal patient temperature can significantly improve outcomes, decrease recovery times, and enhance quality of life. We are in the midst of an accelerated transition to electrification this decade. According to S&P Global, it is projected that less than 20% of the vehicles produced in 2030 will utilize traditional internal combustion engines. Instead, a significant majority are expected to be high voltage full EVs or plug-in hybrids, shifting away from previous forecasts that included a higher concentration of mild hybrid 48-volt. The demand for efficient thermal solutions that enhance range and comfort will be critical. I'm thrilled to share that our proactive transition over the past five years has led to a product portfolio that is highly aligned with the EV market transition. Over 85% of our automotive revenue now comes from products designed to enable or specifically support electrified vehicles. We are already benefiting in three main ways: increased adoption of our technology across more vehicle platforms, higher penetration rates, and greater content per vehicle. Building on our success with internal combustion engines, where we've seen steady improvements in content and penetration, we anticipate accelerated revenue growth opportunities with electric vehicles. Our thermal and pneumatic solutions enhance comfort, reduce weight, and decrease power consumption from central HVAC systems, leading to increased range. Consequently, EV manufacturers are integrating these solutions into more platforms, expanding applications, and offering more seating options per vehicle. Our multifunction electronic control units, which manage both thermal functions and control motors, are increasingly in demand as OEMs seek to consolidate components and minimize weight and complexity. The centerpiece of our system is ClimateSense, which will revolutionize one of the least efficient functions in a vehicle. ClimateSense can deliver up to four times more thermal products. Our innovative battery performance solutions will also drive additional content. Overall, we predict the increase in content per vehicle to rise from $30 to $300 for internal combustion engine vehicles to between $150 and $1,000 for electric vehicles. While we are passionate about our thermal solutions and their effects on health, wellness, and user experience, we also partner with Escalent, a well-known consumer research firm in the automotive industry, to gain insights on how consumers react to our products in their vehicles. We surveyed approximately 3,000 individuals across North America, Europe, and China, and the results are impressive. More than 90% of respondents worldwide expressed high satisfaction with heated and cooled seats and heated steering wheels, with a significant majority wishing to see these features in their next vehicle. Before we discuss our future strategy, let’s review our progress on the objectives we laid out in June 2018. At that time, we outlined four key strategic imperatives: focused growth, extending our technology leadership, expanding margins and return on invested capital, and optimizing capital allocation. I'm proud to say that Gentherm has consistently executed on this strategy and delivered exceptional results, despite the challenging environment. The past few years have been marked by unprecedented volatility due to macro events such as COVID-19, semiconductor shortages, inflation, and geopolitical disruptions. Despite these challenges, we have remained robust and adaptive, implementing proactive measures to mitigate risks and continue meeting our strategic milestones. We are now more resilient than ever—capable of managing uncertainty and generating profitable growth. The global headwinds have dramatically impacted vehicle production levels compared to what we projected back in 2018. Notably, one milestone year in our plan was 2021, when actual vehicle production fell 24% below expectations from 2018, with 2022 showing minimal improvement. Current forecasts from S&P Global indicate that vehicle production is unlikely to return to 2018 levels throughout this decade. Nonetheless, Gentherm delivered on our strategic goals and achieved industry-leading results despite the challenges. We significantly boosted our climate comfort thermal business through increased take rates and product expansion. Our climate control seat products achieved record revenue levels despite lower production numbers. We also saw substantial revenue growth in Asia; for instance, Hyundai became our second-largest automotive customer, and our revenue in China more than doubled. We launched a scalable ClimateSense platform, earning industry recognition for its application on the Cadillac CELESTIQ, followed by another General Motors EV in 2025. Furthermore, we introduced several new products that led to a sevenfold increase in our battery performance solutions segment. Our patient temperature management business has also grown through our product expansion. A key performance indicator for us is our growth against vehicle production levels. In the past three years, we've outstripped the market by an average of over 900 basis points. Our unwavering commitment to technology investment has led to numerous groundbreaking product launches, from innovations in our core solutions like the new Intelligent Micro-Thermal Module (iMTM) to our revolutionary ClimateSense system. It’s rewarding to see these cutting-edge solutions leverage enhanced electronics and software capabilities. We made a significant shift from traditional component engineering to full system-level product development. You may recall our Fit for Growth program started in 2018, aimed at strengthening cost management practices and resetting future priorities. I'm pleased to report that we've successfully ingrained these cost management principles into Gentherm's DNA. We've demonstrated the capability to achieve adjusted EBITDA margins in the high teens, and while inflation and instability have posed challenges, our team has sustained profitability and paved a clear path back to high teens' adjusted EBITDA margins in the mid-term. We also defined a decisive capital allocation strategy, guiding our actions throughout turbulent times. We maintained strong liquidity while funding our innovation, returning capital to shareholders through buybacks and making selective acquisitions. Matteo will share more details on this shortly. As a result of our consistent execution of this strategy, shareholders have benefited, with Gentherm delivering top-tier total shareholder returns. Since the end of 2017, we have achieved a return of nearly 110% and increased our market capitalization from $1.4 billion to $2.2 billion, significantly outperforming market and peer averages over this five-year period. Now, let me transition to our future, as shown on Slide 25. Our journey to fulfill our mission continues to evolve. Our origins are rooted in our innovative thermal technologies, having started as a startup from Caltech University in 1991. We are now expanding our human-centric value proposition beyond thermal comfort within the realms of health and wellness. Our first major initiative was incorporating pneumatic lumbar and massage features to enhance the occupant experience, and this is just the beginning. Over the past five years, we’ve accelerated our company’s transition from a thermal and electromechanical-driven device company towards being a holistic system solution innovator fueled by software, algorithms, and intelligence. This development is founded on our company’s core sciences of thermophysiology and physiotherapy. Our focus is not solely on the vehicle but on the people inside it. Our OEM customers have noted that we are unique in our field, possessing deep human-centric scientific expertise. As we advance, we will continue to develop our capabilities to create incredible solutions for the vehicles of the future and in hospital operating rooms. While I can certainly detail our technical innovations, I believe the following three scenarios will better portray our vision for the future. Picture this: you're returning home from the gym, tennis match, or golf game, feeling a bit sore. We envision a vehicle equipped with our technology that activates temperature therapy alternating between heating and cooling, combined with pneumatic muscle massage, synchronized with uplifting music, soothing lighting, and a refreshing scent. By engaging these five scientifically proven comfort-enhancing features, your vehicle has the potential to assist with your recovery on your journey home. In another common situation, during a stressful rush-hour commute or traffic jam, you might experience anxiety. With our ClimateSense technology, your vehicle could read the environment and respond immediately with heating or cooling to create personalized comfort zones, incorporating the scientifically proven advantages of massage and thermal therapy to reduce cortisol levels and promote a state of calm. You're likely to take a longer, more relaxed route home. Finally, many of us have faced drowsiness while driving. Through a partnership, we foresee ClimateSense working alongside future alertness features to stimulate the skin with cooler temperatures that boost brain activity and alertness. Simultaneously, rapid, intermittent massage across the lower back will invigorate the body while the seat position adjusts to enhance your posture and restore driving focus. This is just the beginning of how we envision our technology transforming health, wellness, and comfort in future vehicles. Now, let's delve into how we aim to evolve our strategy. Although we are pleased with our progress, we recognize it's merely the beginning, and we need to continue adapting our strategies to outpace competition and deliver superior performance for our customers, employees, communities, and shareholders. Our strategic priorities for 2023 and beyond consist of four interconnected elements that will help us develop a cycle of profitable growth. Firstly, by leveraging our exceptional talent and culture, we will extend our technology leadership. This process will drive focused growth in the areas where we can excel, leading to strong financial results and fueling the cycle to attract more top talent. As we implement these four strategies, our growth will gain increased momentum. Our aspiration is to exceed $3 billion in revenue by 2030. Let’s discuss each of these strategic elements, starting with talent. When I joined Gentherm at the end of 2017, it was clear that the potential for a winning culture already existed—particularly the culture of innovation, entrepreneurial spirit, and emphasis on science, which are essential components of a strong foundation. However, to foster transformation, we needed to elevate four key areas to develop the capabilities and discipline required for scaling. These winning cultural behaviors include customer focus, employee engagement and inclusion, a global mindset, and performance accountability. We have woven these behaviors into the fabric of our organization. We've seen substantial talent enhancement through internal development and recruitment; established diversity, equity, and inclusion as foundational principles with commendable results; and instituted an industry-leading manufacturing culture, reflected in our safety achievements and community engagement at our operational sites. Additionally, we've been acknowledged for adopting advanced board governance practices. All these initiatives have established a solid groundwork for future advancement. We believe it is people, not companies, that compete. Now, let's move to Strategy Two on Slide 30. Technology and innovation are at the heart of Gentherm’s operations. This is the foundation from which we began. Founded by a rocket propulsion scientist from Caltech, our profound connection to science drives our progress. We have pioneered multiple product categories, such as heated and cooled seats and pneumatic seat massage. Our growth is propelled by our substantial investment in research and development. There are five core technology domains that underpin our ability to deliver superior solutions and move toward our system vision. Central to this is our core innovation in thermal and pneumatic devices. The search for advanced solutions that provide comfort more quickly, efficiently, and compactly is a continual pursuit. Our commitment to excellence in our foundational offerings remains unwavering. Software and electronics are crucial to our strategy. We've increased our capabilities significantly, advancing from embedded systems to algorithm-driven connected solutions. To fulfill our future vision, we’re making strides in systems engineering, ensuring the seamless integration of hardware, software, external inputs, and sensors into vehicle architecture. We are enhancing our expertise in advanced sensing and machine learning as well as forming partnerships to facilitate closed-loop systems involving occupants and their environments. This is vital for solutions like ClimateSense. Finally, what distinguishes Gentherm the most from our competitors is our human-centric scientific principles rooted in thermophysiology and physiotherapy. Thermophysiology studies human temperature regulation, while physiotherapy targets interventions that maintain, restore, and enhance human functionality and movement to improve quality of life. Our PhDs and scientists are heavily involved in current and future product development spanning both automotive and medical fields. Gentherm is excellently positioned to empower the software-defined vehicle of the future. For those unfamiliar, a software-defined vehicle manages its operations, introduces capabilities, and offers new features primarily through software. Our vision is to integrate our advanced thermal and pneumatic devices and system solutions into the software-defined vehicle. A vehicle equipped with our latest innovations will ensure the effective delivery of comfort and wellness to its occupants. The breakthrough will be that our software will enable numerous features and therapies beyond basic comfort and wellness modes, including mood enhancements, safety alerts, pain management, and more—all continuously evolving. Our system will also integrate with connected vehicles to enable post-sale delivery of these new functionalities through over-the-air updates throughout the vehicle's lifespan. Now, let's explore how we will market our vision through our focused growth pillars. We firmly believe in a strategically chosen mix of innovative and complementary product solutions to optimize growth and returns based on clear strengths. We will continue channeling our investments and resources into areas where we hold a competitive edge, propelling our mission and producing robust financial results. The first pillar is to accelerate growth in our core Thermal Comfort product lines. Thermal solutions are central to our identity, and we aim to advance this across our comprehensive range of products, from seat heating to our flagship ClimateSense. The second pillar is expanding our pneumatic comfort offerings driven by our Alfmeier acquisition. We are now the global leader in pneumatic lumbar and massage solutions, with strong growth prospects, especially in combined thermal and pneumatic applications. The third pillar focuses on enhancing battery performance solutions, a market where we can add unique value and secure strong returns for our customers. The fourth pillar involves leveraging our thermophysiology expertise to further develop our patient thermal solutions within the medical device sector, capturing share with our innovative offerings. All this will be empowered by an ever-increasing focus on digital and software integration, allowing Gentherm to continue its transformation into a comprehensive system provider. Next, let's break down each of our growth pillars in further detail. First, regarding our largest business, Thermal Comfort. This segment is the heart of Gentherm. We provide our customers with some of the most innovative devices and solutions in the industry, including seat heating, climate control seats, heated steering wheels—many of which now feature hands-on detection—net conditioning, radiant heating, and more, culminating in our complete microclimate solution, ClimateSense. As we discussed, consumers increasingly demand thermal technologies, prompting OEMs to roll out more vehicle platforms that include these features. Our forecasts suggest that the penetration of climate-controlled seats and seat heating in vehicle production in key markets will rise from 45% today to 65% by 2030. Similarly, the uptake of heated steering wheels is projected to increase 16 percentage points by 2030 to approximately 35%. For those of us who already have heated steering wheels in our cars, it raises the question of what the remaining 65% of car owners are waiting for. Gentherm’s market share in our core product line highlights our global leadership as the largest independent innovator of thermal solutions, commanding 50% of the heated and cooled seats market, 60% of the heated steering wheel sector, and 40% of the more mature heated seats segment. We maintain this share through innovative, differentiated solutions and unparalleled customer service. With the anticipated growth and increasing content per vehicle for thermal solutions, we forecast a 9% compound annual growth rate for the total addressable market between 2022 and 2030, in stark contrast to the 2% compound annual growth rate for vehicle production in our key markets during the same period. Let’s discuss the competitive advantages that enable us to uphold our leading market share. As the largest independent supplier, our status supports our selection by OEMs who direct source the majority of thermal awards, along with key partnerships with Tier 1 seat manufacturers. Regardless of the customer, our commitment to innovative high-value solutions provides a crucial competitive edge. Our offerings comprise in-house designed and manufactured electronics and software, which are true differentiators. We have a long history of successfully bringing next-generation technologies to market, maintaining the broadest and deepest customer portfolio and relationships in our industry. We are involved when OEMs address complex thermal challenges within cabins. Our industry-leading R&D and manufacturing capabilities offer unparalleled scalability and flexibility to respond rapidly to global and regional customer needs. Lastly, our advanced application of thermophysiology lies at the core of our human-centric designs. Now, let’s turn to the cornerstone of our future, our groundbreaking ClimateSense microclimate solution. Traditional HVAC systems are insufficient for future demands. Requiring high volumes of heated or cooled air to reach the desired temperature throughout the entire cabin is highly inefficient. In fact, the HVAC system is the second-largest energy drain on an EV’s battery after the drivetrain. The ongoing shift toward connected and electrified vehicles necessitates far more efficient, personalized climate control tailored for each occupant while conserving energy in unoccupied areas of the cabin. We anticipated this need and have developed the solution, which is ready today. Our comprehensive suite of thermal devices surrounds the body, responding with our proprietary ClimateSense algorithm based on thermal physiology principles. It delivers targeted heating or cooling precisely to the body’s optimal locations, efficiently minimizing energy use while maximizing comfort. The advantages are substantial: a 70% reduction in energy use during cold cycles leads to over a 30% increase in driving range, along with a 35% decrease in power consumption during hot weather cycles. Besides enhancing range, ClimateSense delivers the best thermal comfort available, enabling a smaller and less costly central HVAC system while allowing greater cabin design freedom and reducing vehicle weight. We are excited to announce that we will launch our solution for the first time in the 2024 Cadillac CELESTIQ, followed shortly by another General Motors electric vehicle. Customer interest is growing as the market recognizes the potential impact of this technology. A crucial design aspect of ClimateSense is its development as a scalable platform that can be seamlessly integrated into existing EV architectures while also being adaptable for next-generation heating and cooling requirements from OEMs. Our proprietary Smart Effectors are designed for modular installation, allowing customers to take advantage of gradual implementation based on their current vehicle strategy. This approach enables us to scale our contribution to energy efficiency and thermal performance from initial incremental steps to fully realized ClimateSense implementations. Our thermal contributions could ultimately increase by 2 to 4 times compared to the best systems currently available. How do we plan to capture above-market growth in Thermal Comfort? First, we will seek to drive higher take rates. While market trends will surely contribute to our growth, we have developed a strategy to collaborate with OEMs to boost take rates through enhanced option packages and regional expansions. Our continually expanding set of solutions that enhance wellness and comfort will also allow us to increase per-vehicle content. This includes adding additional seat technologies, neck conditioning, surface heating, radiant heating, and further expanding our electronic and software segments. We will strengthen our established relationships with global customers to deepen our problem-solving capabilities and value delivery, while benefiting from the adoption of more vehicle models that feature our solutions, especially in lower-priced mass-market segments where we’re seeing strong momentum. We also expect to continue growing with new customers and enhance areas with previously low take rates and content, especially in Japan and China, where our potential is significant. I'm enthusiastic about our progress in these regions. Finally, ClimateSense represents a game-changing opportunity with the potential for a near-100% take rate on vehicles that will depend on its integration as part of their climate architecture. Now, let’s transition to Pillar 2, which focuses on growing pneumatic comfort by leveraging what we believe to be the next wave in health, wellness, and comfort in vehicles—physiotherapy via lumbar and massage technologies. Our acquisition of Alfmeier, a trailblazer in automotive lumbar and massage comfort solutions with a reputation built on 50 years of innovation, positions us well for this market. They hold more than 200 patents, including key advancements in shape memory alloy technology. Alfmeier was a pioneer in implementing SMA valve and pump actuator technology in automotive seat comfort systems, resulting in quiet, high-speed pneumatic lumbar and massage performance. We are excited to provide even more compelling and valuable solutions by combining our technologies, teams, and capabilities. Alfmeier has developed a strong customer base, particularly among European OEMs. Many customers we serve together include BMW, Volkswagen, Mercedes-Benz, Ford, and Tesla. Like Gentherm, most of Alfmeier’s business is sourced directly by OEMs. We are poised to enhance our market share in pneumatic comfort by leveraging Gentherm’s leading customer base, particularly in North America and Asia. As previously mentioned, automotive customers are increasingly seeking features that promote comfort and well-being. In addition to thermal offerings, we see robust growth opportunities in features that enhance driving experiences, allowing occupants to exit vehicles feeling better than when they entered. Currently, about 39% of vehicle production in our key markets includes lumbar or massage functions, yet the majority—34%—are mechanical or electromechanical systems. These bulky devices are heavy and can consume excessive power. The demand for pneumatic alternatives is rising, however, due to their lightweight, low-profile bladder designs and energy-efficient electronic valve systems that create comfort without compromising performance. Volkswagen has initiated shifts from mechanical systems to our pneumatic solutions, marking a strong trend toward this innovation. The market for pneumatic solutions is approximately $1 billion today, and we expect it to grow dramatically in the coming years. With our acquisition of Alfmeier, we are now the market leader in pneumatic lumbar massage, having initially created this category in 1995 with the Mercedes S-Class. Our innovative technology currently leads the market. We introduced the shape memory alloy-driven valve system in 2005 and maintain industry-leading technology with high-value solutions. Our software-driven modular platform can adapt from a straightforward single-bladder lumbar solution to an advanced 50-plus bladder massage system, which our customers agree is the ideal architecture for deployment across various nameplates and trim configurations. As we look to the future, our collective expertise encompassing thermal, pneumatic, electronics, and software—along with our scientific knowledge—forms a scalable platform that will profoundly enhance comfort and unlock therapeutic possibilities for pain management and occupant well-being. In concluding our pneumatic focus, we foresee multiple pathways to outpace the market with growth initiatives. First, we will maintain a concentrated effort to serve long-term customers where we anticipate significant growth opportunities, such as with VW, BMW, Mercedes, Tesla, and Ford. Utilizing our established approaches from the Thermal Solutions segment, we will proactively engage with OEMs to enhance take rates and per-vehicle content. For example, we believe the rear seat represents a new frontier for growth. Our most significant immediate expansion will focus on introducing pneumatic comfort into Gentherm’s extensive customer portfolio, particularly in North America and Asia, where Alfmeier had previously low participation. Our strong connections with North American OEMs, combined with our broad customer base in Japan and Korea, create tremendous possibilities. We are already collaborating with multiple customers on potential rollouts. Lastly, we see opportunities to introduce proprietary innovations in this arena. Our next major development is a pulsating massage solution called Pulse A, which combines high-frequency pulsation with traditional massage to stimulate muscles, alleviating pain and tension. We are thrilled about this potential, expecting pneumatic solutions to grow at rates comparable to or even higher than those of thermal comfort in automotive. Now, Pillar 3 focuses on driving battery performance solutions that help EV manufacturers enhance efficiency and performance. Our initial success in this area stemmed from our PACE Award-winning thermal electric management system, which enabled clients like Mercedes and Jeep to deliver 48-volt mild hybrid systems while ensuring proper battery heating and cooling under challenging conditions. We are proud of this innovative offering, which has established our credibility in the EV sector. However, growth will be limited as OEMs rapidly shift to high-voltage plug-in hybrid and fully electric vehicles. Fortunately, we anticipated this market change and have been diligently developing a suite of products that add substantial value to high-voltage battery systems. Key to this effort is our proprietary thin foil flexible circuit technology designed for use as either a battery cell heater or a cell connector, which unlocks significant growth potential. Our product range also includes intelligent battery air cooling devices and high-voltage battery cables. Our experienced team has deep expertise in battery thermal management and connection systems, earning us strong credibility with high-profile customers. Now, let’s highlight our most significant development in battery performance solutions: our proprietary cell connection technology. This product utilizes the industry’s first mechanical structuring method to create a versatile thin foil. This innovation offers marked advantages compared to the current state-of-the-art, which relies on intricate cable systems and chemically-etched circuits. Our technology is fully automated and features industry-leading production speed and minimal complexity. The flex foil allows OEMs or battery manufacturers maximum flexibility regarding material choices—in particular, for aluminum over copper, which is preferred. Our first customer for this solution, BMW, implemented it in the plug-in hybrid 7 Series. While the technical capabilities of this product are compelling, its positive sustainability impact is transformative. According to a study from the Fraunhofer Institute, our solution improved environmental performance by 99% compared to chemically-etched alternatives. To put this into context, if one million vehicles switched to our aluminum flex foil solution, it would prevent over 186,000 tons of greenhouse gases from being emitted. This is equivalent to the annual emissions from 40,000 gasoline-driven cars. Additionally, this flex foil technology effectively supports conductive heating solutions for batteries, conducting heat quickly to maintain proper performance and longevity even in cold weather. Moreover, it benefits rapid charging since heated batteries can handle increased charging rates. We are excited to see our proprietary flex foil battery heater roll out for Jeep programs, with upcoming launches on Renault EVs. How will we continue to push forward with our battery performance solutions? We are still in the early phase of adopting our flexible circuit cell connection technology but are confident in its unique capabilities to meet electric vehicle requirements. The launch with BMW will solidify our credibility. We have garnered interest from several customers and are selectively pursuing quotations. While we are optimistic about this cell connection product’s future, positioned in a multi-billion dollar market, we are only engaging in projects that promise strong financial returns. The compelling sustainability benefits and material flexibility of our solution stand out, and we will seek partnerships with customers who value these advantages. We envision advancing intelligent battery health monitoring technologies closer to the battery cells mounted on the flex foil, termed eCCB, for which we've been collaborating with Datang NXP on preliminary concepts. Early tests, especially those concerning impeded spectroscopy for early thermal detection, have shown encouraging results. We also anticipate incremental growth in high-quality battery air cooling solutions and high-voltage battery cables. While we are selective about these projects based on their differentiation and margin profiles, we've received interest and are launching initiatives with customers like Rivian, Porsche, and Nikola. Gentherm’s only non-automotive growth pillar is our fourth focus—expanding patient thermal solutions within the medical device market. This product line resides within the medical sector, where we see immense synergy with our automotive thermal comfort technology. We believe this market is attractive as it is large and fragmented, representing over $2.5 billion in total addressable demand. This sector is ripe for our innovation, particularly given our leading product portfolio that encompasses more thermal delivery modes than anyone else in the industry. The medical business typically carries superior contribution margins compared to our core automotive operations, which should help balance some seasonal fluctuations in automotive demand. The investment necessary for growth in this area is relatively minimal compared to our automotive sector, leading to superior returns. Most importantly, our synergies with the automotive business are significant, distinguishing us from our competitors. Our deep understanding of human physiology and thermophysiology, used to save lives in hospitals, translates directly into our automotive thermal comfort solutions for user wellness, enhancing our credibility among OEMs. We are singular in our capacity within the industry. As mentioned earlier, Gentherm excels across all thermal delivery modes: liquid, resistive, and air. This extensive range of products provides medical professionals with unparalleled flexibility in the surgical environment. We can consistently manage temperature throughout the entire patient journey, from pre-op all the way until hospital discharge. We are enthusiastic about the growth chances in the medical market and will implement key initiatives. In collaboration with our automotive R&D teams, we have a strong pipeline for new products and technologies. Our differentiated resistive warming solutions will help reduce airborne infection threats. We aim to expand in Europe and China through our acquisitions of Stihler and Dacheng in those respective regions. Additionally, we will work on diversifying our pathways to market through strategies like direct-source partnerships with OEMs, white-label options, and equipment rentals. I will now hand over to Matteo, who will discuss the specifics of our financial strategy.

Thank you, Phil. Let me start the financial section on Slide 59 by taking a step back and look at where we have been. As Phil mentioned earlier, in the middle of 2018, we launched our Fit for Growth initiative centered around a few key strategies. Overall company simplification, which resulted in the disposition of non-profitable businesses as well as the halting of expenses in areas that were not part of our core strategy. Footprint rationalization, which led us to the restructuring of our electronics manufacturing, and the closure of a few facilities in North America and Asia, sourcing and manufacturing excellence, and SG&A rationalization, which resulted in a reduction of operating expenses by 15%. The Fit for Growth program was extremely successful and generated more than $75 million of growth savings that allowed us to improve the profitability of the business up to high teens adjusted EBITDA rates at the end of 2020. On a balance sheet standpoint, we significantly improved our cash conversion through working capital optimization and tighter controls on capital expenditures. We generated approximately $370 million of free cash flow over the 2018-2021 period, deploying the cash towards strengthening the balance sheet and opportunistic share buybacks. 2022 was a year of transition for the company. We entered the year in a net cash position of approximately $150 million, which allowed us to successfully weather the supply chain disruptions around the semiconductor shortages and build inventory to protect our customers. Our strong balance sheet enabled us to play offense and complete the Alfmeier and Dacheng acquisitions in the summer of last year, and we were able to mitigate the impact of the supply chain disruptions and material inflation through tight cost control on SG&A and more than $20 million price recoveries from customers. As we look forward, our goal is to return to high teens adjusted EBITDA rates as we fully integrate Alfmeier and bring the combined entity to the level of profitability our legacy business used to enjoy prior to 2022. We will focus on strong cash flow generation by improving Alfmeier working capital and continue to maintain a strong balance sheet. Now, let me walk you through the details in the next few pages. On the revenue side, we are projecting to grow on an organic basis with a mid-teens compound annual growth rate between 2023 and 2026, continuing to outpace the production growth in our relevant market. The majority of the growth will come from Thermal Comfort. We are expecting to grow faster than automotive production by continuing to drive increased take rates, launching new products that will increase our content per vehicle, and driving the adoption of our new microclimate solution, ClimateSense. Pneumatic comfort will grow in the range of $75 million to $125 million for two key reasons: first, continued growth with existing Alfmeier customers, such as BMW, VW, and Tesla; as well as second, through the extension of pneumatic comfort solutions into the broader Gentherm customer portfolio across Asia and North America. BPS growth will be driven by our proprietary flex foil cell connecting, where we have good visibility to our pipeline with several selected customers. In medical, we'll grow organically due to new product launches and a diversification of our go-to-market channels. As a result of all these factors, we expect to generate revenues between $2.05 billion and $2.35 billion by 2026. In addition to the volume leverage from the revenue growth, we have outlined the building blocks of our profitability improvement program over the next three years to achieve high teens adjusted EBITDA margin on Slide 61. We expect to capture $80 million of increased profitability net of inflation at the midpoint through three specific initiatives. First, $30 million to $50 million savings from manufacturing productivity through automation on our product lines; leveraging lean best practices across our network; continuing to reduce material usage and scrap, particularly in Alfmeier; taking cost out of our bill of materials through value engineering; and reassessing our manufacturing footprint by moving production to best cost companies. Second, we will deliver $20 million to $40 million savings from our sourcing excellence program by focusing on design to low cost; establishing multi-sourcing strategies to increase negotiating power, flexibility, supply continuity, and resilience; as well as implementing continuous cost reduction initiatives. Finally, we will deliver $10 million of cost synergies from the Alfmeier acquisition by consolidating the supply base, primarily on electronics, footprint rationalization, and SG&A reduction. We will continue to look for opportunities beyond synergies to improve Alfmeier profitability to be closer to the company average. Slide 62 summarizes the impact on the adjusted EBITDA margin of all the initiatives that I just talked about. And as you can see, fixed cost leverage from revenue growth will be the largest driver of margin expansion. As we are assuming a normalization of the supply chains, we are expecting to face a more challenging pricing environment compared to what we faced in 2022. Conversely, the sourcing savings and productivity actions will more than offset the annual price downs and will help us expand our margins as we have historically done. We will continue to manage cost tightly and we will deliver $10 million of Alfmeier cost synergies. Through the initiatives that I just described, we are expecting to achieve high teens adjusted EBITDA rates by 2026. Now, moving to the balance sheet on Slide 63. We have historically maintained a conservative balance sheet, and we plan to continue to do the same in the upcoming years. In 2018 through 2021, we focused on reducing our debt through superior cash flow generation, which allowed us to enter the pandemic in a net cash position and opportunistically deploy the cash to acquire Alfmeier and Dacheng Medical. During the 2024 to 2026 plan period, we expect to strengthen our free cash flow conversion, while increasing capital expenditures to 4% to 5% of revenue in order to fund capacity growth and innovation projects. Finally, on capital allocation, in the last four years, we have been balanced in our approach by focusing on debt pay down first, deploying $220 million towards strategic acquisitions and $165 million towards organic growth. We have also returned $204 million of cash to our shareholders in the form of opportunistic share repurchases while maintaining our net leverage well below our target of 1.5 times. In the future, we will continue to thoughtfully balance the allocation of capital between funding organic growth, considering select M&A opportunities, opportunistic share buybacks, and maintaining appropriate leverage. On the M&A side, our priorities have not changed. As we've successfully done in the last couple of years, any future acquisition would fit within the focused growth strategy by expanding our content per vehicle and technology capabilities, enhancing our regional presence, and expanding our technology in medical. In addition to the above, we have set high financial and process hurdles that have to be met before executing an M&A transaction, including a compelling financial profile and line of sight to integration benefits in addition to the strategic fit that I just mentioned. I am extremely pleased with the improved talent and process discipline Gentherm has developed, especially related to due diligence and integration processes. And we will remain disciplined in our M&A strategy. So now let me summarize on Slide 66. Over the next four years, we will focus on returning to high-teen adjusted EBITDA margin, strengthening free cash flow conversion, maintaining a strong balance sheet, and a balanced capital allocation. And with that, I will turn the call back to Phil for the wrap-up.

Thanks, Matteo. Now let me close. I believe Gentherm presents a strong investment thesis. Simply put, our best-in-class innovative technology, industry-leading manufacturing, our deep customer relationships and proven execution create a sustainable competitive advantage for the company. As I pointed out, the market is large and underpenetrated, and we're going to capitalize on our independent market-leading position and our capabilities to drive high-return growth outpacing the market. And finally, we will leverage our operational excellence to deliver strong cash flow and shareholder returns. With that, I'm going to turn the call over to the operator to start the Q&A.

Thank you. We will now be conducting a question-and-answer session. Our first questions come from the line of Luke Junk with Baird. Please proceed with your questions.

Great. Thank you, and good morning. Thanks for taking the questions. I want to start with the question on '23 guidance and then I'll ask a couple of strategic questions. And first one, maybe for Matteo, if you could just unpack the 2023 EBITDA margin assumption, I'm thinking in terms of gross margin, incremental investments, underlying leverage in the business, can you just help us understand some of the key drivers '22 into '23 and the EBITDA margin? Thank you.

Hi Luke, thank you for the question. Good morning. To begin with EBITDA, our pro forma 2022 EBITDA rate was approximately 10.4%. This serves as our baseline. At the midpoint of our guidance, we are forecasting a 13% organic growth in revenue. The S&P Global is currently estimating a growth of about 3% to 4% for our relevant market. This translates to about 30% of gross margin flow-through, leading to roughly 190 basis points expansion in our EBITDA rate due to the volume. We also anticipate around 70 basis points of margin expansion from pricing initiatives, similar to what we achieved in 2022. Additionally, there's a projected 70 basis points improvement from manufacturing productivity and value engineering, adjusting for labor inflation. On the downside, we expect about 120 basis points of pressure from material inflation, which remains high, especially at the start of the year given that we managed to defer some material inflation from 2022. Foreign exchange impacts are estimated to be a drag of approximately 120 basis points. This brings us to a 200-basis points EBITDA margin improvement at the midpoint of guidance compared to our pro forma close in 2022. If you have further questions about capital, please go ahead, Luke.

No, sorry. I didn't mean to interrupt.

I think you asked a question on capital and investment. So, let me talk maybe first on the income statement on the operating expenses. So, we are assuming operating expenses to be in total still at about 16% of revenue, pretty much in line with the pro forma of 2022. And primarily, this is driven by investments on the R&D as we continue to fund new programs on BPS, on ClimateSense, and some of the new technologies of Alfmeier. And then, we also have to manage labor inflation, which is not only impacting the variable cost, but this applies also to the operating expenses. And then, on CapEx, so we guided a little higher than our normal run rate, and that's again driven by some of the investment that we have to make in order to fulfill the high win rate that we had on awards in the recent months.

Hey, guys. Good morning, and thanks for all the detail with the strategy update. I'll do a couple near-term ones and then a couple of long-term as well. So, maybe just, Matteo, maybe I missed it, but just could you maybe break out the drag on EBITDA margin in '23 from Alfmeier? Just sort of how we should be thinking about that headwind to versus core EBITDA improvement in '23? And then, maybe also just speak to the progression of EBITDA margin throughout the year.

Sure. Let me start with the first question. Alfmeier closed 2022 with a low-single digit EBITDA rate, and we expect that to improve to about a mid-single digit EBITDA rate over the year. Further improvement will come as we realize full synergies and work on productivity projects outlined in our mid-term strategy and financials shared this morning. The mid-single digit EBITDA rate is what we have incorporated into our guidance for 2023. Regarding your question on cadence, I previously mentioned that for the first quarter, it’s essential to look at where we finished 2022. The fourth quarter profitability in 2022 benefited from pricing recoveries negotiated earlier in the year. If we normalize these recoveries and exclude the impact of non-cash stock compensation, the EBITDA rate in the fourth quarter would be around 10%. This is how we enter 2023. Additionally, we need to keep in mind that our earnings are seasonal. In the first half of the year, our margins typically face pressure from annual price reductions, and cost recoveries and pricing actions are negotiated throughout the year. The benefits of these usually come later in the second half. This also applies to sourcing savings; volume rebates from suppliers typically arrive in the fourth quarter. Lastly, we must consider labor inflation, which remains elevated at both the factory and salary levels. Combining these factors, we expect our profitability in the first quarter to fall below our annual guidance for EBITDA. However, the adjusted EBITDA margin should steadily improve throughout the year as the benefits from price recoveries, pricing negotiations, factory productivity, and supplier cost reductions materialize later in the year.