Gentex Corporation Stock

All right. Thank you, everyone, for being here. My name is Josh O'Berski. I'm Gentex' Vice President of Investor Relations. I appreciate you all making the trek, and thanks for everyone on who's watching us as well. We -- just a quick couple of points of housekeeping. We are using the Q&A feature for the webcast. [Operator Instructions]

The other thing, and this is an apology for me. We had some AV issues this morning, and so we are running this presentation off with my computer. So if you see any messages pop up from my wife, you did not see them. If you see anything pop up on from my GC, you are now an accomplice in what you have seen and I apologize in advance for that. [indiscernible] With that said, thank you again for being here. We're going to have Steve kick off the presentation. There will be some tours later. If you do not have an itinerary, I've got them here. And if you need anything, just shoot me an e-mail or text.

Thanks, Josh. And if you feel off at any point, you need some privacy, let us know. Obviously, there's probably more important things than listening to us out there that you may need to deal with feel free to let us know. There's plenty of places we can get privacy. Once again, it is odd, like Josh understand about Josh and what he does for fun. But also, no one turned in scorecards for those of you who I have to officially declare that James, James and half of the round that Josh and I were winners. [indiscernible] Also, James is the biggest sandbagger in the history. James can verify this, too. He figures, like, I'm a 12, I'm 12, I'm 12 after 7, he was 12 under. So I think there's no other conclusion other than he lies more than Josh. So no I make a joke about a quiz afterwards. That's not entirely true, but I decided not to make Josh read this to you either.

So most of our presentations today is going to be a little different than what we normally do. You -- everyone in this room and online, you know most of this data. So I'm going to hit a couple of highlights and just a couple of themes real quick because it's really going to drive to the underlying theme for the conference.

And that is when we look at the fundamental financial performance that we put up over the last couple of years, especially, we truly believe that the market and we get it, right? It's a difficult market to convince investors that any play in automotive is a strong one. But if you look at the fundamentals that we've put up, we believe we can paint a very compelling picture that we are significantly undervalued. And so instead of talking through all the data that you already know, we're really going to focus on the presentation of that data and take a different cut and look at it, both in my presentation. Obviously, Neil will talk a lot about it on the product side. But Kevin has got a few interesting slides as well that are really meant to drive home why we believe we've separated from the current constraints that we've all known and understand about automotive and how it drives potential revenue growth and obviously, financial performance for us.

So just going through a quick of these highlights real quick. If you look at net sales, first half of this year, up about $100 million versus last year. Gross margin up 70 basis points -- 170 basis points versus last year. Income from operations, you can see up to $265 million versus $231 million last year. Net income up $213 million versus $190 million last year. EPS up from $1.06 versus $0.92 last year, and we repurchased 5.9 million shares, about $137 million in the first half of the year.

With that performance, we can all see what the stock did. And I'm not going to rub it in all our faces collectively, so I'm not going to show that chart, but I think we know the story of what's happened with most autos, quite frankly, during that same time period.

Just a quick refresher. Where are we at? What was our original guidance for this year, where are we sitting today? Revenue is still projected to be $2.65 billion to $2.75 billion for the year. We say it's unchanged. That was from our July update when we posted earnings. We actually increased that about $50 million, both low end and high end in the April earnings call. So it is up versus the beginning of the year. We lowered our operating expenses guidance. Now I will just point out, this is a clear of severance and impairments but we still anticipate there may be additional severance expense throughout this year. I will talk, and I think we're going to discuss a little bit about the VOXX integration, how we've done with that. The next wave of severance will likely come with our ERP upgrades.

We're not going to have the efficiencies that you need until you get to that point where systems can help offset some of the manual workload that's existed inside of that organization for a long time. We lowered our annual tax rate guidance for the year, lower CapEx for the year. And one of the things we want to point out, this is not about us not investing. In fact, today, part of the reason for the tours is to see where a lot of that investment over the last few years has gone. Primary reason why we're able to lower CapEx is maintenance CapEx.

With the reduction in some of the volumes that we've seen, we have plenty of capacity for our core auto-dimming products. Most of the CapEx that you'll see in Experience is really targeted over the next 5 years in the facilities, infrastructure and manufacturing lines that will take to help us grow revenue over the next 5 to 10 years. CapEx, obviously down and then depreciation and amortization unchanged. We're still targeting this $2.8 billion to $2.9 billion next year, and that is in light of the second half of runoffs that we started talking about already in Q3 -- experienced in Q2 heading into Q3. Some of those will still contribute to some headwinds starting in the beginning of '27, but we can more than offset those with growth in other areas of our business.

This isn't to belabor the point, but this is what's happening in global light vehicle production. And obviously, we've all lived through this. We've seen it. If you back up, I always like to joke 20-some years ago when we got in this industry, China was less than 5% of global light vehicle production. You look at it now, they are the dominant player. Unfortunately, for us, that's taken most of that skin has come off the backs of our primary customers. European, North America, Japan and Korean customers are really the people who have contributed the volume declines that allowed China to pick up some of that extra volume. The reason why I bring this up is we've seen this coming for several years.

The last 5 to 7 years have been very obvious what the future holds as it relates to global light vehicle production. We knew the solution had to be technology. It wasn't going to be a volume game. There's not going to be a volume game to be had, and you're not going to get to where we believe we are capable of getting strictly off of selling more base inside mirrors. And so this philosophy and backdrop really drives a lot of the tech innovation you've seen over the last 3 to 4 years and where we -- why we believe what we have to do and where we'll need to contribute to this business in order to help drive growth on a year-over-year basis.

This is a chart that we put together really to help drive this scenario. If you look at this -- and this is interesting, it's really the last 25, 26 years. But if you look at the bar chart, that's global light vehicle production, the line chart on the right is our revenue against that backdrop, and you'll notice a couple of things. There was from the early 2000s, really all the way until the mid-teens, basically, this gap between light vehicle production and our revenue was almost consistent across the board. In other words, if you did the math on what are your average sales on a car build, whether you're on that car or not, you're going to see very similar numbers.

In the late teens, you start to see that gap shorten between global light vehicle production and our revenue. And then if you look at the last couple of years, you start to see the potential for breakout, meaning our ability to outgrow even if the market shrinks, the dollar content on a vehicle build anywhere in the world, whether we're on it or not, has continually increased. In a perfect world and the one we're targeting, you'll see global light vehicle production relatively flat and our revenue line continuing to increase above. All that really means is we're less dependent on global light vehicle production to create growth.

A couple of key points on this. You go back to '17, 95 million cars produced, $1.8 billion in revenue, '25, 93 million cars produced. Now China, even more of a percentage of total LVP, revenue goes up to $2.5 billion. That's not by accident. Clearly, what you're seeing there is in a declining light vehicle production environment, we can still produce significant growth and profitability. Our goal is to continue to lessen our dependence on total vehicles produced and more about our ability to raise the average dollar content that we can sell on any vehicle produced globally.

This is another way of looking at it. And this is where we start talking about what about the dependence on auto-dimming inside mirrors and how does that correlate to revenue. So if you look at this chart, this is actually even more telling in some ways. It was the reason why this correlation was so strong is because you're not wrong. For this entire history, you can see a very strong correlation between the number of units Gentex ships and what happens to revenue. It's really here in the last 3, 4 years where you start to see that divergence, meaning units can decrease, revenues can increase.

And this is really the point of when we start talking about tech and that tech investment that we've made, why we believe this trend will continue over the next several years and hopefully, as we show for the rest of our careers at least. This is not by accident. As I mentioned before, we reached this conclusion. And later today, we're going to talk about -- we're going to reference a little bit at the end of my presentation, kind of a 10-year plan that we put together.

I always joke, we created this as an executive team in like late '18, early '19. 2020 was when we were going to roll it out. We actually code-named it Project 2030 at the time. And then somehow magically, there was this thing called COVID. And suddenly, the world got turned upside down. We figured it probably wasn't the best time to start pitching the team internally on a 10-year vision of what do we want to be when we grow up and how amazing things will be when nobody knew if you were going to be alive in 6 months or not.

So we punted on the time line of that. And then unfortunately, what precipitated after that was a series of chaos that no one could have predicted as it relates to part shortages, labor shortages, and I don't really want to rehash it all because I still have some PTSD from it. But the harsh reality is we decided in 2022 to roll out this plan internally because the chaos wasn't going to end. So part of that 10-year plan that we put together was saying, we know that LVP is going to be problematic.

We know that inside base mirrors are never going to be everything. It's going to be part of who we are, but it can't be everything. And so we began at that point in time to invest heavily in new tech internally and externally, JVs, partnerships, even some tech investments and purchases that we've made and starting to look at a way to diversify not just out of automotive to avoid automotive. But part of this presentation you're going to see is we're doubling down in automotive. We believe there's tremendous growth there, but we do believe there's ways to tackle new markets with our core competencies and continue to expand our growth into other sectors and truly start to look at what does a diversified manufacturer look like or a true tech company for that matter.

A couple of ways we've been able to accomplish this. I'm not going to belabor this point. Everybody in the room understands what's happened with FDM. The chart speaks for itself. Quite frankly, this is our first great tech investment we had made in quite some time. Really, I think, Neil, we negotiated this deal in like '13, I think, when we sat in GM's lunch room because that's back then is that's where you were relegated when you were not performing well, which you got to negotiate everything in the break room. But, we shook hands on this deal in that meeting. And since then, that's a couple of hard years of engineering, obviously, but the growth has been phenomenal. The reason why I want to point this out is there's a couple of parts of our new tech that we're going to talk about after we get through the morning when I come back up, we're going to talk through some of the new tech ideas we have and why we think some of them could have a similar growth trajectory to what FDM experienced.

I will point out just quickly though, we're a little over -- right around 3.2 million units last year. We launched 17 new models in '25. We're on 22 brands, 140 nameplates currently. We expect this year continued growth, 200,000 to 400,000 units this year, an additional 200,000 to 400,000 units next year. So this is how you start to see what does growth really look like from an FDM perspective and why we believe that could be a strong platform for us and why every day we wake up trying to find new tech that's consumer-facing that can generate this type of growth profile.

DMS is the next. One of the things through that 2032 plan when we were talking about strategic looking at where we were, we thought there was an opportunity to leverage our geography in the vehicle to embed more tech. This is one of the ideas that came out of that. At the time, we didn't have the play. We didn't have the tech internally. We made a small acquisition out of Tel Aviv called Guardian Optical. They caught us up and actually put us on the radar inside of the industry of using our location for this type of technology.

Now when we first started pitching this, like most things we do in automotive, everyone looks like we have 4 heads, and we've fallen out of bed way too many times. The harsh reality is proving that this location is superior in a lot of ways has helped us win quite a few awards. You see the OEMs that we've launched with already. $50 million to $60 million roughly this year is what we're estimating. Next year, $80 million to $100 million in business focused on this type of technology, leveraging the things we're good at, our geography, our electrochromics, more importantly, cameras, vision systems and ML and AI learning associated with these types of features.

Just a quick one on VOXX. We're going to talk a lot about VOXX and a couple of different cross-sections of the VOXX business today. This one that we're looking at right now is VOXX as in a total acquisition. So if you look at this, right, $196 million, just under $200 million acquisition price. If you look at it, there's 2 things here. The first question is always, obviously, we bought it for basically asset value. And so we saw an opportunity to grow that business, improve profitability and ultimately drive $40 million to $50 million a year in EBIT.

Later in the presentation, we're going to talk about this wasn't just a PE play. Obviously, these type of numbers I love. I love stuff for free, and I love stuff for free that generates cash later, and that's what we saw as an opportunity here, and we're well on our way to delivering those results. The harsh reality is if you're talking $40 million, $50 million in EBIT a year, you're not talking about a very long payback period before you have a nice asset that's generating great cash flow and returns. Later, what we're going to talk about is what did we see beyond just the dollars that led us to the point that we thought this acquisition made sense for us. Kevin is going to go into some other details. I do a little bit, but some more details about -- specifically about the PAC Group, so the Premium Audio Company inside of VOXX, but we did want to give some quick highlights on this as we look at it.

On the discipline side, one of the things I love is post acquisition, that target was $325 million to $375 million a year in revenue, gross margins hovering around 28% on average. Remember, we closed on April 1, 2025. So we're going to give some highlights here where you talk about the first year. That first year of ownership actually was $355 million, so right in the sweet spot of our revenue guidance, gross margins that were 30.5% versus the 28% at midpoint that we had guided to. Where we sit right now, it's very interesting. Year-to-date plus our forecast, we're targeting that $360 million to $380 million in revenue, but 33% to 34% gross margin.

So if you start looking at the gross margin performance of the business, the work we've done on the cost discipline side, on the gross margin line, very impressive. The operating margin is even more impressive. And a lot of the savings that we've accomplished there have been on the R&D and SG&A side and in their business, primarily on the SG&A side. Our preference when we make an acquisition like this is to try to not impact R&D. We know that's the lifeline. That's how we live and work in our business. But the SG&A, we wanted to get closer aligned to Gentex type numbers, and we're making great progress in that direction.

The next couple of slides before I hand it over to Kevin, we're going to take a step back, less about financials and a little bit more about strategy. And this helps set the stage really for why we felt like this PAC investment, especially made a lot of sense for us. One of the things I feel like we don't talk enough about is the HomeLink business itself. And so I think we added this. So if you look at it right now, it's about $330 million a year is the revenue associated with HomeLink. And so if you know HomeLink, some people have a love relationship with it, but it's 3 buttons that controls garage doors and gate access.

So if you think about it, it's the very first original car-to-home automation tool. We've spent a lot of time since that acquisition working on updating, investing in that technology to make it stronger and better. One of the things that we saw as a key role to keep this product relevant, and this is both a defensive and an offensive strategy as it relates to HomeLink. This product could and will be threatened by apps. And so our view was, instead of watching this happen, what if we led the space. And so one of the things that we've invested in heavily is what we call HomeLink Smart Home Solutions. And it's a series of compatibility with partners, Alarm.com, a lot of home automation devices that are now compatible with our HomeLink device through our HomeLink app.

The goal is to create the infrastructure so that on a single button press, that would normally open your garage door, you could close your blinds, unlock your doors, set your alarm system, do all these things through a single button press. Through that partnership with Alarm.com, we've created a bridge that we actually supply to Alarm.com that actually creates that combo unit. So you can plug in a simple device, pair it to your Alarm.com system and then control your whole Alarm.com system through our HomeLink app or button presses. We've continued to expand that process, both as a way to keep HomeLink relevant front and center with our automotive customers, but then ultimately to create this channel.

If you're using HomeLink to control your Alarm.com system or even if you're in an Alarm.com system and you have access to your HomeLink information, we can now start to market products, for instance. It creates that channel and connection to the consumer. And as we have continued to move into more and more consumer-type focused products, for instance, the Premium Audio Group, our PLACE product. We wanted to help create this channel. And so this was both the defensive side of protecting HomeLink and the future of HomeLink and also pairing it with this offensive strategy of how do we get more connected in the consumer space and drive more consumer electronics into the home through that HomeLink brand.

The interesting part is we've also worked very hard on the other side of the HomeLink Smart Home Solutions, which it just isn't direct-to-consumer, it's also into building management. So one of the needs that we found through this process is a lot of multi-family dwelling units and other facilities are looking for the same types of features. They want secure access control, the gates, parking, doors and locks and systems and shared spaces. They also want to be able to do traffic monitoring and where is this data coming and going? How do we help create a more seamless operation for owners and operators of multifamily dwelling units. It also has a play in commercial space as well, whether it's industrial, freight handling, you name it, semis coming and going out of facilities. How do we make that a more seamless operation from a security and access control standpoint.

Then we'll jump into some of these other product lines. And we kind of throw these all in here together, but it is important. If you look at the revenue over the last 5 years, especially, you start talking about what's happening with the aerospace business. So we're targeting about $25 million to $30 million this year. That business obviously went through a little bit of a rough patch after Boeing had some struggles with -- well, pretty much everything, I guess. But if you look at it, we were always -- we launched on the 787. It's 100% content on that plane. We continue to see some strength and resilience in the demand for the 787, which is helping drive the business. Since that time, we've also been fully certified now with Airbus. So we're shipping on the Airbus A350. It is optional content for Airbus, but also we've launched on the 777 with optional content as well.

If you look at the fire protection group, this is a group that's been dwindling over many years. I mean this is the original founding of the company. It was commercial fire protection devices. I'm sure there are some of them in this room. I don't see them up here. But that -- when we launched the PLACE product, it was really out of that 10-year vision as well. If we have a world-class detector, and it's only focused on commercial applications. What could we do if we went after the residential space, especially on the consumer-focused residential space. And so we launched this PLACE product line, and we've talked about it a lot. So I'm not going to go through all the details of each of those units, but it does have a very unique feature set, fully connected. And this became part of the impetus to say, well, if we have this new product, how are we going to create the channel to get that direct to the consumer because as a company, we've never really focused on that nor do we have those channels established.

Fire Protection and PLACE, really strong growth over the last 18 months, and we're continuing to see a lot of interest. There are some feature sets inside of that product that we didn't anticipate necessarily being needed. We built them into a PLACE for the consumer. There's a lot of code changes happening in California and Florida that are help driving additional demand outside of direct-to-consumer and connected needs that are helping drive that business as well.

Biometrics. We've only talked about it a little bit last year -- mid last year, we closed on BioConnect. It's a small company that we acquired that's primarily focused on point of entry and access control. Really, most of their customers right now are data centers. What's interesting about their business model, it's very similar to what we do. It's fingerprint, facial rec. Ultimately, we believe iris rec that we've always worked on could be a huge part of this. If you've not been in a data center, security is absolutely imperative, especially many of the data centers that exist aren't one customer type data centers. So a lot of data centers are generic and they sell out their storage facilities to multiple companies.

So now you have multiple players coming in, you need to lock down each rack differently and independently. And so these people are being tracked from the time they get on property until the time they go through the data center and which cages they're coming and going to. And so BioConnect product actually provides that security control. What we really loved about their business model was about 30% to 40% of their revenue is recurring based off the software and support that they do once they've installed the hardware. What they're really looking for and some of their customers are looking for, what is that next level, next 10 years of sensor technology that needs to exist in order to make sure you're secure and locked down. We believe this trend is well beyond just data centers, financial services buildings to large corporations, large buildings in general. We believe this is going to be a trend over the next 10 to 15 years, and this company is very well positioned with their hardware and software platform to help take advantage of that.

And then like I mentioned, we're going to get into this a little later. The Premium Audio portion of the VOXX acquisition is about $225 million to $250 million. And so you start to see though, we're building out a nice sizable portion of the business that has no tie to automotive, but it has strong ties to our core competencies and what it is we do every day. I presented this at the PAC conference 2 weeks ago, I don't remember anymore, so. But I thought this slide -- we put this slide together to help the PAC customers understand why this automotive company was interested in a Premium Audio brand. And so one of the things that I love about it is it just simply walks through the strategy we went through when we decided it was time to make this play.

So if you look at this first one, it's clearly obvious to me that those -- that channel that we built out with HomeLink and the HomeLink Smart Home Solutions side becomes a clear way to help increase PAC sales by having additional functionality that we can market and sell through our own HomeLink and HomeLink Smart Home Solutions apps. Secondly, we could sell Gentex products through the PAC channels.

When we talk about the fact that we build this as classic Gentex, we engineer some of the world's best products. Sometimes we engineer them and sitting on a table and then we're like, all right, how the heck are we going to sell this thing now? Well, you can go out and build a direct-to-consumer channel is incredibly expensive, and there's no guarantee the relationships are intact and well. One of the things we got was an immediate like knowledge, relationships and credibility by taking a Premium Audio brand that their customers know and love and saying, here's additional content.

And the reason why that becomes valuable is -- and Leo and I learned about this by sitting and talking with a lot of these folks over the last 5 years at Builders' Show and other places. A lot of these folks used to be primarily audio-focused, low-voltage installs. That means they made a lot of money running Cat 5, Cat 6 lines and low-voltage wiring through buildings. Obviously, with the advent of Bluetooth and Z-Wave and Wi-Fi devices, there's a lot of that revenue started to dry up. Those folks are looking for additional revenue features that they can sell to help make their businesses more relevant.

More importantly, many of the low-voltage installers actually made the jump to high-voltage 120-volt installed base, meaning now they're installing things like smoke detectors, fire protection devices and other hardwires areas inside of the building. So we saw an opportunity then to say, how do I take these people that are now making high-voltage installs and 120-volt installs and give them an additional pipeline of new products that they can help upsell their customers. For the most part, this is how this industry makes money.

So it's one thing to run wires, you can make up some amount of money on that. The actual upsell of new tech is where they make the majority of their money. And so we think there's a lot of synergies between those two. In the future, though, what we really saw is a couple of things. Neil is going to laugh because I always say this every time. That first wave of PLACE products, one of the features I wanted was an audio play inside of that. We weren't able to pull that off both from a partnership or timing standpoint when we started launching that. But imagine a lot of the Gentex devices, what we make and where we're heading, what we could do with a Premium Audio type product embedded in our products or at least like partnering with our existing customer base to make that more real.

And then lastly, how do we take Gentex tech and put it into PAC products. So if you think about a lot of our strategy we talk about over the years is we leverage our geography in the vehicle to sell more technology, more content. If you look at what PAC occupies, they occupy premium locations inside of your home. Imagine the combination of what we could do with our camera sensors, biometrics inside of a home environment once you already have that geography. And people don't think about this often, but some of the hardest part of building a business like this is getting that geography. Once you have it, the ability to upscale and add additional technology is actually far easier than gaining access to that geography initially.

And so if you think about this one, this is kind of an up, down, left, right type strategy. We've got very fortunate when we saw it, obviously, for us, we felt like the financial side was very compelling and something we could manage very early on and make complete sense out of. But the long-term channel implications, cross-selling opportunities and the ability to embed each other's tech, we thought set up for a really nice play for us over a long period of time.

So just a quick summary before I turn it over to Kevin. This is kind of the PAC summary. If you look at what they're doing, you'll notice one thing, right, which is kind of funny. We've never had this before, but you have a business all of a sudden that has huge consumer focus, especially around the holidays. So it's kind of wild when you're trying to predict a business talking about the Christmas holiday shopping season as an automotive guy, we've never had to worry about, right? We usually view the world as like that may be the 1 week where no one bothers you if you're really lucky.

What's really cool about this business is not only the financial performance, but you look at that gross margin performance from where that came from pre-acquisition to where it's at now. And that whatever orange or yellow line, that is actually net of tariffs. And the reason why we say that, and their business is very unique in this regard. Tariffs in the automotive space, we all know the challenges. The tariffs hit, you're arguing with your customer base nonstop about reimbursement of it.

Now the one upside is if you get this figured out well with your customer base, usually, it doesn't impact take rates too severely in the short term. PAC has a different problem. You're eating that cost right away. You do control the pricing to your consumer. The question is always, how are they going to respond? Does that absolutely destroy your volumes if you raise prices? Does it stay the same? Does it -- you would assume it lessens to some degree. One of the things that we've seen the new tariff costs, when combined with a brand-new product lineup, we've seen great resilience from the consumer based off the new products that PAC has launched.

And so one of the things that we're continuing to reinforce and work with them on is this is a different cadence in automotive. Every 18 months to 2 years, you had to have a new product lineup, new colors, new features, better performance. And so this is a constant innovation industry. And so we're excited because it does 2 things. Number one, gets us in, obviously, the financial opportunities that we know and love. Number two, though, is that a little of the urgency of the consumer electronics space does help make our team internally quicker, more adept, more agile as we respond to our OEM customers as well.

So I'll be back in a little bit, but I'm going to turn it over to Kevin, and he is going to [indiscernible]...

Thank you, Steve. So before I get started, I do say you said you won based on score count, but I think there's many ways to measure winning in golf and marketing is one of them. And all the balls we were using were Gentex balls. And so Andrew and Josh and I, we did our part of spreading most of those golf balls into the woods or around the course.

[indiscernible]

I had a decent day. And I do want to say kudos to Josh for actually first time ever golfing. I think he had enough stones to actually come out there and do it with us, and he only drove on the green once. So we were able to offset that. But -- you mean with the golf car. With the golf cart, yes, exactly. He drove the cart on the green. But then later, I was like, well, he probably was a little confused because everything is super green out where we golf. And so anyway, good job and a good job to Andrew as well. He actually lit it up on the back half, and I fell hard.

All right. So quickly, I'm going to go through gross margins, talk about some of the headwinds that we've been experiencing so far, talk a little bit about that and then transition a little bit to a little bit of a history lesson on kind of our financial profile. So yes, as Steve said, right, everybody knows what we printed in Q2, 37% gross margins, up 280 basis points from last year same time. Obviously, a lot of that had to do with the benefits from the IEEPA refunds that we received. So in total, we got a little over $38 million as refunds from previously paid IEEPA tariffs. About $18 million, $19 million of that came back through cost of goods sold reductions. The rest of that either reduced inventory or reserved against what we owe to customers, which was a pretty small amount.

And that was split pretty much evenly between Gentex and the PAC side. So they had an outsized gross margin improvement because of the size of the business on the PAC side. So the rest of that is really driven based on favorable product mix in our core markets. And not to belabor, but to support Steve's point about where the value is from our business continues to be in advanced features and new technology. We talked about it for the last couple of years as we've experienced headwinds in China with that business being over $200 million of sales and this year ending somewhere closer to $100 million, that the margin profile of that business because it's primarily base interior and exterior mirrors was much, much lower than our advanced features.

And so the case in point is if you look at our gross margin up 50 basis points sequentially from Q1 to Q2, it's a continuation of that story of weak base mirror shipments, which on a headline doesn't look good from a volume perspective, but gross margin expanded by 50 basis points on sales in the automotive part of our business that were down 3%. And I would say over our -- over time, if you did that same play 5 years ago or 6 years ago, if we had that same thing happened to us on sales down 3%, margins would have been down, we would have a decremental margins of 40% to 50%. And in this case, you saw margins expand. And so I think it's just a support of our strategy is we're not just taking business for market share's sake. We're looking at every business case, every economic situation of mirror growth and saying, do we want to accept that business at low margins? Or is there other places that we can put our investments?

And so on the operational execution side, that really is driven by our internal team. So we have about 10%, maybe 15% less operational team than we did at the same time 2 years ago. So that -- we have more throughput, more effective throughput, less scrap, a more seasoned workforce, which is what really has contributed to that. And then a continued financial discipline of spending appropriately for the size of business that we are.

So on the next slide, I'll talk a little bit about the offsets to that, the higher commodity costs, which we'll be experiencing. We have -- for the last 3 years, we've really been pushing our annual customer price reductions down significantly. Well, as you start to grow, as your book of business starts to grow, that starts to come back, but it's still well below what our historical averages have been. And when I talk about historical averages, our APR to our customer base has historically been 2% to 3%, as high as 4% to 5% in the mid -- early 2000s. In the last 2 or 3 years, it's been closer to 0 and sometimes increase. So right now, we're still in that -- we're in that 100 basis point range, 100, 150 basis points. And then as I already mentioned, lower revenue from our core automotive business.

So, this is -- we're not trying to make you tariff experts, but just trying to give you a little bit of a scope, and we wish we weren't tariff experts either. So there are several different tariffs, 232s, IEEPAs were in play. And then once IEEPAs were ruled illegal, which was odd, we stopped expensing them. But then immediately after that, there was these temporary Section 122 tariffs, which effectively were about -- were exactly the same rate as the IEEPA tariffs that were in place. And those really took place from end of February until end of July. And during that same time, the government was working on these, what we're calling FLIP tariffs, which is forced labor investigations on the Southeast Asian countries, basically every country on the planet to then eventually replace the temporary tariffs, which only lasted 150 days.

So as of now, maybe something happened this morning, I'm not sure, but the FLIP301 tariffs have taken place, and those are in the range -- similar range, 10% to 12.5%, but there's more countries involved than there were in the Section 122 tariffs. So that's why there's a little bit of an impact to us. I mean the rates are higher, a couple of percentage points, but the broadening of the region. So there's really nowhere to hide as it relates to moving from China to Vietnam or Vietnam to Malaysia, there's tariffs everywhere. It's just a matter of where your volume is coming from.

So based on all that, we're seeing about a $5 million to $10 million impact on increase in tariffs throughout, if you were to annualize that, so a full year of 2027, we will have an incremental, call it, $5 million to $10 million of tariff impact on our book. And just to put that also in perspective, we have about -- since the beginning of tariffs in 2018 and then the change again, we're carrying about $60 million to $70 million worth of annual tariff expense through our cost of sales today. Now some of that is getting paid by customers through the government programs of getting reimbursed through CBP directly or our increased piece price. But some of that, we're still bearing the cost of.

And as Steve mentioned, on the PAC side, they've been able to raise prices and not see an overwhelming reduction in demand. But regardless, we're still paying a lot of those tariffs. And as these things start to ramp, these conversations, unfortunately, we've seasoned ourselves on how to get through them and recover them, but it is a lengthy process, and it takes a good portion of our commercial team's negotiation and discussions to get some of that money back.

Precious metals. This is another one that -- not trying to make you experts in how we make glass elements, but this is a real, this has been a real headwind really starting in the first part of this year. We always battle a little bit of headwinds historically on our ruthenium as that is a precious metal that's -- there's not an infinite supply of. And so you can see on the chart, it's a little hard to read. But if you look at silver, gold and ruthenium, if I look at the scale of what we use, we use more silver than any of it. And so the escalation of silver prices from early -- late last year to around $20 a troy ounce to as high as over $100 a troy ounce caused a significant headwind basically overnight for us.

The ruthenium has been more of a slow death by 1,000 cuts. We've been using ruthenium in our coating stacks since the early 2000s, and we went to that as a result of prior...

Rhodium.

Rhodium. Thank you, Steve. That was -- that had escalated to over $6,000 an ounce at the time. And so we had a benefit of that savings back in the 2000s, but this has continued to escalate as first hard drives started to use them. And then now with the data centers and all the electronics in there, that's created a scarcity issue on ruthenium. So with that all being said, at one point during the first quarter, we were staring a $40 million headwind in the face. And so our teams obviously went to work. It was one of those things like with oil prices at $50 a barrel, no one's interested in drilling in North America. But when it's $100 a barrel, everybody is interested. So our team scrambled, started working on what are ways to reduce our exposure to both silver, ruthenium and to a lesser extent, gold because we don't use nearly as much gold.

But a lot of our competition doesn't use this similar stack up for -- we have the best-in-class reflectivity, and it's because of how we do this. And so they've been really working to, one, use less of it, find ways to reclaim it and over time, figure out how much of some of these precious metals we actually need in our stack to still be competitive in the market and have the best. So what I can say today is through a little bit of, about 1/3 of that reduction from a $40 million exposure to million has been because of those initiatives. And some of the rest of it is because silver and gold have retrenched from their high prices of the year. And we still are actively working on another $10 million to $15 million on an annual basis to reduce the cost.

But this is a significant headwind that is kind of embedded in that margin still expanding. Sorry, I said a lot. And then electronics, that's the word of the day for everybody. Obviously, everybody knows that with the data center usage, electronics are under pressure from both on a supply side basis, the scarcity issue, but then the cost side. And so we're going through this right now. People are starting to push to change commodity costs as we're going through lifetime. Most of the time, we settle up annual contracts with our supply base. But with the electronics side, they're pushing for cost increases now. And so nothing to share on exact economics.

But once again, this is similar to the 2022, '23 situation where we're going to quantify the cost. We're going to -- we expect to pass these costs through to our customers. And whatever cost it is, we plan to get paid back. However, from a timing perspective, usually, there's a little bit of lumpiness, meaning you got to -- you have to secure supply. We have to buy components. And then we go through the work with our commercial teams to quantify that to our customer base. And then they argue and whine and roll around on the floor and then they don't want to pay. But ultimately, that's their job, and that's our job is to get that reimbursed back. But there's going to be some timing differences as we start to have some of these cost increases impact us in the back half of the year and into '27 and then the revenue that we would get back over time.

And so we'll give a little more clarity as some of these things come to fruition. Enough about the mechanical side. This is kind of that history lesson that I wanted to point out and talk about from a valuation perspective. And the thing that's really never changed for Gentex is our cash generation. And so if I just quickly look at -- start from the top chart, revenue, and I picked 2020 just because it was a good point and otherwise it would be way too busy. Revenue in 2020 was about $1.7 billion. If I look at our gross margins there, it was peak margins as well. And, but then if I look at EBITDA and operating cash flow, we were a little over $500 million in EBITDA, about $450 million in operating cash flow. And then if you trail down to the -- from an earnings per share basis, we were at about $1.41 EPS. And at the time, the stock was trading at $34 a share. And this is where that valuation starts to come in.

On an EBITDA or even a PE basis, if you look at that, we were trading at almost 17x EBITDA and about 25x on a PE basis. And so what we've done since then is grow from a sales perspective. This year, if you look at a trailing 12 months, $2.6 billion in sales. And as we alluded to, our guidance shows $2.65 billion to $2.75 billion from an annual basis this year. So we're going to land somewhere in that $2.7 billion range. EBITDA on a trailing 12-month basis, over $600 million, $620 million. And we estimate that we're going to land somewhere in that $650 million from an EBITDA, maybe a little better than that.

And then operating cash flow is right around $600 million. We have very little differences between our EBITDA and our cash flow just based on depreciation and CapEx cycle. And then EPS on a trailing basis, almost $2. And then this year, we expect it to be around $2. So what that ends up being is the stock price has traded down. Obviously, everybody is here not to belabor it again, to $24. So we're trading at half the multiple that we were even 5 years ago and probably at the lowest that the company has seen in some time.

So what that lends itself to, and we'll get to the next slide is what do we do with all that? And this is a busy chart, and we talked about it, we show it in our investor presentations. But to put this into perspective, that 10-year run on operating cash flow is $5.2 billion. This slide represents $4.2 billion of it. So over 80% of our operating cash flow, we return to shareholders through dividends and share repurchases. And obviously, we prefer from our vantage point, the dividend has been in place since 2003, when it was more tax efficient to do so. But at one point, it was almost 50% of our operating cash flow. And now it represents less than 20%, and we like that. But we also are -- as net income does grow on a pure net income basis from our high, we're dedicated to looking at that from -- do we increase that. But right now, given the stock price, the yield is actually quite attractive. So over 80% return to shareholders in a 10-year period.

And I should add a little bit more color to that. This really took off here. And this is a point in time prior to this, Steve was the CFO, Chief Operating Officer, a list of 27 different titles, but he didn't really have reins over the capital allocation philosophy at the time. Since 2018, when he took over, this was part of a breathing for us. This is how we operated. This is -- we knew that we needed to return excess capital to the shareholders because if you go back to this 2013 time frame, we were sitting on over $600 million of liquidity on the size of sales that we were. And we didn't really have a strategic way to articulate what we were doing with our capital. And so it wasn't a very straightforward policy.

And so since Steve has taken over the reins and we had this leadership team, it's been core to what we do as part of our strategy from a growth perspective. So I already mentioned it, but our priorities we don't talk about it in this list, but research and development obviously runs through the income statement. So it's not part of our capital allocation per se, but running R&D at twice really what any other automotive supplier is to continue to feed that funnel for growth into the future is one of the main priorities. But capital expenditures to support that -- those new products. We've talked about it before. And I think when we start talking about some of the new business ideas, EC mirrors and LAD and SAD and all the things and the new products that visors, they're very capital intense. And so we end up spending anywhere from $75 million to $150 million a year in capital to support the growth that we have.

Dividends, as I already mentioned, and then M&A. So we're few and far between on M&A targets. We look at things that are of value. I mean the VOXX acquisition was a perfect acquisition. We paid for it with the own book value of its assets, and we're starting to see the return from that. We like things with shorter return periods so that we can start to actually make money on our investment sooner.

And then share repurchases. I already touched on all of it, the $4.3 billion of return capital. And then we still have about 30 million shares left in our allocation in our available plan that we plan to spend over the next 2.5 years. And so what does that translate to? As we start to go into next year in the '28, '29, '30, and we start to see sales growth that's in that 500 to 700 basis points above market or getting high single-digit growth pure. And with our financial discipline, meaning if we can hold margins or expand margins, gross margins, and we can hold our operating expense growth to below sales growth, which has been our target all along, you start to bring that net income growth to, call it, mid- to high single digits. Well, at this rate, 30 million shares over 2.5 years is a 5.5% reduction in share count per year.

Now we have about 1% a year of dilution from our equity plans, so call it 5%, 4.5% to 5%. If I can give you -- if we can print 6.5% or 7% net income growth every year, 4% to 5% EPS growth, we're talking about double-digit earnings per share growth. And that's the formula that we've been talking about for 10 years and everybody yawns about. But regardless, it's the repeatability of it because we continue to present high levels of cash flow, and we return that 80% of that back to the shareholder base. And so that's part of the story is we're going to continue to do this over and over and over again. And then as we start to print higher revenue, we think that there's a turning point from a stock price perspective.

So with that, I'm going to hand it over to Neil to talk about what's going to make that happen.

Thank you. Good morning. Still awake. All right, outstanding. I get to talk about the fun stuff. So we had a little bit of discussion around cost increases, components, ruthenium, other materials you probably never heard of or don't care about. One of the areas that we target a lot. Unfortunately, we learned this 5 years ago is component shortages, costs go through the roof. We learned how to get really efficient at doing redesigns or finding ways to pull that cost out. What you'll see here is the areas that we're really focused on, right? Kevin hit precious metals. We have a lot of work going into how do we use precious metals.

We never thought about silver as a problem. Silver at $20 ounce was inexpensive as that quadruples, we had to find ways to get rid of it, eliminate it. The team has done a phenomenal job. We're 1/4 of the way to where we need to be, but we've got plans on how we're going to get that cost out, which even as silver comes down, will still benefit us in many, many ways. Some of the other areas, how we memory, this is one of my favorite ones, DDR, right? And you can see the space, what's changed in the market. We've got some really cool products coming out. FDM 4, I'll talk about a little bit, that has no DDR. For the other ones, we've got multiple supply channels that we're working on, right? There's the big one we use today. Their costs are going to go up continuously. We kicked off 50 weeks ago, an alternate supplier. Another 70 weeks from now, another one comes on board.

So we have plans on how to design out and drive alternate sources to mitigate the cost, but also keep the supply chain moving forward. So we've got a lot of activity in here. We're doing this all within the current R&D teams, research teams. It's just more of who we are today based on the last 5 years of evolution. Again, unfortunately, but it is what it is. We've got a lot of cool products. Innovation is lifeblood for us. The chart showed you earlier, volumes decreasing, the revenue side is increasing. It's all about product. It's product and content.

Full Display Mirror. Again, we've talked a lot about that, significant launches. One of the things we're pointing out here is we're actually now on the F-250 at Ford. It started in more of an accessory. We've been working with Ford for a few years on that. We're currently on the Transit, Transit Connect at Ford. This is in the Bronco. This is kind of the first expansion for Ford into more of their high volume. So we're really excited about that. We see some great growth potential there. But FDM continues to expand even beyond where we thought it would initially. I talked a little bit about its growth curve. I think you'll see as we talk about other features like Visor, how we see the potential for those products as we go forward as well.

Driver monitoring, we talked about this in the last quarterly call, Hyundai, Kia, BMW, initial vehicles are launched. The thing hopefully, you've seen with us from Full Display Mirror and other technology platforms, it's not just one vehicle. We don't do a technology that goes on a car and never deploys on other vehicles for that customer. It's usually a rollout strategy, not just driven by us, but driven by the customer. These products are architecture-driven. You can't just add it really simply because you've got cabling. You've got communication to the vehicle itself. So it's got to be a planned strategy. So as we see these, and Steve showed the chart on driver monitoring growth this year and next, you'll see the continued deployment of the 4 platforms that we've executed over the next couple of years.

One other thing that we're super excited about, right? This is all about innovation. It's about technology. We're a finalist for the PACE Award, which is an automotive award for technology and what's driving technology. We're 1 of 32. You're going to see this line today. It's not running full production because we're in the early stages. Our product goes to market at the end of '27 will be our first launch. But you'll see that we've got the capital in place. We've got one last piece of equipment that comes in, in December. Otherwise, that line is ready to run and build product. We'll be validating in the first part of the year, and we'll be ready to ship production at the end of the year.

But really excited about where this technology is. Visor, the interest in visor, and again, we'll show you a chart when Steve wraps up. The interest in this has exceeded what we thought it would. It started off slow, got some initial interest. But once we got the product at CES and people started seeing it in cars and we started demonstrating the actual use case and the value proposition, the interest really increased. And we're excited to get that first one deployed late next year. We expect a couple more customers within the next 2 to 3 quarters that we can get on board.

Premium Audio. So that's our automotive side. We also talk a lot about non-auto. These guys have been doing a great job executing new product strategy. Since last year, when we acquired the company, a lot of investment, a lot of supportive capital to do new product lines, conversion of products to refresh the brand, hiring of resources to make this a successful execution. Just great execution by this team, and you've seen it in the charts on the growth side of it.

Launches, these are -- I'm not going to read through them, but again, this is a very different space from our standard automotive. It's actually a space we're excited about because it creates a very different channel, like Steve said, a different product portfolio. But from a development side, we're learning a lot on how consumer products are executed that actually can help drive on how we execute faster in the automotive side. Speed is becoming extremely important, right? We're really good at it when it gets into VA/VE, component shortages, execution there where you can -- customers pushed or forced to execute quickly. You learn a whole different channel when you start working on the consumer side. And that's really helping us to reevaluate how we execute to become more efficient. We have to get faster in all parts of our business.

Another part, you're going to see some tours today, just a couple of pieces on machinery and equipment. As we work on how we automate and bring product back to the U.S. and manufacturing, and we'll talk about this a little bit from electrical manufacturing, even with our core technology manufacturing here in West Michigan, automation is a key part. Labor rates aren't going down, right? We need to be thinking that 24/7 manufacturing capability to leverage the capital that gets put in place.

We'll walk you through again on the tour. You'll see some of our larger device visor processes and infrastructure we put in place. We'll walk you through our wet coater, which makes films for large area devices. We'll show you what we put in place and why. We're doing a big move right now as we get ready for the electronics manufacturing process that we want to implement, right, contract manufacturing. We're combining a couple of our mirror final assembly plants to free up some space, but also to optimize shifts. We have a lot of plants working in first shift, second shift. We're doing a big consolidation here in the next 6 months to try to leverage first, second and third more so that as we implement automation and material handling robots, we can leverage that capital, have a greater in one facility than trying to do it in multiple at the same time.

And again, multiple automation processes in mobile robots. I've got a little video here for you that I'll talk to as it's playing. This is one of the things on VA/VE or value-add, value engineering. What you're seeing here is we used to buy small pieces of glass from a supplier. They were precut for us to handle. We now buy large sheets and put robots in place to cut them down. That was a significant cost savings for us on raw glass. These are some of our robots doing some of our glass and element products. This is the material handling robots. Normally, we'd have people pushing these carts down the aisles. And so what we've got is the system where these robots are connected. They know where to go in the warehouse, what rack to pick up, which line to take it to. And it reduces the amount of people that are pushing carts, but two, it actually puts those people back into the warehouse where they're getting material ready versus walking material onto the line.

It's a really simple automation. And as we bring these -- as I mentioned, bringing these final lines into a single facility, leveraging those robots and setting up the plant to be more automated is -- will be a key to the success of how we execute that. It's kind of cool. Sorry, it's a really quick video. So I'm going to play it again just because it's kind of cool.

But this is the large sheets. Again, pulling large sheets, it's a strip cutter, cuts it. Great cost savings on bringing in raw glass plus opened up our supply base for glass because most suppliers have been providing big sheets. These are, again, robots we use in all of our automation processes for glass processing, cutting, grinding, polishing. And then there's the automated robots, material handling robots, moving material around the plant.

All right. That's the best part, right? That's cool. That's cool stuff because at the end, automation is really important to be competitive. If we can automate, we can compete against anybody.

Morocco, I want to touch on this. So we talked about this in our last call. It's really -- this model, if you're familiar with our Gentex Shanghai facility and how we set that up to be a final assembly operation back many years ago, this will be a very, very similar process we'll do here. Leasing a building, setting it up to do final assembly glass elements. So our core part of our business will still be produced here in West Michigan and then shipped to Morocco to be assembled into final mirrors of various technology levels. The big part about Morocco is they have some great relationships with the EU. And based on content, the amount of content you add, you can actually change country of origin to be Morocco instead of being Stateside.

That's critical for 2 reasons, right? One reason we're doing this is we had a lot of customers in the European side that as we talk to tariffs and geopolitical stuff, they are not excited about all manufacturing being in the U.S., not knowing what tomorrow is going to bring, what new tariffs is going to happen, what type of conflict is going to be created. So in order to get -- got it up on the top, some of the first RFQs, we needed to have a footprint in that market to support that business.

So Morocco was chosen after a long search and looking into Eastern Europe and other parts of where did we think we could set it up, support, supply product to, supply product from and get the greatest benefit of for the smallest amount of capital investment. We talk here, it's about $10 million to $15 million to get started, again, leasing a building. We've got capital here from final assembly lines that we will refurbish and that we'll be actually providing and sending over to support the buildup of various products, everything from our lowest-end base mirrors to the potential of all the going up the Full Display Mirror to support that market.

A couple of really fun things that we do. Steve is a big driver of these next couple of items. This one here is driven by COVID. Come out of COVID 2020, 2021, lack of resources, lack of labor, couldn't find people to work, drove a process of -- in West Michigan, we have a large Hispanic community. And part of it -- the problem in getting them into the workforce is they're not comfortable with English. So we started a program called Limited English Proficiency, where the drive was to find people that wanted to work, but maybe struggle or weren't comfortable speaking English. So we set up a whole program around Spanish speaking, ultimately had up to 200 people in this process where we changed the lines and the work instructions to be in Spanish to help them be comfortable to execute their job. We put managers over them that were bilingual that could help them bridge the process.

This was a phenomenal project and success for us, and it's still strong today. 74, 75 people were actually really good at speaking English, just weren't comfortable. Once they got into the process and learned, we actually were able to move them into other parts of the organization to be able to fill their spots with others that weren't comfortable. So this has been a really great program for us. It really was driven out of necessity to find bodies, but what we've gotten the benefit of it was far exceeding that.

Another one is a preschool. And coming out of COVID, hard part is finding workers. Single moms, single parents, single families had an issue in finding daycare. So it was -- or day care was so expensive that they couldn't go to work. It was cheaper to stay home and then pay day care. So we actually worked with a local company to do an outdoor learning-based, nature-based preschool of sorts, where we built the facilities. We offer it to our employees. This other business runs it for us, and it's a great benefit for our team. It helps put people into day care situations for our employees, which actually helps the community even more because it frees up day care positions in other parts of West Michigan.

Summary, we are a product and innovation company. We touched on it just briefly. And hopefully, as we do the tours, you'll get a better feel for how we drive that innovation. Our innovation is what's driving our growth. As volumes are dropping, mirror volume drops, you are seeing sales and profitability growth because of the technology and the features that we've invested in, in the last 5 years. We don't see that changing. That's our philosophy. That's who we are, and we're going to continue to do that.

Q2 is our highest level of non-automotive revenue, right? 14% of our revenue was driven by non-auto. Obviously, Premium Audio was a big portion of that. But we see that separation as a big part of our strategy as well. Steve will touch on this more as we see the overall pie of our business grow, we see how that separates out and that non-auto is an important part for us to keep some good balance.

And last one is we're growing. We see our business growing in automotive, right? It's not that we're going to give up on automotive. It's not that we're pushing it aside. Automotive is going to grow. We're going to drive growth through innovation and technology in automotive. We're also going to grow in our non-auto. So the whole overall pie of our business is going to continue to evolve and grow.

And with that, trying to get us a little bit closer on time here. I'll hand it over to Steve.

I felt that, just exactly. Just to make it worse and I'm backing up. So I showed this at the PAC conference because they were trying to figure out who we are, their customers. So you start talking about the culture of the company. I pride myself very much on being financially fiscally conservative organization, right? I mean if you look at the bottom half of our income statement, we have a very thin executive team, very thin management team, very proud of that fact. This is one of the few times in my career I got scope creep.

If we're going to go over to what we call our North Riley campus, a couple of hundred yards past the building you are going to be in is where this is located. This is wild. Like not very many things want me to go back and have kids again, but this is pretty cool. But each one of these play areas that you see here are designed around a 1-year gap. So 0 to 1, 1 to 2, 2 to 3. They're separated. They have their own play areas. My son actually went to this before we built ours and their whole concept is you're outside all the time. I think it what is it if you're above 20 -- Kevin, you're on the board there. If you're above 20 degrees, I think you're outside. Rain, snow, whatever, you're outside. Out here, there's paths through the woods. Just outside of this area, you can't see, there's fishing ponds. This is a greenhouse where the kids grow plants, vegetables, their own stuff. So each of these are separated for these kids. This is pretty funny. These are outdoor learning areas. There are little blocks of wood basically built into an outdoor environment where all the kids can sit, teachers can teach them.

Inside learning areas, obviously, play areas that are age specific. This is funny about this, right? It's like you go out there in the 1 to 2 years, like they're little stools, the picnic tables are all this size. It's kind of hilarious. What's really cool in the center part on really, really bad weather days, there's actually a big interior building with like a rock formation and a live stream. Kids are inside now in a replicated outside environment. We offer this all at a discount to our employees. And so we help cover the cost of day care for the employee base. Kind of interesting when we were having the labor shortage, we announced this. We had some -- in Michigan, you have EGLE, right, environmental group, and they always slow things down drastically. But we had a lot of employees leave their jobs to come work for us just because they wanted first access to this when it did come online. So really, really cool.

It is a world-class facility, a little on the expensive side, but honestly, it's worth it. The one thing I think that was incredibly innovative, I don't know of anybody in the state or region that actually did this. When we started down this path, though, we were adamant that it was going to be offered on 2 shifts. So we offer both our first and second shift employees child care.

All right. So the question you always get, which is a fair one, which is, okay, walk us through how do we get from '26 to '27 and the revenue guidance that you've suggested. We covered this a lot on conference calls, so I'm not going to belabor it too much. But if you break the world down into the 3 biggest buckets that are going to help us get there, $50 million in FDM growth, $50 million in DMS growth and $50 million in growth from other areas. I mean that's kind of the baseline. And so if you look at those numbers, there are some puts and takes inside of each of those, obviously, but we're still bullish on FDM opportunities. We think we have the track record and the forecast from our customer base that supports that level of growth. And this is in spite of some of the volume challenges.

We talked about the first, the second half of this year, really starting in Q2, there are some volume challenges on the base IEC side. '27 is going to have some continual declines in total unit volumes, but it's still going to produce a net growth year based on the dollar content associated with electronic features. And then obviously, at the very end, Neil mentioned this, at the end of '27, we'll be launching our first visor application.

So as I flip to this next slide, this is the type of data you've not seen out of Gentex before, right? I always joke, we're pretty Midwestern, elbows in tight. We tend not to talk about the products. We tend not to put a vision out there too much. We want to do a better job today, especially of talking about where we've been over the last few years, I think Kevin's slide, if you look at that on pretty much every financial metric, we feel like we've hit our targets and accomplished what we meant to. There's no doubt the industry has had its challenges, but we persevered in pretty much every area despite that. I always joke. I was talking to a couple of guys last night, like one of our philosophies in life is this is not a football game, like there is no end zone in this world. It's a series of -- it's a treadmill forever.

And one of the things I think the last 7 years have taught us is that the challenges we've learned and Neil talked about a skill set that God forbid, we actually had to learn, which is how do you deal when there are no components, when there are no people, when there are nonstop tariffs or other challenges. Unfortunately, we've developed a skill set that none of us thought we needed 7 years ago. And unfortunately, it becomes just like anything else, it does define you as a core competency at some point saying we're actually good at dealing with chaos. I mean I would love to see what we could do if there were no chaos, but the harsh reality is this is the world we live in, it's not going away.

And so one of the things we're looking at, and we talk about this chart, and I talked about this. So think of this as an N plus chart. So N is the day -- the year it SOPs. So for visors in this case, 2027 would be N. And then you start talking about, okay, what is the 10-year growth trajectory of visors look like? So we're trying to bookend here a low-end case and a high-end case of what we think visors will look like over this next 10-year period. And I say it this way because I was talking about a 10-year vision that started 2022 and was going through 2032. This is different. This is like once you SOP a new product, what could that growth look like?

So we modeled a couple of different scenarios here. For visors, you're looking at $100 to $150 each if you're talking about baseline visor. And you'll see that. Neil and I are driving the same truck, and I do that for a safety reason, just in case somebody gets mad at me, there's a 50-50 odds, they think it's me and they get Neil instead. But he and I have been driving visors in our trucks. And I would tell you, one of the things -- I was a little -- the concept of this product years ago, I loved. I was not sure of the efficacy and how valuable it would be to a consumer. I know we've been driving it for that 9 months now or so. I don't know when they installed that.

I would tell you in my pickup, I almost never -- I leave it down all the time, day and night, whether it's sunny or not, it is a really, really cool product. And once you get comfortable with it, the concept when I jump in another car doesn't have one, I'm like this stinks like I missed my visor. We believe the value here could be very similar and growth very similar to what we experienced over the last 10 years with FDM.

And so we want to bookend that. What does that mean? Well, the baseline visor, the one Neil and I are driving is actually a higher-end version. A baseline visor is just dimmable. You can control the light aperture of it. You can manually control what state it's in, how clear to how dark. The one Neil and I have is actually the one that also includes the embedded mirror, which is a polarized reflector. We are first year at CES, we showed this. One of the things we love about Siemens CES is you get this kind of feedback, which the engineering side of us goes absolutely berserk over. All the customers are like, well, what about the vanity mirror? And we're like, who gives a rip about a vanity mirror. You have a phone, if you want to look at yourself, take a selfie for God's sakes. So what are we doing here?

But, we bring it back, the engineering team comes up with a new concept. The polarized reflector is really cool. Literally, with the push of a button, it's another layer of chemical technology stack that goes into the visor, push of a button, the entire surface actually turns into a mirror. And so that one obviously is a different price point. And you'll see the different -- when we talk about these different price points, $100 to $150 each or $200 to $300 per set. Down here, you'll see a high-end version, what about a $200 ASP. That's if you want the vanity mirror application.

So our first launch in '27 is just visor without the vanity mirror, but we see a lot of interest. And as we refine that technology, we believe there's customer interest in that as well. So if you walk this through, we talk about 2 million units. Think about as 1 million cars. There is an outside chance that some might choose to do just the driver side. We think from an aesthetic standpoint, though, it's probably unlikely. Just from a symmetry and a design philosophy standpoint, most OEMs are probably not going to -- they're probably either going to do 2 or do 0, right? And that's kind of the way they think of the design of the car.

But you start looking at what could that mean? 2 million units at $125 ASP kind of paint you around the bottom end, the high end, you start looking at some of these potentials, right, $200 to $300 per set, the same type of volume. There's no doubt in our mind that typical, it's probably slightly above Gentex's corporate average margin profile on that type of revenue, pretty exciting business opportunity.

Maybe -- so when we're talking about LAD, we're primarily talking about sunroof execution. So one of the things that Josh points out on this slide is we're not talking about side windows right now. That's a separate opportunity. We're really talking about overhead and what could that look like from an LAD standpoint. So if we model out same thing, we're talking N plus 10 here. So we don't have the N yet. We thought we would be -- we thought we'd be there by next year -- late this year, next year. We did have a customer delay in terms of wanting to launch. And so we're working and you're going to see where we're at in that process today.

And what you're going to see is this is not just R&D. When we go on this tour, I think we moved that to this afternoon, but we go to that -- when you see that tour, you're going to see not 100% production ready, but way closer to production-ready process than probably what you're expecting. A lot of the work in R&D and capital that we spent over the last 3.5 years has been focused in this space. We believe this creates a growth opportunity that even is far superior over a longer period of time because of the time it takes to integrate this with multiple Tier 1s, but the total growth opportunity of this is actually far larger than visor. And when you look at the numbers associated with it, it becomes very exciting. If you think about the modeling of this, typically on the substrate, the reason why we're talking substrate, what you're going to see today on the manufacturing is us making the an entire sunroof.

Our first program or 2 are going to be low-volume executions where we're going to do the glass lamination. We want to sell literally an entire sunroof because we know with our technology and what we want to do with it eventually, which is sell you a roll of film that different integrators can then take, guys are already making sunroofs, can buy that from us, laminate it into their product and then we don't have the capital footprint associated with molding, forming glass all over the world. Instead, we can send rolls of our chemical substrate to them and work with them on how to integrate it. The problem is, is you can destroy our product very easily and as we found many, many ways.

But we want to perfect that integration here first on those first couple of low-volume programs. That way, we know how to train, teach and also work with other Tier 1s. So we don't have to have that capital footprint associated with making sunroofs in all the geographies all over the world. So the economics we're talking about here isn't what you're going to see today from a full sunroof standpoint, it's saying, what are the economics of us selling a roll of our electrochromic substrate.

Now from a technology standpoint, the reason why this has taken a long time is we actually have a dual path, different forms of technology, but there's a couple of different factors we had to drive. Why visor is quicker is it's a solution phase electrochromics like what we've used in mirrors and what we used in aerospace windows for the last decade. Now we still had to create some new chemistry and some new coating stacks, but it's far easier than getting to what we're doing in large area device. Large area device was our first time. And the reason why it's electrochromics have always been on glass is because it does it's oxygen, it's not oxygen permeable and it keeps out humidity. We know the concept had to be -- we had to be able to sell this on a plastic substrate in order to work with the forming and what needs to happen in the industry.

So imagine the entire history of us doing electrochromics. It's always been encapsulated in glass. It's always been solution phase. Now we need a thin-film coating version of this that can exist on plastic and won't get destroyed by oxygen or moisture right away once it's encapsulated. The other part of this that's incredibly difficult and one that I think we all probably underestimated a little bit was one of the beautiful parts of why our chemistry works in aerospace so easily is it's only darken when it's accepting power. If you remove power, it defaults to clear, which is a perfect safety feature for aerospace.

The problem is in automotive, one of the desires from the customer was to stay in the darkened state even when the car is off. So you park in an airport, you wanted to stay dark, hopefully, to prevent sunloading into the vehicle while you're away. Obviously, our chemistry has never done that. So not only are we trying to get the chemistry and having to reinvent it to get it on the plastic, we've also been having to recreate a technology that would include what we call memory or memory EC so that it would stay in a given state without any power consumption once it reaches that state. These are all chemistry and applied materials problems that I would say we're not 100% of the way through, but we're probably 85% of the way through the engineering and invention phase.

And moving on and what you're going to see here shortly is how do we actually vertically integrate. Our process throughout this entire time because this chemical coating process is something brand new for us. We've been using third-party toll coaters. Part of our R&D expense that you've seen over the last several years is us flying our chemistry down to these locations, taking time and running time on their machines with our team to try these coatings out to try to perfect that process and then obviously, the testing side.

The one thing I will point out, when you start testing these types of products, what's wild about it. You're talking about 2,000 to 2,500 hours of thermal cycling to verify that it's robust. You can do the math on 2,000 hours. Our first product would fail within a couple of hours. That was at least nice in that you knew right away, you had a problem, you go to work. As we advance this technology over the last couple of years, you're 1,500 hours into cycling before you even know you have a problem. And now you have a failure, now you have to go try to solve it, fix it, reinvent something and then unfortunately, throw it back in a thermal cycling for another 1,500 hours to see if it gets through that gate.

I think we're up to -- most of our stuff is getting close to the 2,000-hour magic number where you're -- it's an advanced cycling, it's a very rigorous process. We're getting really close to what we think an OEM would require in order to have something that we believe would be production ready.

Now the upside, you start looking at this, $100 to $300 per square meter of a substrate is what we think the market can absorb. You start talking about what this means from a high-end standpoint, 2 million units, you're talking about anywhere from $200 million to $500 million as potential revenue just off of that volumes. And so one of the things you are looking at here is we're talking about fairly small versions of this right now. As you start thinking about panoramic roofs and you start talking about side windows, this number explodes in terms of potential.

One of the interesting factors here is the initial interest was driven by EV. And the reason for that is batteries going underneath the car, the car gets -- the seats move up, the headliner moves up. Now a suddenly your range drops from an EV standpoint, especially when you start talking about everyone has movable shades and things to try to get to a real dark environment. And so what our product offered was the ability to remove sliding shades and then save an inch or so of headroom out of that vehicle, meaning you could drop the roof line of the whole car by an inch so that you could have a fully clear, fully dark environment, which is what the consumer was after. And so that was the initial drive.

Well, obviously, with the slowdown in EV execution, the node transition though is driven by autonomous. The concept of what this creates a greenhouse effect where you in a fully autonomous vehicle, regardless of powertrain will have the ability to control what is light aperture into that space. If you want it fully clear, you can have it. If you want it fully dark, you can have that as well or any state in between. And so we believe this rollout ties really well with both the EV space and the fully autonomous space. In the near term, the motion is driven purely by sunroof and side window execution. And in this model, we're not talking about side windows at all. It's purely just the traditional sunroof execution.

So a lot of growth opportunity. You've heard us talk about it a lot. We want to show you today that we're closer than ever and feel really comfortable where we're at from a getting this ready for -- I always call it big time, but getting it ready for showtime as it relates to full deployment with our customers.

So you heard us talk about this a lot. I'm going to fast forward real quick. I'm going to show you a quick video. It's really just showing you what do we do. We build a lot of circuit boards. We've always done this. Today, we're not going to spend a lot of time walking through it. We're going to show you this video instead. If you really want to see it at the end of this hallway is 1 of our 3 EA facilities. This video does a quick -- I didn't know you guys did this, which is funny, but a drone flyover inside of the facility, which I don't know, hopefully, you weren't driving that, Josh, because I know you think you're a gamer, but we already built over 40 million PCBs.

Obviously, the first step in this with some of the reduction in volumes, we do have some capacity that's been opened up because of the reduction in volumes. More importantly, there is a huge drive from several OEMs and other industries to look at onshoring electronics manufacturing. It just so happens we have and are committed to a capital footprint in the U.S., especially, not just North America, but especially in the U.S. One of the big conversations is the risk factors around USMCA and where does that all go and end. And so there's a lot of attention, not only on the national security side, but also on just a derisking of electronic supply to have that in the U.S. market.

And then number two is the tariff situation actually creates a little bit of an offset to some of what you're seeing. Typical industry, you got 20% to 30% markups over bill of material that is the value-add portion of doing electronics assembly. If you're doing that value-add in the U.S., obviously, you don't pay tariff on that incremental 20% to 30% of value add you're creating. And so you might have the same tariff exposure on the raw components, but at least you save the tariff on that portion that you're doing value-add in the U.S. market. So this is a quick video. This is a double-click, Josh, probably.

So this is 1 of our 3 facilities doing EA work. So when we talk about the contract manufacturing piece, you'll see on that back wall, a lot of the -- not all of them, but a lot of our customers' flags. This is what we're looking at right now as taking advantage of and executing in this space. We believe in the Q3 conference call, we'll be ready to announce that first program award and have that one locked and loaded. There's a lot of interest in the space right now. So we're excited about what this is. This has been a core competency of the company for a long time, and we're looking to expand that.

So rolling it all together, what do we see? And we paint this out, like what does the next 10 years look like for us? As a business, this is what we believe we can accomplish. And I always like to joke like you'll see on the bottom end of that is probably a little too Midwestern of us. But at the high end, what you'll see is really what we believe the potential of this company truly is. And honestly, it could be even higher than that, but we aren't in Silicon Valley. We are sitting in nowhere, Michigan. So it's kind of our approach to life. But if you look at this $2.5 billion to $3 billion core automotive business, I believe that PCB business will be $1 billion to $2 billion without breaking a sweat.

Dimmable visors, large area devices that we already covered. We also believe there's a great growth opportunity for the PAC team. Having been underfunded and underdeveloped for a lot of years, we believe there's a lot of brand opportunities. That Klipsch and Onkyo brands are very powerful. The Integra brand is extremely powerful on the commercial application side. And so we think there's a lot of more opportunities ahead for the PAC team.

And then this other category that Neil spent some time on, aerospace, fire protection, biometrics, consumer, this isn't an overly egregious or outlandish estimate of where we think we can go. And if you look at where we're at already, we're -- I'd say we're 40% of the way there with our current product lineup. We believe there's a lot more opportunities outside of what we're doing today to be a more consumer electronics-focused company as well. So roll it all together, $4.5 billion to $7 billion, and you see -- you start to deemphasize even though we're doubling down in the automotive space, you start to see exposure into other industries that will hopefully drive a more appropriate manufacturer tech company type valuation.

So I want to end quickly with just a video that we put together for the presentation.

[Presentation]

One slide real quick I want to finish with. And this is regardless of that 10-year out and plus 10 stuff. When we built that 10-year plan in 2022, what we identified we thought was achievable was this. With the products we have in place, the launches we're executing on right now, the financial discipline and the cash generation, we believe 2032, our goal is always to be a $10 billion enterprise value. Now obviously, if you look at what's happened in the last couple of years and a lack of interest in anything automotive, we understand that. The harsh reality is we're going to provide the revenue, the cash flow, the cash generation. So by any form of multiple that you value us by, this is what we wake up every day chasing.

And so that's why you see us very aggressive on share repurchases right now and will continue to be because anything that's not even remotely in that state, we view as a huge buying opportunity. And so one of the things you'll see is like about this team, we believe we have the best innovative team in automotive right now. The harsh reality is when we're wrong about the strategic direction of a product or how the market response will be, we are also -- we talk about our values internally and one of them is grind, grit, determination. So even when we're wrong, we will force it to become true, whether that's through just brute force or changing direction and then working twice as hard to get there.

I think, Josh, with that, you were going to moderate the Q&A or...

Yes. I'm just checking right now to see what we've got. If we can start with questions in the room.

You wants to [indiscernible] the Spanish Inquisition...

I think the Spanish Inquisition can wait. No one ever expects it. Straight to remaining side of things. Mark, do you want to open this up?

Yes. So thank you for the presentation and thanks for doing [ the bridge to ] 2027. You hit on a lot of the key themes and the growth drivers pretty specifically FDM and DMS, et cetera. Could you talk a little bit more around potential headwinds you're also going to face? I mean you spoke a little bit on the earnings call and you alluded to lower LVPs, but are there other risk factors that we should be thinking of and other things maybe you doing more in that bridge to overcome some of those like some challenges in Europe and just potentially more challenged LVP next year?

Sure. The biggest -- if you talk about '27 specifically, they're pretty well-known headwinds, right? So if you look at them, we lost a -- we walked away from a Volkswagen piece of business that on a volume standpoint, really is about 30%, 40% of the volume drop that we are showing. We have a little bit more of that, that will bleed into '27 just as those programs annualize and some of those losses, that was primarily around the technology that Volkswagen launched around driver monitoring with Magna.

At the price point they were at, we didn't believe it was a profitable product at all, and there was no path to profitability. And so we chose at that point not to take business that would lose money. The other 1/3 of that business drop that -- or the headwinds that we're seeing is continuation of the low-end side of the European market. If you look at the high-end vehicle side, content is actually holding up there just fine, especially with some of our launches on DMS and FDM, we're seeing in the European market. But the base auto dimming with the lower-cost manufacturers will continue to be challenged.

And then the last 1/3 of that is really just kind of the China roll on of the continued decline in the China market of our ability to compete there. And it's really not about cost or pricing. It's much more about nationalism and Chinese domestic desire to buy from other Chinese customers.

I think we're in the bridge of those because I think you grew $150 million or so at the midpoint. You talked about $50 million of additions. Like where are those headwinds accounted for in the bridge?

Yes. You're talking about probably, I guess, 1.5 million to 2 million units of headwind total at sub $20 ASP. So you're really only talking $30 million, $40 million roughly in base EC headwinds. So the $150 million is really the net growth rate. So there -- some of those growth are more than that, but they're netted against a couple of losses at the same time. So that would be the net growth rate of those -- that 50-50, 50 that we showed.

Maybe Kevin, can you help us on the gross margin a little bit? I think on the slide you said like 34%, 35% is sustainable. But some of the commentary you've talked about sort of like lag recoveries in electronics and some other things. Like how do you think about gross margins going into next year? And then I guess, on top of that, like how do you think about sort of longer-term gross margins given the EMS business comes on at lower gross margins as well?

Yes. I think, as I mentioned, like some of that is going to be a little bit lumpy as it relates to timing of reimbursement. So it's really about what kind of cost increases do you have in the first quarter versus what is your reimbursement cadence. So I think you may have a little bit of lumpiness, but I think we're trying to characterize our overall business on a steady state of like with the addition of the PAC business, the VOXX entities, we had previously talked about 35%, 36% as our margin.

Now we're blending it all together. And we still feel very comfortable that certain parts of our business are going to run at a higher gross margin. And we feel like we have the ability to offset those things. So I think inside of a specific quarter, I think you're going to see some lumpiness as it relates to timing. But that growth profile of the core auto business, we feel very comfortable with. But on the contract manufacturing, maybe Steve can focus a little bit -- you can talk...

That's not going to impact margins until '29. And then the plan there is we're talking segment reporting. And so you'll be able to break out Gentex's core business from the contract manufacturing piece and be able to value both of those separately because that's ultimately what it comes down to, right? They all operate under different valuation models. And so we're going to do a much better job of trying to make sure you have insight into both those pieces.

And so the blended, yes, will come down, especially as contract manufacturing grows, but you'll be able to see what's happened to the core Gentex business, which we continue to believe will be in that 34%, 35% range on core Gentex design products. And you know how that contract manufacturing space works. I mean, anywhere from 8% to 12% gross margins typically is what that industry pays. It is way capital-light to our core business.

The amount of revenue we can drive off a much smaller capital footprint in the contract manufacturing space is very, very different than what -- for instance, if you're going to get $1 billion in EC business, you're talking probably $1 billion in capital investment to make that happen. If you look at just kind of the basis of where we're at today and what we have invested in the business, if you start talking about contract manufacturing, as long as you have a building, you're probably to drive $1 billion, you're probably $150 million in CapEx to get it in this contract manufacturing space.

Got it. I guess like just to '27, I guess like I know you gave the sales guide for '27, but the gross margin, like should we think about that as some of those headwinds you're finding offsets to those headwinds for next year? Or like I think midpoint of this year is 35%. Like should we think about maybe could gross margins be down next year? Like how do you sort of conceptualize?

Yes. I think it depends on the impact or the magnitude of the electronics piece and how quickly we can get those offsets. So I mean, I think that's where the lumpiness of timing is. When do these things start to impact us from an electronics price increase perspective and how quickly can we get some of that back. So if it's all contained within a year, then I'd say you would have the better opportunity. But one thing to be mindful of is if we have a $10 price increase on electronics, we're going to get -- the goal is to get $10 back, so there's 0 margin on that. So you may see some dilution in the margins in the short term.

In the quarter-to-quarter, it's going to be lumpy, there's no doubt. If you're going to get a price increase on the electronics side, it's going to be immediate, and you won't even get your customer to respond to you inside of that quarter. So you could have a quarter or 2 where you see a huge headwind on electronics or on a precious metals increase that you just haven't had a chance to negotiate yet.

What you've seen over the last 3 years, though, is as we've battled through those, there's some lumpiness, there's no doubt, and you see a little bit of pressure early on in the quarter when you experience it and you haven't gotten reimbursed yet. But then you see the tailwinds come on later with the offsets start to happen. And that's why we try not to ever talk quarter-to-quarter because this market has just become impossible to predict. I mean we have electronics guys just e-mailing us last week with demands for price increases like for tomorrow.

And they come with several threats and other things that are probably not for public consumption, but it's part of the industry now. And so we start to inform our customers that, hey, we'll help you in the short term, but we're not going to keep doing this. So if you want to guarantee supply, then you've got to -- we've got to shake hands on a deal or you got to go secure components on your own. And so we've got unfortunately better at having that rough conversation with our customer base.

Can you remind us what are -- what's the size of Gentex's BOM costs as it relates to semis? And then for the 35% gross margins this year, that does include 65 basis points of the IEEPA refund last quarter. So thinking about next year, should we think gross margins like can we get to 35 basis points? I mean, because that would be -- I'm sorry, 35% because we're 65 basis points benefit this year that doesn't repeat. You want...

So I think, yes, you have...

In terms of total buy, you're talking...

Yes, it's around 60%. I think we alluded to it on the slide. The total electronic buy is around 60% of our bill of material, right? So not every commodity inside there is going in the wrong direction.

We still have some reductions in some of the content, especially on VA/VE side, the cost increases from the precious metals are leveling off. So...

You're right...

$800 million electronics right now. And so I think that that's where -- so without tariffs, yes, you're low 34s. That's where our growth in FDM continues to come, the DMS piece, while not necessarily at corporate average, it's replacing base mirror business that's below corporate average. And as we start to see some of the foreign markets, base mirrors continue to fall off, that's where some of that commentary of like the margins on that base business continues -- has deteriorated over time.

So I think that's where you get the incremental positive margin or contribution margin to help you potentially get to that higher end. Now I'm not committing to that at this point, but I think that's where the opportunity exists. And those product cores that are growing tend to lead to the tailwinds in margin.

Do you have a second part of that question?

I was just going to ask about CapEx, how we should think about CapEx over the next few years?

If you look at -- we came into this -- so we lowered our CapEx budget for this year. If you think our beginning of the year CapEx estimate, that was at $135 million, $145 million, I think. That's what our way-toon-early top 25 college football poll would say for next year is probably in that range for CapEx in '27. And that will support all the products you've seen and start be the first wave of getting ready for that contract manufacturing piece.

And honestly, the next 2, 3 years, I think we'll probably be very close to that. The only exception I throw out to that is if something goes crazy on LED like in a positive way, then obviously, we'd be more than happy to sit in this room and talk about, hey, we're going to have to expand that or accelerate it, but that comes with good news only. If you look at maintenance CapEx plus our planned launches right now, we feel really comfortable in that CapEx range that we can continue to develop the product, support them in prelaunch and get the manufacturing footprint in place.

Yes.

Stock's very cheap today. You've laid out a very attractive growth story. What's stopping you from turbocharging buybacks even at the point of an ASR or taking on debt?

Yes. I would say, I mean, honestly, it's something -- it's a conversation we have pretty much every quarter with the Board level now. And it's something I -- this is -- unfortunately, this is what I wake up to every night at 3 a.m. running in the back of my head, is this financial model isn't rocket science. It's really easy. It's simple math.

And so the only real hesitancy is a couple of things. Number one is if you do this, you're saying no to every other opportunity over the next couple of years. By that, I mean a strategic acquisition or some other opportunity. And then the concept of saying, "Hey, how do you make sure you're not just chasing good money after bad instead of taking advantage of the timing?"

And so that's the second argument, right, instead of doing the ASR right now, what if this paranoia gets worse just slightly and what if you could have bought even better. And so our dollar cost averaging strategy that we use right now has worked fairly well.

I mean, fairly well from a buying standpoint, not necessarily from a market response standpoint. But quite frankly, I mean, I've learned a lot from several of you last night that I joke internally that at times automotive seems like it's largely uninvestable. At least a portion of them -- at least a portion of the Street tends to feel that way. And I think that's what we've seen too. I mean if you look at interest in the space and if you look at -- and if you look at, quite frankly, credit turns, they're very similar.

In other words, 7, 10 years ago, the amount of turns you could get from a borrowing standpoint in this space were very different than the type of leverage you can get now. And I think those are both symptomatic of fear and trepidation around what happens in this space. We look at it and say we feel very comfortable that we've been through downturns and we've been through upswings. And we probably better than most tend to handle consistent financial returns in both of those markets.

I believe it's because of our size and how we respond to problems and how we manage differently. We are -- it is something that I will tell you, we have -- or let's just say we've modeled, it very often and frequently, and we understand the type of returns it can produce very quickly without even going crazy.

I mean you could do $1 billion ASR and you can model very quickly the impact on EPS. The harsh reality is one of the things we talk about is like, well, it's still -- is it still going to be a big yarn? Other than getting a lot of shares very quickly at a very fair price, does it actually improve the stock price and return anything to shareholders other than what we're doing.

Because at this point, one of the things we've seen is with the anti-dilutive effect of our share repurchases, we've taken 80 million shares out of the marketplace and market cap hasn't rebounded the way we thought it would. And so spending $1 billion or more without getting -- without it really bringing value to shareholders.

We want to make sure that we try to maximize that return to shareholders in the best way possible. That may be additional growth drivers instead of just share repurchases. So we love the concept that we can do it slowly throughout the year and still pull back if there's a better opportunity. But we don't take it off the table ever, that's for sure.

One coming from online. How do we think about China competition globally within a 10-year market opportunity plan?

Well, it's very clear. I mean our long-term plan is we're trying to look at the China market as saying, we think there's continued headwinds and there may be little to no opportunity from us in the long term. And on the flip side of that, we're not passing on the market opportunity. We're saying that we're -- in this model, we're suggesting that, that goes to basically 0 in that time period.

So anything positive that we can accomplish in that market is upside to the model we just put forward. But based on what we're seeing from a nationalism standpoint and our reaction from our customer base, our presumption is, is we have to plan on very little, if any, business and exports into the China market. And any upside we get during that time period would only further improve the financial modeling that we presented today. Sorry, go ahead, James.

No, it's okay. So just following up on the ASR question. So part of that would be having some powder to be able to use for some sort of strategic opportunity maybe in the future. What directionally would that look like? Would you look to go maybe into another adjacency like you did with the VOXX acquisition? Or would it maybe more of a focus on core automotive? Just any thoughts on that? What are you missing, I guess?

Yes. I'd say if you're looking at opportunities, it's one of the things I would look at and say, if there was a strategic opportunity, one of the things you had -- we'll talk through about philosophy first, when we look at acquisitions.

One of the reasons why we haven't been more aggressive in the automotive space in the last 7, 10 years is primarily because we look at everything from a technology standpoint. And so if we're going to pay -- when you think about it, I mean, we're not -- the multiples aren't lost on us.

And I always joke, one of the things you always have to check your ego at when you're looking at acquisitions is if you're talking 12 or 13x, you're talking about a 13-, 14-, 15-year payback period.

And the fundamental question we always ask is, if you're looking at a 15-year payback period net of tax, is that tech still relevant in 15 years? And so the one that's always failed the threshold for us with a lot of automotive acquisition opportunities is that I don't believe -- I don't know that the tech is going to be real in that time period. And therefore, buying it is way more risk than saying and reinvesting in the company itself. So that's kind of our overall philosophy.

So I always like to outline that because I think at times, if you're a CEO or executive team and you're looking at 3 years and you're saying, "Hey, I'm going to be done in 3 years, look around the room, like -- that's not what we're managing to, right? We're managing the 10, 15 years from now.

And at times, that comes with temporary pain from a market reaction standpoint, but I believe it's the best thing for the shareholders in a very long period of time is that you have this long-term focus. We're not looking for a pump and dump or more importantly, not trying to look pretty for 3 years and then a gracious exit or not so gracious, depending on your perspective.

And so with those philosophies in mind, one of the things we look at and say, okay, over a 10- or 15-year period, what produces the most value? And historically, what we've looked at is if you look at our ROIC, for instance, versus other stuff in the marketplace, rebuying the stock, we believe, is the best return. We're more confident in our strategy and our execution than we are acquiring someone else's.

Once in a while, there's a proper value out there. VOXX is a good example, right? It was -- the basis wasn't on a growth strategy or a multiple profitability. It was saying, you're getting it for asset value. Now can you make the business better? And so we felt comfortable with that.

HomeLink was a similar one. We knew that business. We knew there was opportunity that hadn't been captured yet, and we thought there was a financial motivation, and that proved to be the case. These are rare. They're hard to find. At least we think so. Instead, if we're going to think about acquisitions right now, I would say probably outside of automotive into part of that 10-year philosophy we started 5 years ago would probably be around that.

Adjacencies outside of automotive, where we can leverage our core competencies and grow in the consumer space or other medical, for instance. The other one that is a very real possibility is that as we expand this electronics business, there may be something to become available on the electronics manufacturing side that could be interesting, especially as it relates to ability to get out of traditional automotive.

I mean you think about some of the markets that are expanding right now, whether it's military or aerospace opportunities, businesses that are a little more stable, a little more long run, but they definitely have a lot of energy right now. And uniquely for Gentex, what we offer is this manufacturing footprint being domiciled in the U.S. does start to separate you from your competition versus the rest of the world and where they put their capital on the ground does become a prohibiting factor for them to be attractive to certain of these customers.

So I would say those kind of areas are the ones we look at, probably the most probable. I don't know if you have -- I mean one of the other ones we've done over time too, we've never really taken huge advantage of is we have made some small acquisitions on the supply side to help with vertical integration primarily. But as you see us start to look at our core competencies and say, how do I become a Tier X supplier in other industries, those become interesting too.

Maybe something on the equipment side or processing side. All these are opportunities, I think, to help get us away from -- you don't have to invent just the product itself. I mean we referenced 3M a lot internally. So if you actually look at our business model, it's not wildly dissimilar. You don't have to invent everything yourself.

Sometimes you just take someone else's product and make it a little better or you add to it or you use an enabling technology to create a finished product that someone else is responsible for. And so we trying to get better about not thinking of ourselves in any one industry or one fashion, but how do we use these core competencies and skills to grow inside of automotive, but also outside.

The one time series targeted trajectory chart that we didn't get was for the circuit board manufacturing. What could that look like?

So I'll go back to this. I personally, in the 10-year horizon, it's -- for sure, if it's not at least at that low end, like -- and I say 10 years, that low end should be well before 10 years from now. And we cap it to, like I said, because I hate Blue Ocean-type commentary in the meeting like this. I mean internally, yes, when you sit around and talk about if we do this right, what could it be? It gets pretty wild pretty quick.

And at $1 billion at the low end, what will be the associated CapEx potentially?

Probably for that one, $150 million total. And that's where the cash generation of this type of business is very interesting. I mean if you look at it, it's pretty low-labor. The margins are thin. But if you look at it from an R&D and SG&A standpoint, we're not inventing the product, right? At this point in time, you're taking someone else's design, their engineering, their manufacturing plan and you're executing that for them.

So is there some? Sure. But it's not like -- it's not like our business today where you're talking of 13%, 14%, 15% OpEx to make that business happen. This is very low single digits type OpEx to bring that business on. The cash generation of this, and you can pull guys that are publicly traded that do this type of work. We will believe -- we believe personally that we can be at least that good.

Yes. The market seems to appreciate this mid-single-digit profitability for that space because they traded at 10 to 20x...

Which is crazy to me, but, yes. So if we're good at it, which I think we have more than enough proof to make that case that we're good at it. And we're certified -- I mean you think about our certifications. What's interesting about this from a compelling standpoint, we're certified automotive, aerospace and med to make circuit -- the circuit boards for all of those industries already.

And so this isn't like we're talking about skills set we need to go acquire. I mean this is something we do all day, every day and have for a long period of time. So how do we capture more value with that skill set.

The boards that we're making aren't just automotive. We do the boards for the controllers for the aerospace modules as well.

Yes. And we make [indiscernible], too.

Again, on the printed circuit board assembly business. I appreciate what you said in terms of the strategic. Can you speak to kind of where the ROIC could be on that and where it sits in the priority for your capital?

Yes. So I mean the -- so the way we -- first of all, like the way we approach capital allocation, especially when it comes to equipment, we basically run it like a VC. And so you have the customer commitments that you made, those have to happen because you've already sold the business, you're committed so you got to do that.

Everything after that inside of the budget that we create that we feel like we need to operate in. It's basically a VC mindset, best idea wins. And just because your project may not get chosen this year, doesn't mean next year it won't be that the first project chosen.

And so we tend to operate under this philosophy that -- and the only exception to that is if somebody walks in with a crazy idea on a robotics automation plan, and it has less than a 1-year payback period, I'll happily come to you guys and talk about the fact that I blew my budget if -- because then the return profile is such that there's no excuse to say no to that.

But for the most part, we treat everything with that best-idea-wins kind of mindset. If you look at ROIC on this business, I'll just do the math in my head real quick. So I haven't thought about ROIC on that business by itself. But you're talking about a return profile, which should be high single digits on the return profile. So if it was $1 billion, and you were high single digits on the return side, you'd be talking about...

$80 million, $70 million.

Yes. $70 million, $80 million in EBIT. And let's say, it was $150 million over a 10-year AM. So you'd be $15 million on the capital side. So you'd be pretty good there. So yes -- on a percentage basis, what is that your...

[indiscernible].

Let's call it $80 million -- what's that?

Only onetime $150 million. It's more like a $60...

That's what I said, but over a 10-year, but if you're a $150 million on a 10-year AM, you'd be $15 million a year in amortization. So not the typical Gentex high teens, often approaching closer to 20%, but definitely high single digits at least.

Yes. Just one on the Morocco plan. Maybe can you give us a little bit more details on the location decision process? Why Morocco [indiscernible]?

Yes, sure. So we started with the world of how do you get parts into Europe to make your customers happy. I mean make no mistake about it. It started with the defense, okay, we've been ignoring this for a long time. I won't say ignoring it, but historically, every time we get this push, we negotiate with our customers, say, can we talk about the reality? Is it actually that you want me there? Or is it just about money? And then ultimately, after arguing for a few months, you realize it's just about money.

And so we always negotiate a deal where it minimizes the work and the output and how much work we have to put into it. It's sometimes easier to just negotiate your way out. The problem is with the tariff situation and this local-for-local conversation is happening all over the world. And so like it started in China, now it's spread globally. I mean this is crazy.

So we're like we have a huge piece of business in Europe. We needed to protect that customer base. So we finally reached the conclusion, a, that we couldn't negotiate our way out. We are going to have to do this one. Then it starts with the whole EU. And you start looking at, okay, what would qualify, meet the customers' demands and make the most sense for us.

Quite frankly, geopolitically, given everything that's happened in the last few years, we eliminated most of Eastern Europe, which is where everyone went 15 years ago, and there was a lot of reasons for that. You start at the top line. There's obviously a lot of risk on the geopolitical side of what's happening in and around that area.

Secondly, you look at the economics, wages have increased drastically in the last 15 years in Eastern Europe. So a lot of the efficiencies that OEMs and tiers saw by moving there have been eroded over time. Lastly, you're the last guy into a very saturated market. We didn't feel like we would have the pool there that we were looking for. And then the energy independent side was very concerning for us.

And so then we start looking around. And quite frankly, I joke with people all the time, and I'm like, "Man, call me a village idiot on this, but I did not know the trade deals that Morocco had negotiated with the EU. And so once we found out about this and start hearing about it, we investigated further. And what became clear was you could get in for a low cost of capital. It stood up very, very quickly and there was a lot of preferential treatment.

In other words, you have this -- if you can get to the 50% value-add mark for localization in Morocco, you can do what you cannot -- we've not been able to find another place on the planet where you can do this. Like when we make a glass element here, whether your country of origin is the U.S., even if you do 80% value-add in other countries, because the mirror portion and it's always going to be a mirror is made in the U.S., it's always a U.S. product.

In Morocco, if you get to the value-add portion, you could actually do a country shift in country of origin in Moroccan product, meaning we can import it into the EU duty-free as long as we hit the value-add requirements. There's a ton of incentives in that space. Morocco has put ton of capital into their own infrastructure, both power generation and their ports are world-class.

And so obviously, just based on the simple geography of it, it's actually a shorter transit than even the expense associated with ground transit out of Eastern Europe. And so we felt really comfortable with the customer base and their plan. And so at that point, we started floating it before we even committed to see if this would work.

In typical Gentex fashion, we had a couple of deals we have negotiated with OEMs saying, "If you shake my hand on this new program award, I'll do the deal." And until we have those kind of eye-to-eye, like we got -- you got to commit to me if I commit to this type of situation at that point, it became a no-brainer. Once the OEMs are looking in the eye, say, yes, do it.

If you do it, I'll source you your next piece. It was like, okay, we got to go. And then the key is -- and the interesting part of that $10 million to $15 million we referenced, a good portion of that is going to be an ERP implementation, which, quite frankly, if the geography had to change, the ERP implementation would move.

It could move to another place. That's what's beautiful about the ERP. The instance is you're setting up something that's not inside one of your normal systems that you're going to have to have this instance created in. And so it's something were to happen other than the language, I mean, you could move that ERP implementation to another location if we needed to.

I think we've got time for about one more question just to keep us roughly on time.

But we'll be walking with you, too. So when we have questions, I guess we're doing tours. We're going to be there and...

I know at your last Analyst Day, you mentioned like raising the dividend when you hit sort of record net income levels. I think this year, you're actually on track to sort of hit those record net income levels. You talked a lot about capital allocation, talked about share repurchases. Like how do you think about the dividend going forward? And just like are you thinking about raising dividend when you hit those record net income levels? Or is that something that you're not really considering anymore?

Well, I would tell you, first and foremost, absolutely. The philosophy hasn't changed. Our commitment was always like, once we hit that level, that's going to be a real conversation we're going to have. And quite frankly, I think that for me at least, this is one I would love to hear from you because, obviously, we are terrible at predicting or helping shareholders see value right now. So quite frankly, that conversation around -- we've never been a dividend play per se.

But as we grow and mature, that may become a more compelling factor. Like Kevin mentioned initially, the reason why the company started it initially, it was a tax-friendly way to get money back to people, right? That's been diluted a little bit over time. We're still open to that concept.

I mean my primary purpose has always been to minimize the percentage of free cash flow that goes to that because it's not helping grow the business or it doesn't give you that multiplying effect as you increase net income longer term. But we definitely realize that it is a component of an investment philosophy and certain investment groups won't invest in you if you don't have one, but we didn't want to become overdependent on dividend as an investment thesis.

But it's definitely -- I'm excited as all get-out to actually get to the point I thought this would have happened a few years ago, quite frankly, to get to that record net income level, so we can have that debate internally again as well. And honestly, I'd love your feedback to what you're hearing from the people you interface with is does it change their investment thesis if that dividend increases.

Thanks, Steve. Thanks, everyone, for your questions. This will conclude just the Q&A and presentation portion. We're going to go into the tours. So we'll close it off here. And then we'll hit bathrooms and then out to the bus to keep us roughly on time. If you're departing early, bring your bag. If you're not departing early and you're sticking around through lunch or later, you can leave all your stuff here. So we'll keep everything in this room. So we don't need to pack everything up. We got security that will be on-site. So your stuff is safe. But anything else...

Sure. Well, I'm just...

Well, thank you again, everyone, and we'll talk soon.

Good day, and thank you for standing by. Welcome to the Gentex Reports Second Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Josh O'Berski, Vice President of Investor Relations.

Thank you. Good morning, and thank you for joining us today for our second quarter 2026 earnings conference call. I'm Josh O'Berski, Gentex's Vice President of Investor Relations. And with me today are Steve Downing, President and CEO; Neil Boehm, COO and CTO; and Kevin Nash, Vice President of Finance and CFO.

Please note that a replay of this conference call webcast, along with edited transcripts will be available following the call in the Investors section of our website at ir.gentex.com. Many of the statements made today during the call are forward-looking and reflect our current expectations. These statements involve a number of risks and uncertainties, both known and unknown, including those described in our press release issued this morning and in our annual report on Form 10-K for the year ended December 31, 2025, as well as general economic conditions.

Actual results may differ materially from those expressed or implied in these forward-looking statements if risks or uncertainties materialize or if our assumptions prove to be incorrect. Ahead of our prepared remarks, I would like to remind the investment community that we will be hosting our invite-only Analyst and Investor Day on August 27 in Zeeland, Michigan. During the event, we will be doing facility tours, showcasing some of our new products and prototype vehicles and showcasing the infrastructure that has been going into place to support the expected product line growth over the coming years. If you're interested in attending, please e-mail me or apply to attend at [email protected] or sign up at ir.gentex.com.

I will now hand the call over to Steve Downing for our prepared remarks.

Thank you, Josh. For the second quarter, Gentex reported net sales of $651.3 million, down 1% from $657.9 million in the second quarter of last year. Automotive revenue declined approximately 3% year-over-year, reflecting lower revenue in Europe, Japan, Korea and China, which was largely offset by strength in North America.

Our results continue to demonstrate the value of our strategy to grow through technology expansion, increasing content per vehicle and diversification. While mirror unit shipments and automotive revenue came in below our beginning of quarter forecast, performance benefited from strong North American demand, higher vehicle content in Europe and continued growth from our nonautomotive product lines.

In Europe, new driver monitoring and in-cabin monitoring system launches continued gaining traction and helped offset the impact of a significant decline in base interior mirror shipments for the international market. In China, revenue remained under pressure as ongoing tariff-related market disruptions contributed to a 20% year-over-year decline.

Outside of automotive, revenue from the company's other products category provided meaningful growth. Premium audio revenue increased 16% year-over-year to $51.7 million, while aerospace, biometrics, fire protection and automotive aftermarket revenue collectively increased approximately 12%. Nonautomotive revenue represented approximately 14% of total company revenue during the quarter, reinforcing the benefits of the company's diversification strategy and confidence in long-term opportunities to expand both our technology portfolio and revenue base.

Gross margin for the second quarter was 37% compared to 34.2% in the second quarter of last year, representing an increase of 280 basis points. Gross margin benefited from approximately $18 million of IEEPA tariff reimbursements received during the quarter that reduced cost of goods sold as well as favorable product mix. These benefits were partially offset by higher commodity costs and lower overall sales levels compared to the prior year.

In total, the company received approximately $38 million of IEEPA tariff reimbursements during the quarter, of which roughly $18 million reduced cost of goods sold and favorably impacted gross margin. Excluding that benefit, gross margin still improved sequentially by approximately 50 basis points from the first quarter of 2026 despite lower automotive revenue and ongoing non-IEEPA tariff costs and significantly higher precious metals costs. The sequential improvement was driven by favorable product mix, disciplined operational execution and improving profitability within the company's other products category.

Consolidated operating expenses for the second quarter were $99.7 million compared to $106.8 million in the second quarter of last year. The decrease was primarily driven by severance costs recorded in the prior year period. On a non-GAAP basis, adjusted operating expenses were $99.3 million compared to $97.5 million in the prior year period.

Income from operations for the second quarter was $141.3 million, up 19% from $118.5 million in the second quarter of last year. On a non-GAAP basis, adjusted income from operations was $141.7 million compared to $130.3 million in the prior year period. The effective tax rate for the quarter was 16.5% compared to 17.2% in the second quarter of last year.

Net income attributable to Gentex was $114.7 million, up 19% from $96 million in the second quarter of last year. On a non-GAAP basis, net income attributable to Gentex was $122.9 million compared to $110.9 million in the prior year period. Diluted earnings per share were $0.54 compared to $0.43 in the second quarter of last year. On a non-GAAP basis, adjusted diluted earnings per share were $0.58 compared to $0.50 in the prior year period.

While revenue came in below our forecast, disciplined execution across the business enabled Gentex to deliver record second quarter earnings per share of $0.54, an increase of 26% over the second quarter of last year. The company's strategy remains focused on identifying new growth opportunities despite the challenging market conditions, expanding and stabilizing gross margins, tightly managing operating expenses and deploying capital in a disciplined manner. Management believes this approach will continue to support earnings growth, strong cash generation and long-term shareholder value creation while also funding investments in the broadest portfolio of new products, technologies and market opportunities in the company's history.

I will now hand the call over to Kevin for further financial details.

Thank you, Steve. Looking at the segment revenue, Automotive net sales were $560.1 million in the second quarter, down from $578.1 million in the second quarter of '25. The quarter-over-quarter decrease primarily reflects lower light vehicle production and reduced base auto-dimming mirror unit shipments. Despite these headwinds, favorable product mix, new technology launches and continued content gains with customers were able to partially offset the decline.

Premium audio. Net sales from the premium audio category were $51.7 million in the second quarter compared to $44.5 million in the second quarter of '25, an increase of approximately 16%. Growth was driven primarily by strong performance from the Powered Systems and Onkyo brands, supported by new product introductions and continued demand across premium audio categories.

Other products. Net sales from the other products category, which includes aerospace products, fire protection devices, medical technologies, biometric solutions and automotive aftermarket products were $39.4 million, which was a 12% increase compared to the second quarter of '25. This growth was primarily driven by strong performance in aerospace products as well as continued growth in biometric and accessory product revenues.

Share repurchases. During the second quarter of 2026, the company repurchased 2.7 million shares of its common stock at an average price of $24.48 per share for a total of $66 million. And year-to-date, the company has repurchased 5.9 million shares for a total of $137.6 million at an average price of $23.13 per share. And as of June 30, 2026, the company has approximately 29.9 million shares remaining available for repurchase pursuant to its previously announced share repurchase plan.

Turning to the balance sheet. Our comparisons today are based on June 30, 2026 versus December 31, '25. Starting with liquidity, cash and cash equivalents were $233.4 million at quarter end, up from $145.6 million at year-end. And short-term and long-term investments totaled $247.9 million compared to $278.4 million at the end of 2025.

Accounts receivable was $386.3 million at June 30 compared to $368.5 million at year-end, reflecting timing of sales and collections during the quarter. Inventories totaled $519 million at June 30, up modestly from $516.3 million at year-end. And accounts payable was $266.6 million at June 30 compared to $249 million at year-end, primarily driven by timing of payments and inventory purchases.

Cash flow. For the second quarter, preliminary cash flow from operations was $180.9 million compared to $166.1 million in the second quarter of '25. Year-to-date preliminary cash flow from operations totaled $318 million compared to $314.6 million in 2025. Capital expenditures for the second quarter were $19.2 million compared to $31.1 million in the second quarter of '25. And year-to-date, capital expenditures were $36.2 million compared to $67.8 million in '25.

And depreciation and amortization expense for the quarter was $25.8 million compared to $27.4 million last year. And year-to-date, depreciation and amortization expense was $51.4 million compared to $52.9 million in 2025. And as a result, second quarter free cash flow reached $161.7 million, an increase of approximately 20% from $135 million in the second quarter of '25. And year-to-date free cash flow totaled $281.8 million, up approximately 14% from $246.8 million in 2025.

I'll now hand the call over to Neil for a product update.

Thank you, Kevin. In the second quarter of 2026, we continue to have strong feature launches of our automotive products. For the quarter, over 75% of the launches included advanced features in our interior and exterior auto-dimming mirrors and electronic modules. The launch strength in the quarter was driven by HomeLink, Full Display Mirror, In-Cabin Monitoring and Advanced Featured Exterior Auto-Dimming Mirrors.

In this past quarter, Full Display Mirror again performed well. We continue to see good growth and expansion of the product in markets around the world and across all types of vehicle architectures. In the quarter, we began shipping on the new Jeep Recon platform and the Infiniti QX65. Additionally, in the quarter, we began shipping Full Display Mirror to McLaren on its new W1, to Toyota on the Century SUV and on the Subaru Trailseeker and Uncharted nameplates.

Shipments through the first half of 2026 have positioned us to deliver on our estimated growth rate of 200,000 to 400,000 units over prior year that we projected at the beginning of the year. Our driver monitoring and in-cabin monitoring systems continue to track in line with our expectations for growth over the coming years, and we're pleased to announce we began shipping to BMW on the iX3 and to Kia on the EV2. These are some of the most complex programs our company has ever developed, and our engineering and manufacturing teams have done a great job in successfully launching these projects.

Outside of automotive, the premium audio team has been extremely busy with new launches as well. From the limited edition runs of the kO-R2 and the Odyssey edition of the Detroit Bluetooth speaker to the Heritage series latest bookshelf speakers, the Rebellion, the team at Klipsch continues to move the market forward in blending style and performance. At Onkyo, the Muse high-power amplifier and limited edition 80th anniversary creator series powered monitors offer premium design, smart features and versatile connectivity. The audio community has shown substantial support and excitement around these new products.

Now for a quick progress update on manufacturing products outside the United States. Many of our international customers are focused on derisking their supply base by increasing the amount of localized production in each region where they operate. This has created headwinds for our international growth. Specifically, several of our European customers are requiring manufacturing locations in the region to support their vehicles that are built and sold in Europe.

In support of these requests, Gentex is in process of setting up a plant in Morocco to provide components to our customers in Europe. While discussions are still underway regarding the product output of this plant, initial requests from our customers would include base electrochromic mirrors and advanced electronic modules. We have signed a letter of intent, selected the location for our plant, have received the Moroccan government support in creating the entity and are making progress in support of a targeted start of production in 2028.

The second quarter highlighted the company's ability to execute across a broad range of strategic growth initiatives while maintaining cost discipline. Gentex continues to support an expanding number of advanced technology launches, including Full Display Mirror, driver and in-cabin monitoring systems and dimmable device programs, while remaining focused on operational efficiency. As these technologies gain further market adoption, investments in innovation, automation and process improvement are expected to support future growth while effectively managing operating expense levels.

This includes our effort to expand in Morocco. We believe with our operating discipline and the structure we are establishing Morocco, that the shift in manufacturing will not create a large increase in operating expenses. And with core technologies still coming from our existing facilities, we don't see this transition creating excess capacity in our core facilities.

Innovation is a core strength of Gentex, and we're driving launches to market today. We continue to innovate across the organization to position us for growth in the future. So while automotive production environment for 2026 appears to be stagnant, the team at Gentex is setting the stage for a busy and exciting future.

I'll now hand the call back over to Steve for guidance and closing remarks.

Thanks, Neil. The company's light vehicle production assumptions for the third quarter of 2026 and calendar years 2026 and 2027 are based on the mid-July 2026 Mobility Global outlook for North America, Europe, Japan, Korea and China. Based on this outlook, global light vehicle production is expected to decline approximately 2% in the third quarter of 2026 compared to last year and approximately 3% for the full year.

While global light vehicle production is currently expected to be relatively flat in 2027, the company expects continued weakness in the company's primary automotive markets of North America, Europe and Japan, Korea, with any forecasted growth in light vehicle production coming from emerging markets. Forecasted vehicle production volumes for the third quarter of 2026 and calendar years 2026 and 2027 are shown in our press release from this morning.

Based on actual results through the first 6 months of 2026, the updated Mobility global light vehicle production forecast and the company's expectations for its automotive, premium audio and other products category, the company is updating certain elements of its full year 2026 guidance. The updated guidance reflects the anticipated impact of all known tariffs effective as of yesterday.

Consolidated revenue is still expected to be between $2.65 billion and $2.75 billion. We are raising gross margin guidance and now estimate it to be between 34.5% and 35.5% for the year. We are lowering our operating expenses budget to be between $405 million to $415 million for the year. We are lowering our tax rate estimate to be between 16% and 17%. We are also lowering our capital expenditures estimate to be between $115 million and $125 million for the year.

Depreciation and amortization is still expected to be between $100 million and $110 million for the year. Based on the mid-July 2026 Mobility Global light vehicle production forecast and the company's expectations for automotive, premium audio and other products revenue, the company continues to expect calendar year 2027 revenue to be in the range of $2.8 billion and $2.9 billion. As we enter 2026, we knew geopolitical challenges would continue to pressure our business in China, and we also expected ongoing headwinds within our base mirror business. As a result, we anticipated that revenue growth would be more subdued than what we've historically delivered.

Despite those challenges, the execution of our team has been some of the best I have seen during my time leading this company. Across the organization, we continue to launch, develop, invent and commercialize new technologies at a pace unmatched in our history, while maintaining a relentless focus on profitability, operational efficiency and capital discipline.

Concurrently, we have worked hard together with the VOXX team to improve VOXX's financial performance, and we are well on our way to achieve the profitability targets we established post acquisition. Similar to the Gentex team, the VOXX and PAC teams have recently developed several new product categories and developed business relationships with attractive long-term growth potential to become meaningful contributors to our overall profitability only 15 months after the acquisition. Together, we are proving to be formidable competitors in our relevant industries.

Our continued focus on quality, operational excellence, gross margin expansion, operating expense management and capital allocation have enabled us to deliver strong earnings performance despite a challenging environment.

Looking ahead, we believe the company is well positioned to have a solid second half of 2026 with growth continuing into 2027 and 2028. Many of the investments we have made over the last several years in new products and technologies, including dimmable visors and sunroofs, our fourth-generation FDM, DMS and ICMS and advanced manufacturing capabilities and other market expansion opportunities are expected to begin contributing more meaningfully to revenue growth. When combined with our focus on operational excellence and financial discipline, we believe these investments will drive future growth to create significant long-term shareholder value.

Additionally, I would like to take just a few minutes to provide a quick update on the progress we have made since the last quarter on our electronics contract manufacturing initiative. As we discussed in the last quarter conference call, increased interest in localized manufacturing has created new headwinds and opportunities within our markets. Neil provided some commentary earlier on the actions we are taking to address the headwinds associated with exports to our international customers. However, in the United States, these geopolitical influences have helped Gentex gain attention for the exceptional manufacturing work our teams do, especially as it relates to electronics manufacturing.

As a reminder, Gentex currently manufactures between 40 million and 50 million electronic modules each year for the automotive market, fire protection industry, aerospace industry and the medical device industry. We believe we are uniquely qualified to help grow this type of manufacturing in the U.S. We believe that by the end of next quarter, we'll be able to announce that we have secured our first award for advanced electronics manufacturing with start of production targeted for late 2028 to early 2029. We are still in active discussions for additional programs with various customers and believe we are well positioned to win additional business.

That completes our prepared comments for today. We can now proceed to questions.

[Operator Instructions] And our first question comes from Joseph Spak with UBS.

Just maybe a couple of questions here. To start, the $38 million IEEPA benefit you mentioned, I know you took $18 million that helped gross margin this quarter. So the $20 million that went to the balance sheet, do you have that coming through gross margin in the back half of the year in your updated gross margin guidance?

Not -- I mean that goes against inventory. So it reduced what was still held in inventory as of the February 24 date. And we did stop expensing future tariffs as of that point, but everything else was held. So it's really an effective reduction of inventory.

Okay. So it was really just the $18 million in the quarter that sort of -- that's helping the gross margin guidance. Okay. I guess, secondly, like -- and you mentioned -- you alluded to this, like interior Europe mirrors like really, really soft, probably the lowest in over a decade ex the COVID quarter. It was over 1 million units lower year-over-year. I know you've talked about losing some business there, which probably ties into some of the Moroccan discussion. But is there anything else going on there? And how should we think about a good level for that interior European mirrors business going forward?

Well, you got 2 distinct factors. I'd say the bigger of the 2 was really the China impact. That business has obviously -- since the beginning of the geopolitical issues and the tariff wars, that business has been on a very steady decline. And so that -- and that is primarily base interior auto-dimming mirrors that are impacted in the China market. And then the second one was we did have some lost programs on the Volkswagen side of the business. And if you look at some of our European customers, they're also struggling with their volumes as well. And so those -- really those 3 factors are the biggest drivers of that drop.

Okay. And maybe if I could just sneak one more in. The EMS win, good to hear. Any -- can you give us any sort of revenue opportunity associated with that win? Or maybe talk a little bit more about what that product really is that you're making?

Yes. The product itself is both of the BMW and the Kia are different implementations of it. The BMW has a module that's being placed on the bottom of the mirror. It will have different mirror features that will be tied to it, some of which we haven't announced yet. Same for the Kia implementation. It's -- that one is a little different, in that we're supplying the camera and the emitters as well. So we have an opportunity to really expand on those features now that we have that core technology in there. And from a revenue side, I think this year is still not significant. I think it's going to be roughly maybe $50 million to $60 million, I think, was this year's...

Yes, it starts ramping in the back half.

Back half of this year and into next year is when it starts becoming more meaningful.

Sorry, that's the -- you're talking about the DMS, right?

DMS. Sorry. I did talk about DMS. You were talking about the EMS manufacturing. Yes, sorry about that. Could you say your question again for me, just so I didn't...

Sorry, yes, the -- let's just say, the electronics opportunity that you sort of have highlighted in the past, you know, clearing everything else. Can you talk about any revenue opportunity associated with that?

Yes. The first award, we believe, will be probably between $100 million and $200 million. That's the one that we're working on right now. And then from there, we expect the numbers to get larger as we go out beyond '29 into '30, pretty significantly larger. You got a whole DMS conversation there. You weren't expecting.

Our next question comes from Davis Baker with Baird.

For starters, can you walk us through the customer conversations supporting your Morocco investment? Just do you have any committed customer frameworks there? And then how can you help us kind of scale production at a higher level?

Yes. So yes, we have several customer commitments already, and that's really with us just securing the facility and not even able to show what it is. The first step in that is going to be a transition of final assembly products from what we're doing here in the U.S. to the Morocco facility. So it will be really just replacing what we're already doing in a different location for final. This was honestly being pushed really hard by our European customer base that we needed to find a solution to help support their business in Europe locally.

And so after a pretty exhaustive study, what we arrived on was from a physical location, we felt pretty confident this is the right move for us. Right away, that was met very well with customer support. So we're continuing to see not only focus on existing business that they want to move there, but also new programs that may have been in question for getting an award. Now our customer base has a renewed interest and focus on making sure that we can continue that business growth going forward.

Okay. That's helpful. And then second, can you give us just a high-level update on the internal large area device efforts, setting up production in Zeeland, if I remember correctly?

Yes, exactly. We've made some really good progress over the last 6 months as we've been able to get our own different parts of the process. We were doing some contract manufacturing or some outside companies are supporting us with some contract manufacturing to create the films. We've been able to bring a good portion of that internally and have been able to get the performance and quality of that to a pretty good spot right now. We've been building some parts, running through testing. At this stage, testing is still looking really good. So we're -- we think we're getting over the big hill of problems and kind of on the down slope to be able to start really executing the product.

Okay. And then last one for me. Just Investor Day coming up in August. Just any previews or teasers that you can give us just before that?

Yes. I think to your question, which is a good lead-in to your second, part of what we're going to do is spend some time actually walking you through the facilities that we put in place and the process that's in place for both visors and large area devices. There's obviously been a huge tech push. This is an incredibly challenging technology. To Neil's point, we feel like we've actually answered a vast majority of those questions and solved a lot of those technical challenges, and we're happy to show what does that facility look like. It's a world-class facility, and we're excited to show that to you and kind of let you see this -- not only the ability to build one, but with the facilities that we're putting in place, the ability to start to scale this at higher volumes as we're further ahead along that than probably what we've implied on the calls.

Our next question comes from James Picariello with BNP Paribas.

My first question is just on the China revenue, just to square that up. What is the expectation for the full year at this point? Last year, it was roughly $150 million, the year prior $200 million. We could see the first half comp. Is there a point of stabilization here with maybe some improvement in the second half? Or is it still in decline?

No, it's still in decline. I would say if I had to spitball one right now, I'd say it's probably right around $100 million would be where we'll end the year.

Okay. Got it. And then just thinking about your revenue targets to next year, right, 5.5% growth thereabout. Within that, is China still in decline?

Yes. We're expecting China to continue to decline.

Okay. And just on other products, you referenced some very encouraging sequential growth really across the portfolio. My question is, your total revenue for that -- for the all-in other was down by just $3 million, right? It's flattish. So what within there did not grow sequentially low double digits?

Primarily within that, it would have been the automotive aftermarket within the VOXX portfolio. That was down a bit, but we have -- that's really a seasonal thing. If you look at what it was last year versus now, we still expect decent growth out of that category, but that was the one area that didn't perform as well.

Our next question comes from Josh Nichols with B. Riley.

One, just to dive a little bit deeper into the margin. I mean, pretty impressive margins, even though the revenue was light and stripping out the $18 million, you were still up 50 bps. I guess, is 35% type gross margin going to be a floor you think going forward? And how you think about how that margin is likely to be exiting this year as we move into '27 later?

I wouldn't say it's a floor. I would say that probably that 34% to 35% is kind of the sweet spot. I mean, if you look at the weighted average, the growth in some of these new emerging technologies, they're not -- they're going to be slightly below corporate average, some of them just because it is a more competitive set. But if you look at the growth opportunities as we start talking about visors and some of the other new technologies, those do have a slightly better margin profile. So it's really about that weighted average of how those products kind of come in.

Obviously, with some of the pressure in the emerging markets, China, for instance, those obviously -- the lack of revenue there obviously helped degrade margins as well. So what we're trying to do is offset those losses and find new products to replace them with, that are at or around our corporate average margin. And so we feel very confident. If you look at that growth trajectory, it's not just about what is that -- it's not that we're not offsetting the losses and problems in the business with wins. It's just how quickly can you do those and how quickly can you ramp them at high volume and more importantly, with good yields.

And then last question for me. Looking at the out year, I mean, targeting about 7% growth, you're not really getting much light vehicle production and China is expected to be down. Just could -- maybe you could articulate a little bit your thoughts about the building blocks, how much of that growth is driven by FDM, but also presumably, you have some significant DMS ramp as well and maybe a tiny bit of contribution from dimmable glass in the second half of next year and how you kind of get to that out-year target for growth?

Yes. Well, I think, Josh, first of all, thanks for asking that question that way. We didn't go into it too much in our prepared comments. But if you look at next year, what we're anticipating from an LVP standpoint in our primary markets and our midpoint of our guidance, we're talking about a high single-digit outperformance to the underlying market again, which is where we've been there for quite a few years. And so I think at times, I think that kind of gets washed out a little bit just because the quarter was a hair lighter than we anticipated. And by that, we mean -- I mean, sales actually came in about $30 million light of what we were anticipating for the quarter.

And so when you look at out year, we're continuing to see that strength. That outperformance is really going to be driven by a couple of factors you just called out. So FDM growth, DMS and ICMS growth, a little bit in the back half will be -- start to be driven by some visor sales. But really, it's going to be a whole portfolio of products and not -- and also including what we're expecting out of the PAC team and the audio side, both Klipsch and Onkyo have some strong product potentials. And so we're looking at these as all growth drivers of the business. And quite frankly, like we mentioned, it's growth that if we didn't have the losses in China and part of what's happening in Europe, we'd be talking about double-digit growth rates over market conditions.

Our next question comes from Mark Delaney with Goldman Sachs.

I wanted to ask another one on the European market dynamic and what your expectations are between now and 2028 when you're able to begin shipping out of Morocco. And you mentioned some challenges you're already seeing in the European market today. But as you think about design wins and share between now and that 2028 time frame, are you expecting additional pressure in terms of your participation within the European market because you don't have the Moroccan site yet? Or is this more something you just got to get done and that's sufficient visibility and you would not anticipate share loss before 2028?

You're exactly right. The conversations we've been having with our customer base there and the plans we put in place basically kind of fended off those risk factors. If we hadn't made that plan and put that plan in place, then there would have been risk of continual losses there. But with our plan, we feel very comfortable and our customers do that we have an active plan that we'll execute well on, and they're definitely -- it's not slowing down or creating more headwinds right now.

The only real headwinds we're really going to experience in Europe is what we just started to see now, which is, a, our European customer base are having -- there's difficult market conditions for them. And so obviously, that flows down to us. And then secondly, you look at the continual -- there is a little bit more on the Volkswagen side that we'll continue to see a little bit of volume challenges just from that lost program.

Understood. And maybe give us an update on your ability to better sell to the Chinese OEMs as they're going into Europe. I know your business in China has been challenged. But as the Chinese OEMs are setting up European-based operations, where are you in those discussions to begin selling to the European OEMs and then maybe helping to mitigate that dynamic of them taking some share from the European customers in Europe?

Yes. Well, 2 factors there. Number one is, obviously, once we're in a Western environment, the playing field is much more level. And so we feel very comfortable in our ability to compete there. And then secondly, the plant in Morocco gives us another operating advantage, one that we did not have before and the ability to get products into Europe in a tariff -- more tariff-friendly manner. Also just from an overall logistics standpoint, shorter supply chain and the ability to be closer to the customer base geographically really starts to put us in a better position than what we have been historically.

And are those discussions with the Chinese companies, I mean, are those already underway?

Yes. It was existing customers. So if you look at most of what we've been dealing with on the Chinese OEM side, these are customers that we are supplying to domestically in China already. And so our teams on the ground in China still have those relationships with those OEMs and continue to share with them what our plans are for how we're going to be better geographically suited to support the European market.

Our next question comes from David Whiston with Morningstar.

Just on the IEEPA refunds, I'm just curious, is there more of those coming throughout '26 and maybe even '27? Or is substantially all of that already refunded?

We're working on kind of a Phase 2 approach where we were paying it through the supplier. That's probably a little bit lower probability. So our teams are working on some incremental refund, but this is the lion's share of it that you should realize. So anything else is going to be incremental, but they're small fairly small.

And on the CapEx guidance change was going down. I was just curious if that those -- that difference got pushed to '27? Or is it just not happening?

No, a little bit of it will slide, but we feel pretty comfortable with where we're at. I mean, the good news of slightly lower volumes is that we don't need as much capital in order to maintain our capacity. And so that was an advantage. Not a whole lot is going to slide into '27.

Okay. And just lastly, on the Morocco facility. Just can you talk a bit about what were the key variables in choosing there versus perhaps a low-cost European nation in Eastern Europe?

Yes. You go through the whole list of factors that you consider, geopolitical risk factors from where they're at, cost increases, long-term estimates on what inflation is expected to be in each of those regions. Then you look at duty and trade agreements that are in place, not only between Morocco or Eastern Europe and the rest of the EU, but also between these countries and the U.S. And so how do you get parts going -- flowing potentially both ways at the lowest duty and tariff rate possible.

Obviously, you look at power and reliability of energy. And so you start looking through not only the geopolitics, but you look through which countries have their own power source, their own ability to replicate that power and give you stable power supply. You look at incentive programs and what each of the countries offer and from an incentive standpoint.

And then you look at social costs and what do we expect the role of social cost to be in each of the regions. And so based on all those factors, when we kind of look through everything, we looked at Morocco, and it was a clear winner for us. It may not be for everyone, but it's something that we looked at and thought it was going to be a good fit for us longer term.

Our next question comes from Rajat Gupta with JPMorgan.

Just wanted to follow up on the revenue guidance in the second half, given some of like the challenges in international, just wanted to get a take of what's giving the confidence in the second half reacceleration. Anything you can point to regionally program-wise that's helping that? And I have a quick follow-up.

Yes. Thanks, Rajat. That's a great question. Really, what we're looking at and why we feel confident in the second half is we believe most of the headwinds that we experienced in the first half are already well known and documented for the second half of the year. On the flip side of that, though, there are some pretty strong product launches that Neil mentioned during his presentation that we expect to help drive additional revenue in the back half. So we're talking about additional FDM, additional OEMs, additional nameplates on FDM, but then also really, we're starting to ramp pretty strong in the back half of the year on some of those DMS and ICMS launches. And so those factors right there are really going to be the key drivers of what we believe will drive growth in the back half.

Understood. And just maybe following up on some of the Europe commentary and the China export commentary and like share loss and stuff like that. Is it -- I mean, obviously, you're still contemplating good revenue growth in '27. Is the assumption embedded in the second half and next year that Europe as a market gets worse before it gets better? Or this is kind of like a new baseline assumption that you're taking into account in the guidance?

Yes. No. So we're not assuming much help on LVP in Europe, and we're expecting that there will be some continued base EC issues. What we are counting on is some additional content in the European market, both through DMS, ICMS and FDM growth with our European customers.

Sorry about that. Just last clarification on gross margin. If we adjust for the $18 million benefit, it does look like the overall gross margin guidance for the year is -- or at least gross profit dollars guidance for the year is slightly lower than before. Curious, am I just splitting hairs there? Is there anything to read into that? Anything to call out on that front?

Yes. I mean I think it's splitting hairs to your point. I mean we tend to guide in a range. But if you're looking at just the midpoint, I mean, there may be some variation or slightly reduction. But I think there's opportunity on both the upside and downside. But with the launches, the cadence, mix strength, those are the things that tend to drive margins up, and then we leverage our overhead costs. So I think there's still the higher end of the range is still in play.

Well, and I think you look at it, and obviously, as we're preparing for this, we knew midnight last night was going to bring some type of a change as it related to tariffs. And so we tend to be a little conservative because this merry-go-round has gone round and round and up and down a bunch of times, so it's hard to predict. We also -- we know there's some headwinds coming in the back half of the year, too. If you look at shortages on the electronics side, look at raw material costs, I mean, these are all things that they are headwinds in the back half. We think our -- to Kevin's point, we think our revenue growth and our operational efficiency will help us offset most of those. But there's just a lot of unknowns as we head into the back half. And so we're probably a little conservative on that guide as well.

I would now like to turn the call back over to Josh O'Berski for any closing remarks.

Thank you, everyone, for your time and questions today. This concludes our conference call.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Gentex Reports First Quarter 2026 Financial Results Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Josh O'Berski, Vice President of Investor Relations.

Thank you. Good morning, and thank you for joining us today for our first quarter 2026 earnings conference call. I'm Josh O'Berski, Gentex's Vice President of Investor Relations, and with me today are Steve Downing, President and CEO Neil Boehm, COO and CTO, and Kevin Nash, Vice President of Finance and CFO.

Please note that a replay of this conference call webcast along with edited transcripts will be available following the call on the Investors section of our website at ir.gentex.com.

Before we begin, I'd like to remind you that many of the statements made during today's call are forward looking and reflect our current expectations. These statements involve a number of risks and uncertainties, both known and unknown, including those described in our press release issued this morning and in our annual report on Form 10-K for the year ended December 31, 2025, as well as general economic conditions. Actual results may defer materially from those expressed or implied in these forward-looking statements, if risks and uncertainties materialize or if our assumptions prove to be incorrect.

I'll now hand the call over to Steve Downing for our prepared remarks.

Thank you, Josh. For the first quarter of 2026, the company reported consolidated net sales of $675.4 million a 17% increase compared to $576.8 million in the first quarter of last year, which did not include VOXX. VOXX contributed $88.6 million of revenue during the quarter while Core Gentex revenue totaled $586.8 million, which was a 2% increase despite global light vehicle production that declined more than 3% versus last year.

Core Gentex revenue growth was driven by strength in Advanced Features across several regions, helping offset lower light vehicle production and ongoing unit volume headwinds. In North America, revenue increased approximately 6% despite a 2% decline in light vehicle production, driven primarily by continued growth and penetration of FDM shipments. In Europe, Japan and Korea, auto-dimming mirror unit shipments declined by approximately 8% versus last year. However, revenue for these combined regions declined only 2%, reflecting favorable product mix driven by the successful launch of a Cabin Monitoring System in Europe and continued FDM growth.

In China, first quarter revenue totaled approximately $28 million, down 29% versus last year, reflecting the ongoing impact of tariffs on our exports to China. Overall, given the continued challenges facing many of our customers, our revenue growth continues to be driven by expanding electronic content and the adoption of new technologies. As an example, VOXX was a bright spot during the quarter with revenue coming in approximately 9% above our beginning of quarter forecast, driven by stronger-than-anticipated sales in the Premium Audio segment.

Consolidated gross margin for the first quarter of 2026 was 33.8% compared to 33.2% in the first quarter of last year. Core Gentex's gross margin was 34% representing an 80 basis point increase versus last year. Gross margin benefited from operational efficiencies and favorable product mix, partially offset by the impact of tariff-related costs and higher commodity prices. Year-over-year, the company delivered nearly 200 basis points of operational gross margin improvement driven by strong execution and product mix despite the headwinds created by tariffs and commodity price increases.

First quarter consolidated operating expenses totaled $105 million compared to $78.7 million last year, which did not include VOXX. The increase was primarily due to the VOXX acquisition, which accounted for $23.2 million of the change as well as $2.8 million of impairment charges. On a non-GAAP basis, Core Gentex's adjusted operating expenses were $78.3 million compared to $75 million in the first quarter of last year when we exclude impairment charges, acquisition-related costs and severance.

As Neil mentioned in the press release, we are incredibly busy with the launch of some of the most complex and innovative technologies in the company's history. These launches include our Gen 4 FDM, new CMOS Imaging Sensors, In-cabin Monitoring Platforms, Dimmable Visors and Large Area Devices, along with multiple new VOXX Automotive and Premium Audio launches. These efforts are occurring at the same time our customers have drastically increased their requirements around cybersecurity for many of our existing and new products. Despite this activity level, the company remains focused on operating expense discipline and continues to leverage available tools to meet customer commitments while maintaining modest expense growth.

Consolidated income from operations for the first quarter of 2026 was $123.7 million compared to $113 million in the prior year period. Core Gentex income from operations totaled $117.9 million, representing a 4% year-over-year increase. On a non-GAAP basis, adjusted Core Gentex income from operations was $121.4 million compared to $116.8 million in the first quarter of last year. Total Other loss for the quarter was $5.6 million compared to Other income of $0.6 million in the prior year period, primarily reflecting lower investment income and impairment charges. The effective tax rate for the first quarter of 2026 was 16.6% compared to 16.5% last year. Consolidated net income was $98.5 million compared to $94.9 million in the first quarter of last year, driven by higher sales and improved profitability.

On a non-GAAP basis, consolidated net income was $103.7 million compared to $98 million last year. Earnings per diluted share were $0.46 for the first quarter of 2026 compared to $0.42 last year, reflecting increased sales and improved profitability, partially offset by Other losses. On a non-GAAP basis, adjusted earnings per share were $0.48 compared to $0.43 for the first quarter of last year.

I will now hand the call over to Kevin for some further financial details.

Thanks, Steve. Gentex's Automotive net sales were $566.2 million in the first quarter of '26, up from $563.9 million in the first quarter of '25 demonstrating revenue growth despite a quarter-over-quarter decline in light vehicle production and in base auto-dimming mirror unit shipments. The quarter-over-quarter increase in net sales reflects favorable product mix, new technology launches and content gains with customers. Net sales from Gentex's Other product lines, which includes dimmable aircraft windows, fire protection products, medical devices and biometrics were $20.6 million in the first quarter compared to $12.9 million in the first quarter of '25, which represents an increase of nearly 60%. This growth was driven by quarter-over-quarter increases of $3.4 million in aircraft window sales and $2.1 million in each of fire protection products and biometric sales.

VOXX net sales contributed $88.6 million during the first quarter. And 1 year after the close of the acquisition, the integration is well underway, and the VOXX business has now achieved profitability. The focus for the next 12 months will be on scaling product launches, expanding sales channels and strengthening market position, while at the same time, improving margins and lowering operating expenses.

During the first quarter, the company repurchased 3.3 million shares for $71.6 million at an average price of $22.1. As of March 31, approximately 32.6 million shares remain authorized under the repurchase program, and the company expects to continue to repurchase consistent with its capital allocation strategy.

Turning to the balance sheet. Our comparisons today are based on March 31 of '26 versus December 31 of '25. Starting with liquidity. Cash and cash equivalents were $164.8 million at quarter end, up from $145.6 million at year-end. Short-term and long-term investments totaled $280.4 million compared to $278.4 million at the end of '25. Accounts receivable was $419.5 million on March 31 compared to $368.5 million at year-end, reflecting higher first quarter sales activity. Inventories totaled $523.5 million, up modestly from $516.3 million at year-end, driven by higher bill of material costs due to tariffs and precious metal cost increases. Accounts payable was $276.6 million compared to $248.9 million at year-end, primarily driven by month end timing and inventory purchases.

Preliminary cash flow from operations for the quarter was $137.1 million compared to $148.5 million in the prior year period, as higher net income was more than offset by those changes in working capital. Capital expenditures for the first quarter were $17 million compared to $36.7 million in the first quarter of last year. And lastly, depreciation and amortization for the quarter was approximately $25.7 million compared to $25.5 million in the first quarter last year. I'll now hand the call over to Neil for a product update.

Thank you, Kevin. The first quarter of 2026 was another strong launch quarter. In the quarter, over 65% of the launches were advanced interior and exterior auto-dimming mirrors and electronic features. HomeLink Full Display Mirror and advanced feature exterior auto-dimming mirrors where the product is driving the greatest growth of the Advanced Feature launches for the quarter.

Within the first quarter, Gentex took part in several trade shows and customer events to demonstrate our products and capabilities. At IC West, we demonstrated our suite of products aligned for the security and access control industry, highlighting our Fire Protection, Biometric Authentication and Smart Home Solution products. Between our PLACE and commercial Fire Protection products, our HomeLink Smart Home Solutions and our BioConnect and EyeLock brands, our product lines provided some great conversations with customers, installers and industry professionals. Across our industries and in all regions of the world, we continue to see demand for localized production as a venue to offset tariffs and de-risk supply chain constraints.

In China, this has created a substantial headwind in our markets. But globally and especially for North America, it continues to create opportunities. Our deep expertise in high-end electronics manufacturing and assembly, puts us in a unique position to participate in a number of these near-shoring opportunities. We remain optimistic about our ability to capitalize on a number of these opportunities. Our teams at Klipsch Onkyo, and Integra begun launching the products we showcased at CES.

At Klipsch, the new Fives, Sevens and Nines are now available for purchase and combined impressive sole performance with incredible design. With a large number of new products still in development, we're excited to see how the balance of the year performs and how consumers react to these new products. While base mirror volumes remain pressured because of tariffs and global cost-cutting trends, our customers are deploying creative strategies to attempt to capitalize on consumer demand for technology. To that end, the team at Gentex remains focused on delivering the Advanced Features our customers and end consumers have grown to expect in their vehicles.

Full Display Mirror remains a leading performer within the quarter, and we're well on our way to adding another 200,000 to 400,000 units versus last year's volume. Our Driver Monitoring Solutions are also driving revenue growth, with our product currently shipping to Rivian, Volvo and Polestar. We expect to begin shipping Driving Monitoring products for the next 2 OEM customers in the second quarter to early third quarter of 2026. Dimmable visor continues to gain customer interest, and our manufacturing teams are well underway to getting production lines built to support the expected volumes for first program launch, which will begin shipping in the back half of 2027 Vehicle production volumes for 2026 are slated to be flat to slightly down in our primary markets and pressure from our OEM customers to reduce cost and de-content vehicles remains a threat.

But Gentex is well equipped with our product portfolio to continue outperforming our markets. Our pricing remains competitive, and our product quality and consumer demand for Advanced Features provides growth opportunities at our customers. Internally, our teams continue to focus on driving greater efficiency in our engineering and manufacturing processes, improving our component and supply chain pricing and availability and balancing the evolving tariff impacts as we launch in the port increasingly complex array of technologies for the global market. I remain highly confident in the team here at Gentex and their ability to continue to drive improvements while we advance and launch new technologies. Now I hand the call back over to Steve for guidance and closing remarks.

Thanks, Neil. The company's light vehicle production forecast for the second quarter of 2026 and full years 2026 and 2027 are based on the mid-April 2026 S&P Global Mobility outlook for North America, Europe, Japan, Korea and China. The S&P Global Mobility forecast for global light vehicle production for the second quarter of 2026 is expected to decline 2% versus the second quarter of last year, while light vehicle production in the company's primary markets is expected to be down over 3%.

Full year 2026 production in the company's primary markets is also expected to decline 2% versus last year. Forecasted vehicle production volumes for the second quarter of 2026 and calendar years 2026 and 2027 were included in our press release from earlier today. Consolidated revenue for 2026 is now expected to be between $2.65 billion and $2.75 billion. Consolidated gross margin is still anticipated to be between 34% and 35% for the year. Consolidated operating expenses, excluding severance impairments, are forecasted at $410 million to $420 million. The effective tax rate is expected to be between 16% and 18%. Capital expenditures are projected at $125 million to $140 million, and depreciation and amortization is expected to total $100 million to $110 million.

Also, based on the S&P Global Mobility light vehicle production outlook and the company's estimates for premium audio, aerospace, medical, fire protection and consumer electronics products, the company has updated its expected calendar year 2027 revenue range to be between $2.8 billion and $2.9 billion. As it relates to the recent invalidation of the IEPA tariffs by the U.S. Supreme Court, the company has not recognized any potential refund in its first quarter results. The company is in the process of assessing the potential impact of such a validation in its eligibility and process for seeking refunds.

As of March 31, the company estimates that approximately $15 million of tariff costs have been capitalized in inventory associated with IEPA tariffs, which had not yet been expensed as of that date. Since the inception of the IEPA tariffs, the company, including VOXX, has directly paid a cumulative total of approximately $42 million, excluding amounts paid indirectly through suppliers, which was partially offset by approximately $5 million of costs recovered from customers to-date. Given the evolving situation, the company has not recognized any potential refunds because of the difficulty in predicting whether any tariff refunds will be available or whether the U.S. Customs and Border Protection Agency will contest any tariff refund claims made by the company.

Based on first quarter performance and our current forecast for the remainder of the year, the company is increasing its current revenue guidance for the year, while maintaining the full year gross margin guidance. new tariffs, which are currently temporary, have been reflected in our outlook, assuming they will be effective for the full year. The company is also facing new and ongoing cost pressures from key commodities, including a number of precious metals petroleum-based products and memory components. These headwinds have not resulted in material supply chain disruptions to date, and we will continue to pursue customer reimbursement opportunities and internal VAVE projects to reduce the impact these headwinds could have on gross margin performance.

At the 1-year anniversary of the VOXX acquisition, we are pleased with the cost improvements accomplished and how the teams continue to further integrate. We are also proud of the progress made across the organization as we begin to see the benefits of a shared strategy and expanded capabilities across the combined businesses. As we look ahead, we remain focused on the disciplined execution of many technology launches, development initiatives and R&D projects that are currently underway. Our focus on new technology is absolutely necessary to accelerate growth in a market where light vehicle production challenges remain. The efforts spent on new technology launches is designed to provide above-market growth over the next few years, and when combined with our disciplined approach to managing operating expenses, we believe we have a winning formula to create shareholder returns. We are encouraged by the increased interest from our customers on Gen 4 FDM and ICMS, Dimmable Visor and Large Area Devices, as well as several ongoing discussions with customers around becoming a strategic high-volume electronic supplier with a U.S. operating footprint to help OEM customers mitigate tariff exposure and geopolitical risks that exist in the current supply base. That completes our prepared comments for today. We can now proceed to questions.

[Operator Instructions] Our first question comes from Joseph Spak with UBS.

Steve, I actually wanted to pick up right where you left off. You mentioned this interest in becoming a high -- strategic high-volume electronic supplier. Can you give us some indication about how substantive the customer interest is? Are we talking about RFQs and formal sourcing decisions? Or is this more exploratory? And what type of incremental investment do you think should take from your perspective? Maybe what types of products or end markets are you talking about? And how should investors begin to think about a potential return on that initiative?

No, it's a great question. What I would say is we're right now with a couple of different OEMs were in the RFQ phase. So nothing's been sourced or awarded yet. But really, what you're looking at is, and you can imagine inside of a vehicle, there's a lot of electronic modules that are sourced as either Tier 2 or Tier 3 some of those in varying complexity. But from a capital footprint, we believe, over the next couple of years, it's a very light capital lift and definitely well inside of our capital guidance already for this year. Obviously, if that business were to expand significantly, then it would have a capital call, but it would be very much in line, if not a little less on it. If you look at capital as a ratio to revenue it would be actually a lower ratio than what we have currently with auto-dimming products.

And just as a follow-up, do you see opportunities outside of automotive? And what do you think about your capabilities to be able to participate there?

Yes, absolutely. We see a lot of opportunities. Obviously, we're already making electronics in the aerospace industry, both for Boeing and Airbus, one of the things we believe is an opportunity is to continue to expand our aerospace footprint in the electronic space, but it's also starting to bring in with the addition of VOXX and Klipsch. We're starting to see opportunities in the consumer electronics space as well.

Okay. And then just on the guidance. I was just wondering if you could help us sort of unpack because you raised the revenue guidance, it looks like by a little bit more than the beat. You did take a softer production view. So maybe what's sort of just driving that optimism over the rest of the year? And then within the unchanged gross margin guidance, just maybe a comment or two on what you're seeing from an inflationary pressure perspective and whether we should -- how we should think about that sort of falling within the range from some higher costs or if there's internal offsets to some of those pressures?

Sure. So I'll start with the revenue question first. You're exactly right. I mean we're seeing a lot of strength on the technology side and advanced features, which is fortunately more than offsetting some of the headwinds on the light vehicle production side. We tend to be a little more -- a little -- pretty aligned with S&P where they're at. I know it's a little more pessimistic than what some other Tier 1s or OEMs would say production is going to look like, after several years of this and production declines, we tend to believe that these numbers make sense to us.

And so we're a little conservative in terms of light vehicle production, but we do see good demand for our highest end products, especially Full Display Mirror and cabin monitoring. And then like Neil mentioned in his prepared comments, as we move into '27 and beyond, advisers and large area devices, we're really starting to get a foothold there. And so -- we have the one award for visors already. I would say that by the end of this year, we fully expect that we'll have a couple more of those awards. And so we're pretty optimistic about longer term what content will look like -- and we've known for a few years now that we -- if we're tied just to light vehicle production that was going to be a declining market.

So -- we've offset the challenges in China with growth in North America. And honestly, despite even though it's down a little in Europe, we're more than beating the market, both in North America and in Europe, Japan and Korea.

On the margin side, yes, we're -- definitely, there's a lot of headwinds right now in the space, especially if you look at it between between the tariff situation, which is obviously very unpredictable at this stage, but between tariffs and then the cost increases we're seeing in precious metals. And when we say that, we're really talking about metals that we have exposure to, silver, gold, ruthenium, very, very volatile pricing in the last 12 months. And so those are definitely to a headwind. And then obviously, you can read about this anywhere. But when you start talking about memory components, we're kind of back to where we were about 3 years ago with definitely an inflationary market on the electronics side. So -- but all that said, when we look at our forecast, we have a lot of internal VAVEs and some positives as well. So we think we can weather that storm and still hit that margin guidance for the year.

Our next question comes from Luke Junk with Baird.

Maybe I'll start with the guidance revision, Steve. Just want to understand the walk a couple of points relative to a little bit of a headwind from production [indiscernible] a lot and clear in terms of the higher tech products. What I want to double click in is just your [indiscernible] and vehicle mix you to date. And anything that we should be aware of relative to your updated assumption or any customers dynamics that could impact incrementally your view just underlying your shipments going through the year?

Thanks, Luke. What I would say on the -- especially on the vehicle mix side, we're doing really well in terms of -- despite some of the challenges and the overall sentiment in the market, demand for higher-end or well-equipped vehicles has continued to hold steady. And that's the one for us. I mean, they're starting to see some incentives in the marketplace, but it's not over the top right now.

What we've seen on the negative side is really de-contenting on the lowest-end vehicles, and that's where you'll see some of the challenges on the volume side, both IEC and OEC volumes, especially in lower-cost markets. where these features are nice to have. But if the consumer is not paying for them, OEMs are looking for a way to try to save money. And so that's the challenge is how does that mix shape out over time, right? Does it continue to be moving towards lower end vehicles? Or are we going to continue to see demand on the higher end and well-equipped vehicle side? What we're seeing right now and on the release side and even from our customers is that, that portion of the vehicle build that's focused on higher-end consumers is holding up very well right now.

Cool. And then second, Neil, it would be just great to get your perspective on large area device so far this year in terms of your internal efforts now that you finally have the equipment in-house in terms of key progress markers and just iteration moving towards commercialization ultimately.

Yes, absolutely. Team's made some really good progress in the last 2 months with the equipment we talked about in the first -- I guess, fourth quarter a couple of months ago, equipment's up and running. Just got buy off on it from the supplier, from the insulation and fixing some of the process. We just started running our first passes of some material through it earlier this week. So we probably have another, let me -- I'll sum it there's another month or 2 of kind of weeding out the process and really trying to get that tuned into what we need to be able to make good material. In the meantime, we're still utilizing our third-party sources, still putting parts through construction and manufacturing and validation to prove out the technology.

And lastly, just the electronics manufacturing opportunity from a margin standpoint and the sorts of things you'd be looking at Steve, it seems from a capital standpoint, that's pretty light lift, at least initially? Would it be right to think this is sort of a typical margin opportunity as well, not anything in [indiscernible] the contract manufacturing type relationship?

Yes. So if you look -- if you pull the companies who are currently involved in this business, we're modeling margin profile that's very similar to theirs.

Our next question comes from Mark Delaney with Goldman Sachs.

I was hoping to start with one on what you're seeing in a bit more detail with respect to auto production trends. I understand your based on your forecast on the latest S&P view of negative 2%. But could you talk a bit more on what you're seeing with your own business by region? And I understand some of the strength at the high end. But given the war in the Middle East, I'm hoping you could help us understand if you've seen any degradation in OEM schedules maybe looking into the back half of the year.

Yes. Thanks, Mark. What I would say first is that we haven't really seen any degradation due to the Iran situation. What we have seen over the last 18 months to really the last couple of years, is definitely some weakening in the European market, especially with the traditional OEMs that we have our best content with. So if you think about the German OEMs, that's usually where we've had our best book of business. There has been a trend towards lower end vehicles in the European market. And so that has been a negative headwind we've been dealing with for the last couple of years. We don't see that worsening right now. It's kind of on the same plane as it was and has been -- and so we're not too negative that it's going to continue to worsen in Europe, but it's just not the uplift that we used to have out of the -- especially out of the German market.

Understood. And my other question was also on the electronics opportunity you were describing. I understand you've had some RFQs out, but to the extent that those are successful, could you speak a bit more as to when you think you can start to see a financial impact from these engagements?

Yes. I think right now, most of what we're quoting is kind of like early '28 type SOPs. There's always the possibility something could come in quicker. It probably wouldn't be material from a revenue standpoint. -- if it did happen sooner, but really kind of what we're targeting is that '28 to '29 to have kind of a material level of revenue from that product line.

Our next question comes from David Whiston with Morningstar.

Just curious how -- for Q2, how are you balancing buybacks given what I see as a very cheap stock versus rising in-book costs in the Iran war?

Yes. So it's a great question, David. We would agree with you, the stock is definitely undervalued, at least given our performance. And so we're going to continue to take advantage of that, whenever possible. So the good news is if you look at how we fund share repurchases, it's all driven off of cash flow from operations. So the conflict isn't really changing our financial performance. If it did, obviously, we'd have to slow down repurchases, but we don't see anything really creating that type of financial problem with our ability to generate cash off the existing business.

Okay. And on all the EV program cuts across the industry lately. Has that caused any major volume problems for you guys versus your budget?

Yes, there's definitely been some headwinds. I mean we were anticipating some better content. If you look at that vehicle lineup that we typically have really strong content, including not only just IECs but also OECs -- and so as those programs have pushed out, gotten canceled, delayed, that definitely has taken some of the growth away that we are hoping for. But it's not so substantive that it's causing a huge change to our forecast. It's just you would have expected another 1% or 2% of growth at least if those launches had happened on time and at volume.

[Operator Instructions] Our next question comes from James Picariello with BNP Paribas.

I want to first ask about an update on the VOXX integration and just how we should be thinking about the EBIT or EBITDA trajectory from here, right? Last year, for the full year, we saw adjusted EBIT of just over $10 million. We're almost at $6 million, did I say $1 billion, $10 million.

I like that number better. It was in yen. We knew.

$6 million, almost $6 million just in the first quarter alone. So yes, just any thoughts on how this trajectory looks from here?

Yes. I mean, great question. I mean I think there's been a lot of hard work. I mean, we are seeing a little bit of new growth from some of the new products that Steve mentioned -- or Neil mentioned in the call, so that they -- took typically carry higher margins. But their business is quite seasonal. So you expect a little bit of a dip probably in Q2 with a ramp in Q3 and Q4. But if you annualize that first quarter number, that's our expectation from a pretax profitability [indiscernible] mid- to high 20s is what we're looking at this year with the ramp towards the end of the year and into next year to get to our target of, call it, that 40% to 50%.

Right. Okay. That's great to hear. And then -- just on the de-contenting topic. I mean, I know it was -- it was touched on during the prepared remarks. But I view it as two buckets. Obviously, I care more about your view, right? You have a global major global EV manufacturer. And then some dynamics taking place in Europe? Can you just shed light on what the latest is there?

Yes. I would say you're absolutely right. I mean it kind of breaks out that way. I mean you have the trend of what's going on with EVs, and obviously, there's no doubt that a lot of the investment that went into that on the supplier side did not have the payout that we were hoping for from a development standpoint. The good news is most of our products are ambivalent as it relates to what the powertrain is. So if we're launching a product for an OEM and they move from an EV to platform. We typically will have the same product on both of those. So it's not like the development is completely wasted.

However, the volume difference and the content may be different between an ICE platform and an EV platform. And then as it relates to geographically, you're exactly right. I mean there's definitely some trends in certain markets, obviously, the China thing is very obvious of what it is, definitely have struggles there geopolitically, even selling products into Chinese and domestic OEMs. But -- on the flip side of that, probably the region that struggled the most, quite frankly, has been in Europe in terms of the content. And like I mentioned before in the Q&A session, the German OEMs where we've traditionally had some of our best book of business have definitely have had some troubles over the last couple of years. And so we don't see that changing or correcting course anytime soon.

And that's where the focus on content and new technology is really important is for those customers. So if we want to -- you can't count on just auto-dimming mirrors for growth with those OEMs. And so we have to continue to evolve, and that's where the in-cabin monitoring system and the visors are really starting to gain traction and attention from those customers. and there's definitely a lot of interest there. And like we said, and you've seen at CES large area of device demand is there.

Right now, we're in the engineering cycle where we have to get through this product. You have to make sure it's robust before we feel comfortable launching it. But we're much closer today than what we were anytime in the last couple of years. And so I think our confidence as a team, the durability of that product is surviving and lasting much better. I mean, we fixed literally thousands of issues that could have caused a program problem. And there are still challenges. There's no doubt, but we're definitely way further down that path than what we were this time last year.

I would now like to turn the call back over to Josh O'Berski for any closing remarks.

Thank you, everyone, very much for your time, questions and attention. We hope that you have a great weekend. This concludes our call.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

Good day, and thank you for standing by. Welcome to Gentex Reports Fourth Quarter and Year-end 2025 financial results. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Josh O'Berski, Vice President of Investor Relations.

Thank you. Good morning, and thank you for joining us today for our fourth quarter and year-end 2025 earnings conference call. I'm Josh O'Berski, Gentex's Vice President of Investor Relations and with me today are Steve Downing, President and CEO; Neil Boehm, COO and CTO, and Kevin Nash, Vice President of Finance and CFO.

Please note that a replay of this conference call webcast along with edited transcripts will be available following the call on the Investors section of our website at ir.gentex.com.

As a reminder, many of the statements made during today's call are forward-looking statements that reflect our current expectations. These statements are subject to a number of risks and uncertainties, both known and unknown, including those detailed in our press release from this morning, and our annual report on Form 10-K for the year ended December 31, 2024, as well as general economic conditions. If one or more of these risks or uncertainties materialize or if our underlying assumptions or estimates prove to be incorrect, actual results could differ materially from these expressed or implied in our forward-looking statements.

I will now hand the call over to Steve Downing for our prepared remarks.

Thank you, Josh. For the fourth quarter of 2025, the company reported consolidated net sales of $644.4 million, an increase of 19% compared to net sales of $541.6 million for the fourth quarter of last year. VOXX contributed $103.4 million of revenue during the fourth quarter and the core Gentex revenue was $541 million. While core Gentex revenue was essentially flat compared to the fourth quarter of last year, our performance within our primary markets was notably stronger.

Revenue in these regions grew approximately 3% compared to a 2% decline in light vehicle production, representing a 5-point outperformance relative to the underlying market. Sales into China totaled $34.5 million for the quarter, down 33% from last year due to the impact of tariffs. The consolidated gross margin in the fourth quarter of 2025 was 34.8% compared with a gross margin of 32.5% in the fourth quarter of last year, which did not include VOXX.

The core Gentex gross margin was 35.5%, representing a 300 basis point increase compared to last year and is the highest gross margin since the first half of 2021. The increase in gross margin was the result of favorable product mix, operational efficiencies and purchasing cost reductions, partially offset by tariff-related costs. The steady improvement in gross margin reflects the company's disciplined focus on cost control, productivity and execution.

Over the last 2 years, we established and announced the target of getting back to the 35% to 36% gross margin range and the team has accomplished this goal through unbelievable grit and determination despite the external headwinds. It is also interesting to note that the gross margin improvement was partially offset by incremental tariff-related costs which reduced gross margin by approximately 150 basis points versus last year.

Consolidated operating expenses during the fourth quarter were $104.4 million compared to operating expenses of $86.5 million in the fourth quarter of last year. The increase was primarily due to the VOXX acquisition, which accounted for $24.6 million of the increase. The core Gentex operating expenses included $800,000 in Gentex specific severance expenses. Over the last 1.5 years, the company has been focused on expanding the gross margin as well as improving our operating cost structure. This effort included early retirement programs aimed at decreasing headcount and reduce third-party spend to lower ongoing operating expenses, while making sure our key technology and product initiatives continue to move forward.

Consolidated income from operations for the fourth quarter was $120.1 million compared to income from operations of $89.8 million last year, which did not include VOXX. Core Gentex income from operations was $112.5 million, a 25.3% increase versus the fourth quarter of last year.

Total other loss was $8.7 million during the fourth quarter compared to other income of $8 million last year. Last year's gain was from a fair value adjustment of our original investment in VOXX.

During the fourth quarter, the company had an effective tax rate of 16.3% compared to an effective tax rate of 10.3% last year. The increase was driven by lower tax benefits related to stock-based compensation as well as a reduced benefit from the foreign-derived intangible income deduction.

Consolidated net income was $93 million compared to $87.7 million in the fourth quarter of last year. Earnings per diluted share in the fourth quarter were $0.43 compared with earnings per diluted share of $0.39 last year, which did not include VOXX.

For calendar year 2025, the company's consolidated net sales were $2.53 billion, an increase of 10% compared to net sales of $2.31 billion in calendar year 2024. The consolidated revenue includes 9 months of VOXX-related revenue. Core Gentex sales were $2.27 billion for the year, a 2% decline versus last year, primarily driven by lower demand for the company's exports into the China market due to tariffs. In the company's primary regions, revenue increased by approximately 1% despite a 1% decline in light vehicle production.

For calendar year 2025, the consolidated gross margin was 34.2% compared to a gross margin of 33.3% last year, which did not include VOXX. The core Gentex gross margin was 34.7%, a 140 basis point increase compared to last year. Gross margin improvements were the result of purchasing cost reductions, operational efficiencies and favorable product mix, which were partially offset by tariff costs that were not reimbursed during the quarter -- sorry, during the year. The gross margin expansion was exceptional, especially when considering that the 140 basis point gain was achieved despite lower sales and new tariff-related headwinds that were not fully offset during the year.

For the year, consolidated operating expenses were $392.8 million. Core Gentex operating expenses were $318.5 million in comparison to $311.4 million last year. Core Gentex operating expenses this year also included $10.4 million in Gentex specific severance expenses. VOXX operating expenses were $74.3 million from April through year-end.

Total other loss was $12.9 million for 2025 compared to other income of $12.5 million last year. For calendar year 2025, the company's effective tax rate was 16.6% compared to an effective tax rate of 14.3% last year. The rate increase was driven by reduced tax benefits related to stock-based compensation as well as a lower benefit from the FDII deduction.

Consolidated net income for calendar year 2025 was $384.8 million compared to income of $404.5 million last year. Earnings per diluted share this year was $1.74 compared to earnings per diluted share of $1.76 last year.

I will now hand the call over to Kevin for further financial details.

Thanks, Steve. Gentex Automotive generated $527.6 million in net sales during the fourth quarter of '25 compared to $531.3 million in the fourth quarter of '24, despite a 3% quarter-over-quarter decline in auto-dimming mirror shipments. For the full year, 2025, Gentex Automotive delivered $2.22 billion in net sales compared with $2.26 billion in 2024 -- in '24, even as auto-dimming mirror shipments declined 6% year-over-year. This performance highlights the company's ability to sustain strong revenue levels driven by ongoing content expansion.

In our other category, which includes dimmable aircraft windows, fire protection products, medical products and biometrics, fourth quarter net sales were $13.3 million, up from $10.3 million in the prior year period. And for the full year, other net sales were $51.1 million compared to $48.6 million in 2024.

VOXX contributed $103.4 million in net sales during the fourth quarter of '25 and $267.2 million for the 9-month period from April 1 through December 31. The fourth quarter reflected the expected seasonal and sequential increase tied to holiday period demand. And post-acquisition integration remains on track with product strategies aligning, customer engagement strengthening and operational synergy efforts progressing across the combined businesses.

Turning to capital allocation. We repurchased 3.8 million shares in the fourth quarter at an average price of $23.43. And for the full year, we repurchased 13.6 million shares at an average price of $23.48, totaling $319 million. We ended the year with 35.9 million shares remaining under our repurchase authorization.

Turning to the balance sheet. Our comparisons today are based on December 31 of '25 versus December 31 of '24. Starting with liquidity. Cash and cash equivalents were $145.6 million, down from $233.3 million at year-end 2024. This decline was primarily driven by the acquisition and share repurchases, partially offset by operating cash flow. Short-term and long-term investments totaled $278.3 million compared to $361.9 million at the end of '24.

Accounts receivable stood at $368.5 million compared to $295.3 million at year-end 2024. Of that, $290.6 million was attributable to Gentex and $77.9 million to VOXX. Inventories totaled $516.3 million, of which $392.2 million represented core Gentex inventory, down from $436.5 million at year-end 2024, largely due to reductions in raw material inventory. The remaining $124 million reflects VOXX inventory.

Consolidated accounts payable was $249 million compared to $168.3 million at year-end 2024, including $159.3 million for Gentex and $89.6 million for VOXX.

Preliminary cash flow from operations for the fourth quarter was $125.7 million compared to $154.4 million in the same period last year, primarily due to changes in working capital. And operating cash flow for the calendar year '25 reached $587.3 million, up from $498.2 million in 2024, also driven by changes in working capital.

In the fourth quarter, net capital expenditures were $17.5 million compared to $38.5 million in the fourth quarter of last year. And for the full year, net capital expenditures were $120.6 million compared to $141.4 million in the prior year. And lastly, depreciation and amortization expense for the fourth quarter was $25.2 million compared to $23.8 million in Q4 last year. And on a year-to-date basis, depreciation and amortization totaled $104 million, up from $94.7 million in the prior year.

I'll now hand the call over to Neil for a product update.

Thank you, Kevin. The fourth quarter of 2025 was another strong launch quarter. In the quarter, over 85% of the launches were advanced interior and exterior auto-dimming mirrors and electronic features. Driver monitoring, HomeLink and Full Display Mirror were the products driving the greatest growth of the advanced feature launches for the quarter. We're excited to announce that in the fourth quarter of 2025, we began shipping driver monitoring systems to both Volvo and Polestar.

It's an exceptional accomplishment for the Gentex team in that these driver monitoring mirrors contain a full system of cameras, LED emitters, processing and Gentex developed software to perform the required features. This was a great achievement, and the team did an outstanding job getting the product to market.

At the start of 2026, we once again exhibited at the Consumer Electronics Show in Las Vegas. The show floor provides an excellent format for meeting with our customers, suppliers, investors and consumers, all while demonstrating our latest technologies and capabilities. This was our 11th year at the show and by far, our biggest. With 4 distinct booths, we were able to showcase our eSight medical product, our connected smoke detection system, PLACE, the new technologies in audio from Klipsch and Onkyo and an evolution of our technologies and strategies of our core automotive business.

At our combined VOXX and premium audio company booth, Klipsch celebrated its 80th anniversary by debuting the next generation of its iconic 5s, 7s and 9s, powered speakers. It's new Atlas series of Hi-Fi headphones, the newest frontier in Hi-Fi speakers in its reference signature and Apollo Series as well as a preview of the Flexus Element outdoor sound bar. Additionally, the team showcased its vision for premium Onkyo AV receivers with a wide assortment of new products on display.

Launching this many new products was a heavy lift, but the team did a great job and these new products received 26 awards from the show.

In the main Gentex booth, the primary products were our next-generation Full Display Mirror, dimmable sun visors and Sunroofs, HomeLink 6, our PLACE, smart home safety system and our driver and in-cabin monitoring systems. This year at CES, the product that drove the greatest interest from all groups visiting the main booth was the dimmable visor. Utilizing our core electrochromic technology, our visors reduced sun glare while allowing drivers to still see what's ahead. We showcased the multiple integrations of the vanity mirror, including a mirror surface covering the entirety of the visor that could be turned on or off.

OEM interest in our dimmable visor technology has never been higher, and we're pleased to announce that we have our first customer and launch with a target to begin shipping in the second half of 2027. We believe this is the first of many customers who will incorporate this technology into their vehicles.

Full Display Mirrors continue to develop with the market, and it's the auto industry's leading digital rearview mirror, having shipped on more than 140 different vehicles around the world. At this year's CES, we demonstrated our next-generation Full Display Mirror, which incorporates the company's dynamic view assist, a series of dynamic viewing modes that can enhance driving safety and make, using the digital mirror, feel more natural. By utilizing a higher resolution imager, the Full Display Mirror can automatically expand the mirror's digital view when the vehicle is moving slowly. It can digitally tilt downwards when the vehicles in reverse, and it can display picture in picture functions like showing what's in your blind spot or what's in the cargo bed of your truck.

There was a lot of excitement and interest in the next phase of Full Display Mirror, and we're excited to get the launches moving. In 2025, Full Display Mirror continued to expand as a share of our overall business as we shipped 3.19 million units, representing approximately an 8% increase compared to the 2.96 million units shipped in 2024. Looking ahead to this year, we expect Full Display Mirror to grow by an additional 200,000 to 400,000 units.

To help showcase our driver and in-cabin sensing technologies at CES this year, we developed an all-new demonstrator that was able to show the primary DMS features while also demonstrating our 2D and structured light-based 3D cabin monitoring for detecting passengers, objects and even presence of life. Additionally, we demonstrated our latest software suite containing emerging features like cognitive state recognition, impairment detection, vital signs monitoring and post-crash communications.

Our driver monitoring and in-cabin monitoring systems continue to gain traction as they provide a scalable, easy-to-deploy mirror integrated platform. In Q1 of 2025, we announced we were shipping to Rivian and we began shipping to Volvo and Polestar in Q4 of 2025. By the middle of 2026, we expect to be in production with two additional OEMs.

As we look forward into 2026, it's clear that light vehicle production in our primary markets will remain mostly flat. With this prospect, the Gentex teams will continue to focus on how we can drive greater efficiency in our processes, improve our pricing with suppliers and mitigate impact -- tariff impacts while we continue to ramp up for the launch and production of complex technologies like large area devices and visors. We have an outstanding team here at Gentex, and I'm confident in our ability to continue to drive improvements while we advance the technology as well.

I'll now hand the call back over to Steve for guidance and closing remarks.

Thanks, Neil. The company's 2026 and 2027 light vehicle production assumptions reflect the S&P Global Mobility mid-January 2026 forecast for North America, Europe, Japan, Korea and China and was included in our press release from earlier this morning. Based on the S&P Global Mobility forecast, market conditions in our primary markets, the continued impacts on the China market from tariffs and the expected incremental sales contribution from the VOXX acquisition, the company is providing detailed annual guidance for 2026 and revenue guidance for 2027.

Consolidated revenue for 2026, including VOXX, is expected to be between $2.6 billion and $2.7 billion. Consolidated gross margin is anticipated to be between 34% and 35%. Consolidated operating expenses, excluding severance, are forecasted at $410 million to $420 million. The effective tax rate is expected to be between 16% and 18%. Capital expenditures are projected at $125 million to $140 million, and depreciation and amortization is expected to total $100 million to $110 million.

Additionally, based on the current S&P Global Mobility light vehicle production outlook and the company's estimates for VOXX, premium audio, aerospace, medical, fire protection and consumer electronic products, the company currently expects calendar year 2027 revenue to be between $2.75 billion and $2.85 billion.

We came into 2025 with a focus on growth and improving profitability and hoping for stable end market. Instead, we were confronted with a dynamic marketplace, including headwinds created by the volatility of tariffs, counter tariffs, weakening production in our primary markets and cost inflation. Despite these challenges, our team delivered impressive results. In April, we completed the VOXX acquisition and have addressed most of the integration challenges.

We are also well on our way of accomplishing our planned cost improvement initiatives that we believe will ultimately yield approximately $40 million per year in positive cash flow from the VOXX business. In our core business, our teams reduced costs, improved efficiency and expanded profitability, resulting in gross margins at the highest level in several years and accomplishing our stated goal of returning to 35% to 36% gross margin levels.

This year, our sales teams were able to offset a 29% year-over-year sales decline in China through increased sales in our primary markets that outperformed the market by 3% despite the turbulence in those markets. These results reinforce my confidence in our team's ability to persevere through unforeseen and volatile circumstances and to adjust rapidly to changing business conditions and environments.

The market conditions in 2025 remind us of one key takeaway, growth must come from innovation. The team is answering that challenge with focus and determination. Despite the market conditions and the focus on cost alignment, the team has continued to launch and develop our next wave of products that include new driver monitoring systems, our next generation of Full Display Mirrors, large area devices, our first production award for dimmable visors and a whole new product lineup within the Premium Audio group that won numerous awards at the Consumer Electronics Show.

Our strategy is to continue to leverage our core competencies to drive above-market growth through existing and new technologies. This growth, combined with our cost discipline, will allow us to create shareholder value for years to come.

That completes our prepared comments for today. We can now proceed to questions.

[Operator Instructions] Our first question comes from Luke Junk with Baird.

Maybe just for starters, Steve, if we could just square the downside and an upside risk relative to the revenue guidance range, [up] growth as we went through last year, of course, a little on -- even on a quarter-by-quarter basis, just how you're thinking about some of those impacts that we saw last year, vehicle [indiscernible] and maybe anything customer specific that we should keep in mind as well?

Yes. I think if you look at overall, the -- you're absolutely right. First of all, 2025 was definitely lumpy in terms of what was happening, not only regionally but with our customer base. I think if you look at the upside or kind of the tailwinds behind that forecast, you start to see some stability in the North American market. We -- there's definitely some upside for that market to improve or be a little better than production estimates. I mean if you look at where it's been in the last few years, it's definitely been towards the lower end of probably what we'd expect to be economically stable production environment in North America.

If you look at the Western Europe side, that's probably the next biggest opportunity for us to see some improvements. There definitely seems to be some stability there. Definitely not as bad as what probably I thought it was coming into '25. It definitely performed a little better than I thought. The risk factor is obviously what's going on in the China market. And does that deterioration continue to happen? And then the last one for us is we do have some pretty good exposure to Tesla as a customer. What continues to be the role of Tesla as it relates to EV and the acceptance rate of those vehicles globally, we've been a long-term partner with them and definitely have some out risk on an OEM basis with Tesla.

Got it. Maybe switching gears to margins, gross margin for '25 in total. I think if I have my numbers right, I ended up being about 30 bps above the high end of your guidance with the 4Q upside. Can we just unpack what was better than expected over the last couple of months of the year in the fourth quarter versus where you guided? And then what is sustainable as we walk into '26? Or is there anything that we should be making sure that we adjust for coming out this quarter?

Yes, I'd say on the positive side, the product mix, operational efficiencies, labor, yield, all the things internally were really solid, especially in the fourth quarter. PPV and the pricing out of the supply base was solid. If you look on the negative side, obviously, tariff impact in the second half of the year was a lot larger than it was in the first half. A lot of that was not reimbursed in the quarter. And so that 150 basis point headwind in Q4 was really pretty significant when you look at overall performance. For us to hit that mid-35s despite those headwinds was -- obviously tells you kind of what the upside could be longer term if we can get the tariff situation completely under control.

Yes. DRAM, obviously, getting a lot of headlines in auto. Maybe if you could just comment on what you're seeing in the supply chain right now or relative to pricing trends and any internal efforts that you might be working on from an engineering standpoint? And would I be right in assuming that there's some direct exposure here in terms of the FDM build materials, especially?

Yes, Luke, so in regards to the FDM, that uses the DDR3 technology. So it's a little older technology. So we -- from a supply side, there's not a lot of risk on that but there is just from a pricing side, the pricing on RAM with these issues that popped up have gone through the roof on pretty much every version of that component. On the DDR4, there is a little bit of exposure in that as well from a DMS product, driver monitoring product, that we're doing, so from a supply side. We've got allocation where we've got parts to build and ship but we are working on ultimate supply sources as well to alleviate any risk associated with that.

Our next question comes from Mark Delaney with Goldman Sachs.

I was hoping to also ask a question around gross margin. But with respect to the 2026 guidance and hoping you could walk us from the '25 level to '26, which is pretty flattish year-over-year. You just reported very strong 4Q gross margins. You just spoke a bit about some of the drivers there. But can you talk a bit more on puts and takes for '26? It sounds like there's more opportunity to go on tariff recoveries. You also, I think, have some opportunities with VOXX as you work on the integration there, but then there's been obviously some of these challenges like DRAM that you were just referring to. So any more on the puts and takes and bridging to the '26 outlook would be helpful.

Yes, absolutely. So if you look at the performance, exit rate for the last 6 months of '25, that's kind of our base case going into '26. And so we continue to see on the headwind side, obviously, you got customer pricing challenges like we always have. But on the tailwind side, you have supplier pricing that should improve. The two biggest challenges you have going into '26, however, are one of them are commodity pricing, especially as it relates to precious metals.

So our exposure typically runs silver, gold and ruthenium. Obviously, ruthenium most people don't follow, but silver and gold are pretty obvious issues, also expecting a little bit of challenge as it relates to copper and some of the things that are happening in that marketplace, especially their impact on circuit boards and other electronics.

The other big one is tariffs. So we'll have a full year of tariff rates and some of those have changed since the beginning of '25. And so if you look at the weighted average, we really only had about 6 months of the full weighted average of tariffs this year versus a full 12 months next year. So those two in particular, represent probably $45 million or $50 million of headwinds when we start the beginning of the year.

Okay. Understood. My other question was on China. And you've spoken a bit already on what you've seen in the China market directly. Maybe speak a bit more on what you're expecting for China this year? But then higher level as we're seeing the Chinese OEMs continuing to expand beyond the China market, to what extent do you think Gentex can sell to those OEMs as they're selling into markets like Europe?

Well, I think on the China market, what our primary focus right now and what we're expecting to happen is continued a little bit of headwinds for us exporting into the China market. And that's primarily driven by the fact that the content and the tariff rates just don't support that additional cost on given how high those tariffs are for us to be able to operate under that business model and sell into the China market, at least at the levels we have in the past.

As you look -- as you start talking about Chinese OEMs and their role in the rest of the world production, I think that's a big function of is that cars produced in China and exported to those markets or are they cars produced by Chinese OEMs domestically in the markets they're selling. And the reason why I separate the two is if we're shipping into the China market for manufacturing and then export that still will be a difficult business model to engage in. On the flip side of that is Chinese OEMs, if they grow capacity in the Western world or in other parts of Asia, and we can ship into those regions at a better duty rate then we absolutely have a better chance of being competitive and a way for us to sell into those customers.

Yes. And then Steve, just a quick follow-up there. I mean, as you're seeing some of the Chinese OEMs start to set up factories outside of China, are you already getting interest in using your products and making progress? Or is that something you'd still have to accomplish going forward?

No. There's the -- most of those customers have worked with us in the past. And so as they look to expand footprint into other regions, we're absolutely on their list of suppliers.

Our next question comes from Josh Nichols with B. Riley Securities.

Great to see the robust margin expansion. That's already been touched on, but I guess you've been talking a little bit about some new commercialization wins that are going to be ramping up between like DMS, also in dimmable glass longer term. When you look at like the '27 guidance that you've kind of put out there now, I think that implies like 6% growth. What's your expectations that are being built into that return in terms of the ramp for DMS, the China recovery and dimmable glass in terms of like revenue contribution overall?

Yes. So if you look at the '26 revenue has virtually nothing in it from -- has nothing in it from dimmable glass. So -- I mean, other than existing aerospace products. But if you look at the rest of it, we're anticipating continued decline in exports into the China market. No help from dimmable glass. Obviously, revenue in the second half of '26, we'll start to see some tailwinds from the DMS launches. Right now, they're fairly immaterial between the two OEMs that we're shipping on currently. Once we add those other two, it starts to become material, the real impact of that will be in '27 and beyond.

Got it. And then in terms of the commercialization timelines, it's great to hear you already have your first customer like visor, but additional larger opportunities like sunroof, side windows, things like that, what's an update on that?

Yes. So the interest in large -- so obviously, the visor stuff is great. The excitement in that is truly ramped up in the last 12 months and since CES, even higher than -- so we're super excited about that and being able to expand on that. From a large area device side, customer side, customer engagement still is really strong. Interest levels are really strong. In this quarter, I think we announced that last quarter, we were in process of getting capital in place to be able to do our own coating processes on film substrates, which is required for this.

That equipment is in-house and in the process of being assembled and installed. So we're hoping by the end of Q1 here that we'll be starting to build off material. And on this line, we'll be able to start building material that we can start using with customers to demonstrate production capability.

I think the key important difference there is visors that is basically our core chemistry. And so from a timing to market, it can be a quicker go-to-market because it basically leverages what we've done in mirrors and in aerospace.

Yes, interesting to see how that progresses because obviously, it could be a very significant growth driver, similar to kind of what FDM was if you go back. Last question for me would just be on the VOXX integration path. I know you said you've been targeting this $40 million plus. Like how much of that work is already done? Is it showing any material profitability? Or do you expect a lot of those synergies to kind of be realized like the back half of '26?

Yes, I think if you look at where we came from, it was the business that was breakeven to losing money. And then if you look at 2026, we're probably about halfway there. We feel like that it will continue to ramp. The teams have been hard at work at finding opportunities. The PAC team and the Klipsch team is just getting ready to launch some new products kind of midyear into the last part of the year, which will help boost sales growth, improve margins. And then everybody is hard to work on kind of trimming up the cost side. So we feel like we're pretty well halfway to 60% of the way there in '26 and then coming into '27 full run rate at that level.

Well, if you look at the profitability in Q4, if you look at the VOXX standalone financials, you can -- if you annualize what Q4 was, we're in a pretty good shape already going into '26 to be basically half way there, then it's about trying to get beyond that during calendar year '26 and into '27.

Our next question comes from Joseph Spak with UBS. You may proceed.

A couple of questions. First, just on VOXX, besides the extra quarter or so, like, are you expecting any growth in that business like on an annualized basis?

Yes, it's about a 5% grower in calendar -- if you were to look at a full run rate year for 2026.

Okay. So then if we think about core Gentex, that's pretty flattish or maybe even down a little bit. Is that the right way to think about it?

No. Gentex is up about 2% to 3%.

Core Gentex.

Production that's down just as a comparator looking at production down 1% for the year, down 2% for the primary markets, yes.

Yes. Okay. And then the OpEx up year-over-year, obviously, part of that is, again, another quarter of VOXX. Anything else to consider in the OpEx outlook?

No. Really, that's the one thing is 1 quarter of a combined entity. I mean if you look at the core Gentex operating expenses, they're pretty much flat year-over-year.

Okay. Last quarter, you had sort of talked about some of the -- I know this was sort of touched on a little bit with Mark's question with the Chinese into Europe. But you talked about some European decontent thing. Is there any sort of update on what you're seeing from some of your customers there?

The revenue in the quarter was actually reversed. So I think some of that was anomaly given some of the shutdowns in Q3 with some of the larger -- some of the European customers. But that decontenting is continuing as it relates to some of the ones that we discussed before, but the volume in the quarter was actually reversed.

And that -- and just to be clear, the decontenting primarily focused on outside auto-dimming mirrors. A lot of it is passenger side feature elimination. And so as OEMs struggle on their cost side, that's one of the things they do look at is feature elimination to try to save money.

Our next question comes from James Picariello with BNP Paribas.

Just have a question first on the walk to the 2027 revenue growth. So for this year in '26, you're pointing to maybe a 1% core growth against your core markets down 2%, right? And then for '27, this inflects a bit, right, in terms of your growth over market. So yes, just curious on that bridge and does VOXX potentially outpace that growth rate, like contributing more than its pro rata share or not necessarily?

No, like Kevin mentioned a minute ago, I think we would view it as more like 2% to 3% core Gentex growth in '26. And part of the inflection that you see in terms of that performance in '27 isn't overweight VOXX at all. It's actually core Gentex and the Gentex portion of that growth is really going to be driven by some of the full years of the DMS launches that Neil talked about, some continued FDM growth. And then by the end, not that it's material, but at the end, you start looking at visor sales actually starting to hit the income statement as well.

Got it. Okay. And then apologies if I missed this, but is there an expectation to recover the $19 million or $20 million of net tariff headwind that you incurred this past year in '25? And then just how are you thinking about free cash flow and buybacks for this year?

So yes, no problem. Thanks, James. The -- on the -- first on the tariff side, yes, our intention is to recover as much of that as humanly possible. Now some of that may be like indirect in terms of how we get it. Some of the customer negotiations are direct, PO to PO price increases to cover the tariff impact. Some of them are delaying APRs or not given price downs in exchange. It's just dollars to us, so we try to just negotiate the best deal for each of our customers that makes sense for them and for us.

Sorry, and then you asked a second question there, too, James -- cash flow, yes. So obviously, if you look at cash flow this year, it was at the highest level we've had in a long time. And so our goal is to continue to focus on cash flow. We've done a great job of that. And buybacks are obviously one of the primary uses of cash flow when we're successful in generating it.

Our next question comes from Ryan Brinkman with JPMorgan.

I wanted to ask on China. When do you see that your sales are softer in that region due to the abnormally high tariff rates you're facing, are the customers mostly foregoing the use of electrochromic mirrors? Or are they maybe turning to domestically produced alternatives, which I think might be lower end, maybe less desirable but lower cost? I ask because I'm curious what your expectation is, should the tariff rates eventually normalize lower in terms of your ability to maybe see a rebound in revenue from that market?

Yes. If -- I think if tariff rates drop significantly, then we would be right back in a good position to compete in that space. On the second part of your question about what are the alternatives. I would say it's probably 2/3, 1/3 type scenario, which is 2/3 of the time, domestic Chinese OEM is just dropping the technology. And about 1/3 of the time, they're using a local supplier out of the domestic China market to try to replicate the products that we were selling.

Okay. That's helpful. And then on the DRAM issue discussed earlier, I mean it sounds like it's not going to really impact vehicle production, certainly nothing like the chip shortage, but you did reference some higher costs, and I assume those were higher costs to Gentex as you acquire the components. But what is your expectation in terms of the completeness or timing differences in terms of maybe being compensated by customers for those higher memory costs?

Yes. I think -- that's a great question. I think from a memory side, that's one of the items that we still got to go back from a customer perspective, just like the tariffs and go -- some of the DRAM cost points are multiples of where they used to be from a pricing. So they are something we're going to have to go back to the customer base and negotiate increases in compensation for those.

And a lot of times, like what we did during the other supply shortages, once they became available, we would work with OEMs ahead of time saying, "What do you want us to do?" So if a chip is $4 and now it's trading for $40, obviously, the supply base can't eat that on their own. So an OEM has to help us with the determination of are they willing to pay that extra premium to guarantee production. And so we've historically worked with them proactively when we find chips available. Luckily, we've had to do less of that than a lot of the supply base is unfortunately headed.

Okay. Very helpful again. And then just lastly, is there an update you can provide on the dimmable sun visors? Did I hear you say you're looking to launch that product, I think, before the sort of large area dimmable glass and what progress you would have made?

Yes. The dimmable visor, we've got our first customer on board in launch, and we'll go to production in late 2027. And on large area devices, the update was around the equipment we talked about last quarter, getting in the wet coat capability in-house, so we're not dependent on outside suppliers for making the films. So that equipment is in-house being installed, started last week, and the plan is for that to be up and operational late Q1, early Q2, so we can start producing some of our own films to give us better film quality to be able to keep that product moving forward.

[Operator Instructions] Our next question comes from David Whiston with Morningstar.

Guys, on the headcount reductions, it sounds like they're -- this one we hear about more on the Gentex side. I'm just curious, is that where you want it now? Or do you see more buyout packages needed this year?

If sales continue on the path that we believe they will, we're really close to the right headcount that we need to be. The fundamental change, obviously, would be driven by market conditions. So in other words, if the market continues to soften, then obviously, we'd have to react to that. But as of right now, we've executed 90% of everything we need to do to be ready to go for 2026.

Okay. And on the core gross margin going beyond 35% to 36%, is that at all realistic to think about? Or is that really just a very best case scenario long term, assuming constant tariff environment?

Yes, it's a really kind of best case scenario, especially to your point, especially regarding what happens with the tariff environment. I mean if that were to go away overnight, then obviously, I think there's a lot of opportunity on the upside. But given the -- what's happening with the precious metal side right now and with tariff environment, it seems that -- that 35-36% seems like a really good spot.

And just last question, any major pickup in business with automakers onshoring some production back into the United States because of the tariffs?

No. There's a lot of conversation. We haven't seen anything drastic yet in terms of tailwinds from that. It does add some complexity because on the flip side of that conversation is what about onshoring on Europe and other places where those customers are asking for any help they can get to eliminate duty and tariff implications on exports into those regions. So the business is definitely becoming more complex over the next several years. I think most of those tailwinds that are going to help on the onshoring side are still out 2 to 3 years before you'll see any change in revenue because of that -- those decisions.

Thank you. I would now like to turn the call back over to Josh O'Berski for any closing remarks.

Awesome. Thank you, everyone, for your time and questions today. This concludes our call.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

All right. Well, thank you all for being here. I think it's time to start with our company presentations. We are delighted to have Gentex Corporation and Steve Downing here. Steve is the company's President and CEO. It's very unique to have a company that has over an 85% to 89% market share of what they do, and that's exactly who Gentex is and what they are. They are a designer manufacturer of electrochromic mirrors and vision systems along with the multiple devices for a variety of [ industries ], the automotive, obviously, no debt at all, $170 million in cash and it's about $5 billion total enterprise value. So we'll bring Steve up. He's been great with us for a number of years, and we're delighted to have him back. So Steve, come on up.

Great. Steve, thanks for being here. Why don't you take a few minutes to give our audience an overview of Gentex and what's what makes the company so compelling within the auto industry.

Yes. So I mean, if you look at what we are, I think your overview was a really good one. If you look at what we've done for a long period of time, you talk about the dimmable technology. So it's an electrochemistry company at its core, very focused on automotive electronics, emerging technology. We're very unique [indiscernible] and that we manufacture almost everything in the U.S. And while I'm sure we'll get to one of the headwinds we faced this year is with counter tariffs in the China market. We entered this year, we are anticipating about $250 million in exports into China out of the U.S., which is obviously very unique. And with the counter tariff situation that's happening, obviously, that book of business has been impacted. And so we're working on how do we restructure the business and focus on how do we take advantage of automotive markets outside of North American market to make sure we remain competitive there.

But what's unique is the headwinds are immediate. The tailwinds [indiscernible] and what we're seeing in terms of interest in the industry, in terms of onshoring, is very real. The problem is it's a 3- to 5-year lag versus the headwinds that are immediate. And so if you look at overall book of business, we recently completed an acquisition of VOXX International. So it's interesting that you're talking about automotive aftermarket distribution and some of the bankruptcies, quite frankly, those are very entertaining to us right now.

As you -- after you acquire a distribution company and you see some of the competitors start to fall apart from excessive M&A and leverage that I think is disproportionate to the industry, we sit very, very conservative balance sheet. I always joke, we're Mid-westerners, so very, very simple, very centralized processing, very lean, very focused. And so one of the things we're working on as the market has undoubtedly caused some pressure on margins.

We've worked really hard in the last 2 years. We've rebuilt the gross margin profile, continue to work on new products and new technologies that we believe can drive a tremendous amount of value through our income statement and to shareholders. And quite frankly, I love it when you talk about value, we're kind of value people ourselves. And right now, I can't tell you a better time to look at a company like Gentex and invest.

Right now, the share price makes absolutely no sense as best I can tell, based on the numbers and the trajectory we see. And so I think it's an entertaining time to be in this industry. There's no doubt. There's been a lot of headwinds we've gone through the last few years. We believe we've outperformed the marketplace and our technology portfolio is really set for growth.

It's a great overview. I want to talk about the environment that you're operating in the start. Clearly, tariffs, supply chain has played a major role. As you think about the end of 2025, really into 2026, Talk about both global and -- your Global and North American exposure and production schedules and basically how you see this market evolving as automakers have adjusted to the current environment.

Yes. I think if you -- when you look at your numbers, I think you're absolutely spot on in terms of your trajectory and projections over the next few years. I would say that during that '20 through '23 time period, the market, North America, in particular, was underserved by about 3 million units a year versus if you just look at cars, average age of vehicles on the road in the North American market, there's undoubtedly some -- there's some -- definitely some pent-up demand as it relates to automotive production in North America. So I'm a little bullish on North America. I'm a little more bearish on European market if you look at overall economics in Europe right now.

I think there's a lot more challenges on the European front, especially with the higher end automotive OEMs in Europe. I think Japan and Korea as global producers. I don't think those markets from a consumer standpoint are going to change that much. I do believe, I mean, one of our largest growth customers has been Hyundai, Kia. They continue to dominate the global stage in terms of automotive production. And luckily, we're exclusive with them, and we have a lot of technology offerings through there. So we're hopefully going to take advantage of what is Hyundai Kia's growth and how they're, quite frankly, dominating a lot of automotive production market.

China, welcome to the Wild West. It's a very, very difficult cut through. There's still hundreds of OEMs in the domestic China market. Not all of them are going to survive the next few years, but it's very difficult to predict which are going to be the winners and losers in the domestic China market.

So how do you, as a CEO, decide which OEMs within that type of environment that you're going to basically partner up with on what is supposed to be a 3- to 5-year program when you get it.

Yes, it's very difficult. And if you throw darts at a wall, and hope you're right. I mean, I'd love to tell you it's more strategic than that, and it really is. We tend to look at as best you can find publicly available information on each of these OEMs, which ones are capitalized well, which ones are most likely to survive. You can usually tell in our industry who is going to make it and who's not based off their payment terms. If you're not getting paid, it's a pretty early indicator that you -- they're probably in trouble.

Now China is wild. I mean everything is delayed. Payment terms are extremely long in that market. So it takes a while before you realize what's actually happening. I mean it's not uncommon for 120, 180 days payment terms inside of the domestic China market. It's pretty typical. And then it goes through a bank draft system. And so you'd never really know for sure exactly what's happening until 6 months after it already gets bad. What we tend to do is identify the OEMs that we think are going to be the winners. We will do custom development from them. Everyone else, what we try to do is sell off-the-shelf products to.

In other words, try to limit your R&D exposure and try to get business just to fill out the relationship to find out whether or not it's going to work longer term. But you try to minimize the amount of upfront capital you have to deploy to get a program with those OEMs early on.

Going back to U.S. and European markets. We've talked a little bit about electric vehicles. And obviously, if you're making mirrors, it really shouldn't -- propulsion shouldn't really matter, but mix does. And so the question I have is in this movement to try to get to lower-priced electric vehicles, where it seems that everything from the interiors being trimmed down, is that a risk for you at all from an electrochromatic mirror standpoint where you could potentially be teched out in order to be able to get to a lower priced EV.

Yes, that's the single biggest risk factor for all of our technology is we are higher end, right? So I always joke, right? We're not -- we don't do brakes or lug nuts, so if you walk on, we want to be on your Windows sticker of your vehicle, right? That's how you make money in our industry. It's how we make money for our customers and it's something that the consumer values and will pay for.

So when you start talking about your -- I think the single most important chart you put up there is what percentage of total sell price is incentives. For us, that's something we look at. That's a leading indicator of 6 months or a year out is the industry in a good shape or in a bad spot in terms of what is the average transaction price and how much incentives does it cost for an OEM to get that sale because as incentives rise, OEMs start looking at ways to save money on that vehicle, that's the cycle we're in right now as take rates are definitely being impacted as OEMs look for cheap ways to get a car onto a lot at a lower cost point.

I should -- and I didn't say it before, I should note that this is very much a collegial atmosphere. And so if you all have questions for any of our management teams, please raise your hand and we'll get a microphone to you. The other technology that I spoke about is autonomous driving. And clearly, it would stand to reason that an AV would not need electrochromatic mirrors or mirrors at all. Talk about that from a risk standpoint and where you think that market goes? And how do you factor in that risk as it relates to Gentex?

Yes. So there's no doubt about it, in a fully autonomous vehicle, there's a lot of technologies that have existed for all time that won't be necessary in that vehicle. One of the things that we're really focused on and have been for the last 10 years, really, is what types of technology will be more relevant in that autonomous vehicle than they are in today's. So if you look at our dimming technology, one of the things if you came back out here at CES or even at SEMA this week, we'll be showing things like dimmable visors, dimmable windows, sunroofs. So now suddenly, on an average sale price basis, what was a $20 inside mirror for our standard base auto-dimming product, now it's something you're talking about hundreds of dollars in available technology and larger area devices.

So how do I take something and make it completely controllable so you can control side windows, sunroofs, everything with our dimming technology. It's something we've been putting a lot of R&D effort into over the last few years. And we believe that product will absolutely more than outweigh the headwinds that come from losses in traditional mirrors.

More importantly, if you look at a lot of our technology now is cameras and displays, user interface type products, a lot of vehicle electronics, those are going to be growth trajectories that will continue on. They become even more relevant than as the autonomous vehicle starts to roll out, the ability to have more interface, more interaction and controllable substrates, we believe, are going to be trends that will help us over the next several years.

Staying in the -- this is a little bit more of a near-term question that I'm going to ask, but it speaks to how you run your organization. We've had a number of near-term supply-related issues, whether it's the Novelis fire, Dutch/China chip issue. Clearly, nothing Gentex specific, but obviously, if there are disruptions to production schedules that impacts you, what have you learned since really 2020 that has helped you mitigate any sort of risk that comes from these one-off -- I'd say one-off, these one-offs that happen every 3 months, these one-off situations from a supply chain perspective.

Yes, I'd say, first of all, it's a riot, right? The last 5 years have been nothing but extraordinary. It seems like every time there's something new, which is amazing, like, I mean you can't script this stuff, right, like Dutch/Chinese company ceasing control. It's unbelievable. Now I will say 2 things just to clarify quickly, I joke all the time about we are Mid-westerners, very conservative. We tend to carry a lot of, I always joke, just-in-case inventory. We look at -- we do have exposure to Nexperia. We do -- we believe we're full all the way through the spring. So we have a ton of raw materials on hand. We feel like we're in a great shape there.

So it won't impact us immediately. The biggest risk factor is what does this mean for the entire industry. Now Novelis is a truly unique one, too. I mean this one really impacts Ford probably more than anyone else. Our exposure to Ford is disproportionately low. I mean, yes, we have exposure to Ford. However, if you look at -- they're not in our top 10 largest customers when it comes to our total technology risk factor.

So we're in pretty good shape there. It is, I believe, something that as a company we try to look at and say, "hey, these are going to continue to happen", so how do you position the business to able to survive, move quickly.

One of the things I do love about the way we're structured. We are very centralized. We make decisions very quickly [indiscernible] and bureaucracy and very little overhead. We're able to move much quicker than a lot of people in our space, and that allows us to adapt to these situations. I always -- I hate to be that optimistic guy that [indiscernible] causes problems, opportunities. But for every one of these that do arise, there are opportunities that do come out of them.

A great answer. I'm going to take now more strategic and more your vision for the company. Can you share more about some of the newer adjacent markets that you're targeting? And which of those are the most likely to start becoming a relatively meaningful portion of your revenue over the course of the next several years?

Yes. So what you're referencing, Brian, is really a lot of tech investments that we've made, taking our core competencies. If you look at what we do, we're an applied materials company, a [indiscernible] commission company. We do expand our aerospace business. So we do dimmable windows on a 787, 777, Airbus A350 because we decided as a business, automotive wasn't bad enough, let's go into a slower industry like aerospace because that makes a lot of sense -- sorry, sarcasms' all I have left. But we also have been working on taking that same type of technologies and some of the skill sets on the vision system side, expanding into fire protection space where we've been forever. But our fire protection business for all time has been focused on these type of buildings. So great detectors, mainly focused on hotels, conference centers, office buildings.

We recently launched 1 series of products that's designed for the home, direct-to-consumer, app-based, series of technologies that don't exist in the home automation space today. And each of these products are designed around a different room in your house. So a base unit, smoke, CO, air quality monitoring. We have 1 design around the garage environment, 1 specifically designed for the kitchen space which is semi-ironic because if you look at your house, you don't have a detector in your kitchen today because of nuisance alarms.

And so we've designed 1 specifically for that space. Also 1 for nursery. These include video, audio, push-to-talk, smart night light, a series of features that really don't exist in the space. So really looking to take our core technologies and move more into direct-to-consumer electronics.

Beyond that, we have some medical plays. So we've acquired a small company called eSight. This is a wearable for people with centralized vision loss, think macular degeneration, diabetic retinopathy, basically, it takes a vision system and then uses a projector display to help offset the eye.

In essence, you can trick your eye by putting the entire vision into the portion of your eye that is still functioning. People can actually return sight to them. And so taken -- if you look at what these are, though, we make CMOS imagers in-house in West Michigan, which if you've not seen before, it's pretty wild, but we actually make cameras, we do displays. And so taking the same kind of skill sets and starting to move into the med space.

That's all fascinating and remarkable from a technology perspective. I'm curious as it relates to your R&D. How do [indiscernible] best allocate dollars to your highest potential profit -- potential revenue path, given that you have 6 or 7 irons in the fire.

Yes. So I mean in a room like this, I think you guys will love it. I mean, basically, we approach R&D like a VC and so best idea wins. There's no emotion. You kind of look at the maximum potential over a long period of time, what that profitability looks like, strategically, what that could look like for the business. And then we choose the best of those ideas to invest and we scale that based on what's going on with the business? How much on the R&D -- I have an old-fashioned bake off to see which technologies are going to get funded and which aren't.

Talk about VOXX for a second. Just go back to because it was a substantial acquisition that you are already a part of. And I think it's really unique kind of fits in the organization as you look over the course of the next several years.

Yes. So VOXX -- VOXX is an interesting play. If you look at it, we made the initial investment in them when we chose them as our distribution -- part of our distribution channel for the aftermarket. As an OEM supplier, we've always struggled with how to [indiscernible]. And over the course of the last several years, their stock price has plummeted. We hadn't done a public-to-public deal before, so it was a little challenging. If you look at it, the harsh reality was way undervalued. And quite frankly, there was definitely some management struggles there as to why it was undervalued. And so if you look at it longer term is basically a balance sheet play for us. There was about a little over $300 million in revenue associated with that acquisition. And quite frankly, total enterprise value was just a hair over $200 million, right, Kev?

Yes.

I'm a recovering CFO. So you got that deal. I mean on a market cap versus sales side, there was no justification for that price other than the fact that they hadn't made money in a while. And so one of the things we are focused on is cleaning up the mess. One thing we're really good at is we're very efficient operators. We know how to drive income statement improvement, and that's what we're focused on right now.

Really after only owning the business for 6 months, it turned profitable already last quarter. And so we're really focused right now on how do we trend the [indiscernible], make sure this thing executes. The harsh reality is that it was a very low-risk acquisition. In that, we thought the balance sheet -- basically, we got it for the balance sheet value of the organization.

And so it's a perfect timing with the headwinds in the China market to bolt on some additional revenue. It's always easier to fix things once you have some sales, obviously. And so we're really focused right now on how do we make sure we operate and get that highly efficient. We believe there's a tremendous amount. If you look at it on a little over $300 million in revenue, we believe we can, in the course of 18 months, to generate $40 million, $50 million in free cash flow off that business.

[indiscernible] Gross margins. We'll stay with profitability -- so we'll start on profitability. Our gross margins have been a real focus for you really over the course of the last 2 years. Over the next 2 -- really next 12 to 24 months or say, where do you see the most tangible opportunities to drive margin expansion? Is it pricing? Is it scale? Is it mix, overhead absorption, et cetera?

Yes. I would say right away, it's -- for us as a business, given our model, if we can get to 5% to 10% growth rates, that's when margin expansion is right in our skill set. The last 2 years have been focused on, okay, a very tough operating environment from a revenue standpoint, how do we improve profitability, which we've done. So if you back up in the middle of the COVID era, we hit just sub-30% gross margins, which I know in this industry, that sounds fantastic. But for us, we believe that was a bottom, that was unacceptable. And so we're hitting closer to high 34s, low 35 percent gross margins. We think that's a sustainable gross margin for us over the long run. In this industry right now, we're hitting those numbers even with 90 basis points of headwind last quarter on tariffs.

And so we're more than offsetting the tariff exposure right now through operational improvements. So for us, it's a combination of sales growth level can give us that margin expansion opportunity. And then more importantly, how do we make sure we're running a very, very efficient operation, which I would tell you right now, this is the most efficient we've been in the last 5 years.

Stay on -- can we get a microphone to Harry, please.

Thank you. Just curious strategically, VOXX came with some -- an interesting collection of assets and -- how strategic would the Klipsch audio brand be for you long term?

So thank you. I've -- I blanked out there when I was talking about VOXX for a minute. But one of the correlations that you see there is with that product on the fire protection side that we're launching direct-to-consumer, audio is one of those that we thought was really important to us. So if you remember the HomeLink brand, which we acquired in 2013, there's about 100 million cars on the road right now with our technology, vehicle-to-home connected product. We've been working on expanding that and creating a series of smart home applications and feature sets that we can leverage that brand in automotive to bring in automotive connectivity right to the vehicle.

You look at our PLACE product, which is the smart fire protection device in combination with audio. We believe these offer up a lot of strategic opportunities for us in terms of what can geography look like in the home where Gentex can leverage that, not only for Smart Fire, but also for smart audio.

I'll add one more thing. If you look at the Klipsch lineup, they have 2 OEM awards in the automotive space as well, both on the Infinity program and the Ram program where they're doing Klipsch audio in those executions.

Want to stay with -- or go back to tariffs. Talk about your exposure? Is it direct? Is it indirect? Is it -- and how difficult has it been for you to work with the government as far as understanding labor value-added content and understanding what is exactly exempt from tariffs?

Yes, it's wild -- now suddenly, like you're talking -- once this tariff conversation happened, you had a calculus problem. It used to be pretty simple. And I always joke my hillbilly math could carry me most of the way there. Suddenly now it's very, very difficult. It's rules and interpretations, country of origin. So it impacts us primarily on the supply side. And that's where the most of the cost exposure is.

However, on the sales side, you have a series of counter tariff now into most of our export markets. So if you look at Gentex's historical business model, was centralized manufacturing in the U.S. exports all over the world. And now suddenly, we're having to have conversations with our customers about what does our manufacturing footprint need to look like to best satisfy the customer base to help them control their costs as well.

And so one of the things we're actively engaged in right now is primarily -- if you take the China market out of it, most of our exports into Korea, Japan, we feel like we've got those pretty well handled as of right now. The European market is probably the next risk factor that we have to -- that we're working on addressing currently.

And that can mean something similar to do your core technology in the U.S. set up light final assembly in the end markets where you need it. Not a huge negative on the cost side, but definitely something that we need to show support to our customer base on to make sure we're set up.

There are a lot of content. You're probably going to hear this week. All of our customers are asking for local for local, meaning if I have manufacturing in North America, I want localized suppliers, great tailwind for us over the next several years. On the flip side of that coin, though, the European market is going to want as much manufacturing and local content out of the EU as they can get.

We do have a facility there, and we will continue to grow and expand that depending on what these market conditions change. The hardest part you see in this industry right now is you've got 1 million balls in the air. No one's really deploying capital yet because the rules still aren't defined. We don't know if we're playing baseball, football or basketball, this is where opportunities for us start to emerge, though. If you look at our overall ability to supply not only electrochromics, but electronics, automotive electronics, we believe there's a lot of growth opportunity for us just on the pure electronic supply side.

So pickleball.

Lot of orthopedic injuries, pickleball. Ryan?

[indiscernible].

Yes. So did everybody hear that question? No, he was just asking with everything going on and how fluid this market is, are we waiting for more clarity? Well, are we making kind of miniature decisions every day. And that's more of the answer is for us, it's -- I always joke, right? You have to be the airborne rangers, you got to fire and maneuver. If you sit down and wait, you will die or you'll die slowly. And so for us, we constantly update all the time based off of -- and make little decisions over the course of time. We don't believe that there's a way for us to survive or at least thrive by waiting for all of this to be figured out and all the rules to be fully defined.

And so we're constantly meeting with our customers saying, what do you want, what do you need, how do we help you and that starts with there's an immediate one right now on the onshoring conversations that are happening currently. And so we want to be forefront with our customers in terms of our willingness and ability to use unique business models, even products that we may have not considered in the past as part of what we're going to do going forward.

You have one of the more unique balance sheets in the auto industry in a net cash position with no debt. How do you think about M&A? How do you think about allocation of capital? Clearly, VOXX was an opportunity for you? And how do you view leverage given that you typically always been in a net cash position?

Yes. So I mean, like you mentioned, I mean, we are very, very conservative with the balance sheet side. One of the things we joke about just that same VC model that we use for technology internally. We use that same thing and the way is always that conversation, which is what is the balance between M&A and share repurchases.

At the end of the day, whatever is the best return on invested capital, that's the model that we use. So right now, especially at these prices, you saw us this year -- first half of this year get much more aggressive on the share repurchase side. This valuation in terms of our long-term trajectory doesn't make a lot of sense. And so we're value buyers of our own stock, just like we are of other opportunities.

We typically do not overpay for acquisitions. We are very value focused. So we love a hell of a deal. And we're not afraid to just buy back our own stock because we believe in that over a long period of time. And honestly, the M&A side, we tend to do much smaller deals right now, mainly focused on tech. If you look at our last few big ones, the HomeLink deal in '13, the VOXX in just recently. Other than that, it's small, targeted acquisitions of technology. Otherwise, it's share repurchases.

How does that pipeline of deals look now from a tech standpoint and obviously without giving targets, just areas of focus.

Yes. So if you look at -- on the technology side, we're really a sensor company, and so we tend to look at a lot of different sensing technologies because we believe, especially in a fully autonomous world, strategically, that's part of what needs to exist in that vehicle of the future. So everyone talks about the car driving itself. And sure, 10 years ago, we had the right technology to try to compete in that space. But you're talking tens of billions of dollars going into that fundamental technology. We just didn't see a way to provide any shareholder return by competing in a very crowded space.

On the flip side of that coin, though, if you think about it, you're the ultimate sensor in your vehicle today. Something is loud, noisy, not working [indiscernible] or if something is wrong with the car as long as it gets you to where you're going. You're certainly not going to go out of your way to report that to whoever the owner of the vehicle is and so we're looking at sensing technologies that can replace the human to say, how do you do maintenance, how do you make sure everything is functional in that vehicle and people aren't misbehaving in that vehicle. I'll -- Kevin hotbox in my cab right before I get in -- or you, Brian -- you young guys. I don't know what ...

Very accusatory. Well, we're bumping up against time unless there are any questions from our colleagues. Steve, I want to thank -- Steve and Kevin, I want to thank you for being here. The question was asked, when will we potentially see you again, it will be November 2 and 3rd for our 50th, I hope. So thank you very much for being here.

No, thanks for having us. We'll be there.

Great.

Good day, and thank you for standing by. Welcome to the Gentex Third Quarter 2025 Financial Results Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Josh O'Berski, Director of Investor Relations. Please go ahead.

Thank you. Good morning, and thank you for joining us today for our third quarter 2025 earnings conference call. I'm Josh O'Berski, Gentex's Director of Investor Relations. And with me today are Steve Downing, President and CEO; Neil Boehm, COO and CTO; and Kevin Nash, Vice President of Finance and CFO.

Please note that a replay of this conference call webcast along with edited transcripts will be available following the call on the Investors section of our website at ir.gentex.com.

As a reminder, many of the statements made during today's call are forward-looking statements that reflect our current expectations. These statements are subject to a number of risks and uncertainties, both known and unknown, including those detailed in our second quarter 2025 earnings press release and our annual report on Form 10-K for the year ended December 31, 2024 as well as general economic conditions.

If one or more of these risks or uncertainties materialize or if our underlying assumptions or estimates prove to be incorrect, actual results could differ materially from those expressed or implied in our forward-looking statements.

On a quick programming note, I would also like to call attention to the fact that Gentex will be hosting investor visits at SEMA and in San Francisco and Los Angeles, the week of November 3. If you are interested in attending, please connect with me after this call.

I'll now hand the call over to Steve Downing for our prepared remarks.

Thank you, Josh. For the third quarter of 2025, the company reported consolidated net sales of Gentex and VOXX of $655.2 million, an 8% increase compared to net sales of $608.5 million in the third quarter of last year, which did not include VOXX. VOXX contributed $84.9 million of revenue while Core Gentex revenue was $570.3 million in the third quarter of 2025, which was a 6% decline versus the third quarter of last year. This is in comparison to light vehicle production in the company's primary markets that increased by approximately 2% versus the third quarter of last year.

In terms of regional performance for the third quarter, North American OEM revenue increased approximately 5% quarter-over-quarter, supported by robust production schedules and increased content per vehicle.

In Europe, revenue declined approximately 14% quarter-over-quarter. The decrease was driven by customer-specific production challenges and a weaker regional vehicle mix. In Europe, light vehicle production volumes moved to lower trim level vehicles that do not typically include higher-end Gentex features. In China, revenue totaled approximately $34 million, down 35% compared to the third quarter of last year. The decline reflects the ongoing impact of tariff and counter tariff actions.

Despite the regional headwinds, Gentex delivered solid results through disciplined execution and incremental contributions from the VOXX acquisition. For the third quarter of 2025, the company's consolidated gross margin was 34.4% compared to a gross margin of 33.5% for the third quarter of last year, which did not include VOXX.

The core Gentex gross margin was 34.9%, representing a 140 basis point increase compared to the third quarter of last year. The core gross margin improvement was driven by favorable North American customer and product mix, purchasing cost reduction and continuing operational efficiencies. The ongoing improvement in gross margin reflects the company's disciplined focus on cost control and productivity improvements. However, the gross margin was negatively impacted by approximately 90 basis points due to incremental tariffs in the quarter that were not offset through customers.

Despite the incremental impact of tariffs on our business, the company has improved the overall gross margin to levels not seen in several years. Consolidated operating expenses during the third quarter of 2025 were $102.8 million compared to operating expenses of $78.3 million in the third quarter of last year, which did not include VOXX.

The increase was primarily due to the VOXX acquisition, which accounted for $23.7 million of the increase. Gentex's operating expenses, excluding VOXX, were $79.2 million in the third quarter of 2025, compared to $78.3 million during the third quarter of last year. The increase in core Gentex operating expenses included $1.1 million in acquisition-related costs and Gentex-specific severance expenses.

Consolidated income from operations for the third quarter of 2025 was $122.3 million compared to income from operations of $125.7 million for the third quarter of last year, which did not include VOXX.

Gentex's income from operations, excluding VOXX, was $119.7 million in the third quarter of 2025, representing a 5% decrease versus the third quarter of last year. Total other loss was $1.8 million during the third quarter of 2025 compared to income of $19.7 million in the third quarter of last year. The reduction was primarily due to a $14.9 million gain included in the third quarter of last year related to the fair value adjustment of the company's original investment in VOXX.

During the third quarter of 2025, the company had an effective tax rate of 16.3% compared to an effective tax rate of 15.7% during the third quarter of last year. The quarter-over-quarter change in the effective tax rate was primarily driven by lower tax benefits related to stock-based compensation compared to the third quarter of last year as well as a reduced benefit from the foreign-derived intangible income deduction.

Consolidated net income attributable to Gentex for the third quarter of 2025 was $101 million, supported by higher overall sales levels, gross margin expansion and cost improvements. Net income in the third quarter of last year was $122.5 million. The quarter-over-quarter change was primarily due to the onetime gain in the prior period resulting from the fair value adjustment of the company's original investment in VOXX.

Consolidated earnings per diluted share attributable to Gentex for the third quarter of 2025 were $0.46 compared to earnings per diluted share of $0.53 for the third quarter of last year, which did not include VOXX. Though VOXX was not consolidated in the third quarter of 2024, earnings per diluted share for that quarter were positively impacted by the onetime gain in the company's original investment in VOXX.

I'll now hand the call over to Kevin for some further financial details.

Thanks, Steve. Gentex's automotive net sales were $558 million in the third quarter of 2025 compared to $596.5 million in the third quarter of '24. The lower quarter-over-quarter automotive sales were largely the result of lower shipments of auto-dimming mirrors into Europe and China in the third quarter compared to the third quarter of last year. However, the lower unit shipments were partially offset by strong growth and advanced feature mirror sales in North America.

Net sales from Gentex's other product lines, which includes dimmable aircraft windows, fire protection products, medical devices and biometrics were $12.3 million in the third quarter of '25 compared to $12 million in the third quarter of '24. VOXX net sales contributed $84.9 million during the third quarter of '25. The company continues to work through post acquisition transition with a focus on aligning product strategies, optimizing customer relationships and identifying operational synergies across both businesses.

During the third quarter '25, the company repurchased 1 million shares of its common stock at an average price of $28.18 per share. for a total of $28.3 million. And year-to-date, the company has repurchased 9.8 million shares for a total of $230.5 million at an average price of $23.50 per share. And as of September 30 of '25, the company has approximately 39.6 million shares remaining available for repurchase pursuant to its previously announced share repurchase plan.

Turning to the balance sheet. Our comparisons today are based on September 30, 2025 versus December 31 of '24. Starting with liquidity. Cash and cash equivalents were $178.6 million, down from $233.3 million at year-end. This decline was primarily driven by the VOXX acquisition and share repurchases, partially offset by operating cash flow. Short-term and long-term investments totaled $267.2 million compared to $369 million at the end of '24. These investments include both fixed income, securities and our equity and cost method holdings.

Accounts receivable stood at $384.7 million compared to $295.3 million at year-end. Of that, $320.4 million was attributable to Gentex and $64.3 million to VOXX. The increase in Gentex receivables was mainly due to higher sequential sales and the timing of those sales within the quarter.

Inventories totaled $498.8 million, of which $386.9 million represented core Gentex inventory, down from $436.5 million at year-end, largely due to reductions in raw material inventory. The remaining $111.9 million reflects VOXX inventory. And consolidated accounts payable was $252 million compared to $168.3 million at year-end, including $169.8 million for Gentex and $82.2 million for VOXX.

Preliminary cash flow from operations for the third quarter was $146.9 million compared to $84.7 million in the same period last year, primarily due to changes in working capital. And year-to-date operating cash flow was $461.6 million, up from $343.8 million for the first 9 months of 2024, also primarily due to changes in working capital compared to the prior period.

CapEx for the third quarter was approximately $35.6 million versus $31.8 million last year, bringing year-to-date capital expenditures to $103.8 million, slightly higher than the $102.9 million last year. And depreciation and amortization expense for the third quarter was approximately $25.9 million compared to $22.9 million in Q3 of '24. And on a year-to-date basis, depreciation and amortization totaled $78.8 million, up from $70.9 million in the prior year.

I'll now hand the call over to Neil for a product update.

Thank you, Kevin. The third quarter of 2025 was another strong launch quarter. In the quarter, over 55% of the launches were advanced interior and exterior auto-dimming mirrors and electronic features. Similar to previous quarters, HomeLink and Full Display Mirror were the primary technology introduced. The launch cadence has been strong over the last several quarters, and I appreciate the team's focus on execution to make them successful.

Full Display Mirror sales continue to be a key performer in Q3. Demand remains strong, and we are confident in our ability to sell 200,000 to 300,000 more units of FDM in 2025 compared to 2024, as we've previously stated. In the face of delayed or canceled EV platform launches, ICE and hybrid applications continue launching with Full Display Mirrors and consumer demand for our feature remains strong.

A few notable FDM launches this quarter include the Ford Bronco, marking the first non-van launch of FDM at Ford. And the continued adoption of FDM in Europe on the DS No. 8 and the Vauxhall Combo. Additionally, we saw the rollout of FDM at Volvo as a dealer-installed accessory available on the majority of their lineup. Customer interest for dimmable sunroofs and visors continues to grow, and our teams have been working incredibly hard to continue moving this product from single unit production into more mass scale capability. As noted in prior calls, this is an incredibly complex and challenging manufacturing process.

To date, we've been utilizing partners to execute part of the process while we get our larger scale production equipment in-house and operational. The target is to have this in-house operation running in late Q1 to early Q2 2026. As with any new product or process launch, there will be challenges. But with the manufacturing capability we have at Gentex, I remain confident in the team's ability to bring this product into the market in the next 1.5 years.

Now for a quick update on driver and in-cabin monitoring product area. We continue to make great progress with our driver monitoring and in-cabin systems and remain on track to launch with 3 additional customers by the middle of 2026. The acquisition of Guardian Optical Technologies in 2021 set the stage for Gentex to be a premier player within this industry, and we've continued to grow our capabilities since the acquisition.

These systems require substantial integration and coordination with our customers, and our teams have achieved high marks for their progress from our next launch customer. As we mentioned in the press release from this morning, we have been very focused on improvements of the Gentex -- of the core Gentex operating structure over the last 2 quarters.

We've successfully executed early retirement incentives that were designed to lower operating expenses while not impacting our ability to continue to invest in technologies and products that will propel Gentex forward over the next several years.

Additionally, since the closing of the acquisition of VOXX at the beginning of the second quarter, the teams have been working hard on the consolidation of systems, tools, back-office support, purchasing and logistics. So far, we've made great progress.

As we look into the final quarter of 2025, there will be an even stronger focus on efficiency and optimization with a goal of having most plans implemented in the first half of next year. The VOXX teams have done a great job keeping the business moving in the right direction, and now we'll begin to collaborate deeper to drive longer-term improvements into the operation.

As an innovation-driven technology company, the focus on R&D over the last several years has enabled us to generate a strong pipeline of both automotive and nonautomotive products and technologies. Now we need to keep the focus on the execution of these products and move them forward into production to support our growth objectives.

I'll now hand the call back over to Steve for guidance and closing remarks.

Thanks, Neil. The company's light vehicle production forecast for the fourth quarter of 2025 and full years 2025 and 2026 are based on the mid-October 2025 S&P Global Mobility outlook for North America, Europe, Japan, Korea and China. Global light vehicle production for the fourth quarter of 2025 is expected to decline approximately 4% versus the fourth quarter of last year.

Full year 2025 production in the company's primary markets is expected to be down 1%, while production in North America and Europe is projected to fall approximately 2% in 2025 compared to last year. Based on the updated light vehicle production forecast and actual results for the first 9 months of 2025, reduced demand in the China market, stemming from recently implemented counter tariffs and the expected incremental sales contribution from the VOXX acquisition, the company is making certain changes to its full year 2025 guidance. The following updated guidance reflects the anticipated impact of all known tariffs effective as of October 23 and can also be found in our press release from this morning.

Consolidated revenue for 2025, including VOXX, is expected to be in the range of $2.5 billion and $2.6 billion. Consolidated gross margin is anticipated to be between 33.5% and 34%. Consolidated operating expenses, excluding severance, are forecasted at $380 million to $390 million. The effective tax rate is expected to be 16% to 16.5%. Capital expenditures are projected at $115 million to $125 million. Depreciation and amortization is expected to total $96 million to $99 million.

The third quarter is best summarized as a continuation of the underlying economic environment of the last 1.5 years. Light vehicle production levels in our primary markets have improved versus previous forecast, but any progress is in contrast to the declining production levels experienced over the past few years. Additionally, the previous 2 quarters were impacted by mix weakness in Europe, Japan and Korea, as well as continued headwinds in China due to the ongoing tariff environment.

While core Gentex revenue in the third quarter of 2025 was lower compared to last quarter and the third quarter of last year, our strong business discipline and operational focus enabled us to deliver another meaningful improvement in gross margin.

The company's focus on business discipline, expense management and operational improvements has helped improve margins despite incremental tariff headwinds that were not reimbursed during the quarter. As we move into the fourth quarter, our teams will be focused on bringing the same type of improvements to the VOXX organization to ensure the combined entity is structured to support sustainable profitability and create shareholder value.

That completes our prepared comments for today. We can now proceed to questions.

[Operator Instructions] And our first question comes from the line of Luke Junk of Baird.

Steve, maybe if we could just start with the growth headwinds in Europe. Just trying to tease out how much of that was temporary, I would guess, some JLR-related impacts in the quarter versus things that might be more sticky in terms of true mix. And then as you kind of step into the fourth quarter for the company overall, any incremental trim mix impacts that you might anticipate?

Yes. I think -- if you look at the temporary impact, that was really probably $5 million, $6 million in revenue headwinds from one of the OEM shutdowns in Europe. So pretty minor there. If you look at the rest of it, it's really about mix. And really, what we're talking about is the only real growth. Most of the CD&E vehicles in Europe during the quarter were down pretty significantly. I think A and B, specifically B, I believe, was the only thing that really grew and that's where the strength was in the European market. And as you know, we struggle a little bit with content or at least the same level of content on those vehicles versus what we see in the CD&E segment.

And then into 4Q, other than the temporary piece, anything you'd expect to change in trim mix Europe or, I guess, North America, too?

No. I would say -- I wouldn't say it would probably be quite as drastic as what we saw in Q3 in terms of trim mix. But definitely, there -- I think with some of the economic challenges in the EU right now, we're definitely seeing a little lighter content than what we have been seeing over the last 18 months to 2 years. And so some of it, I think, will continue into Q4, but I think Q3 was definitely probably a hair overdone in terms of that -- how much that changed in one quarter.

Got it. Gross margin, yes, I appreciate the color on the tariff impact this quarter. Just be curious how you're thinking about approaching recovering those costs into the fourth quarter and ultimately into next year. And in terms of the fourth quarter specifically, is there anything incremental that you'd have a line of sight to in terms of costs that you need to recover?

No. I think what you're seeing right now, Q2 tariffs, we actually recovered probably 70%, 80% of the tariff costs of Q2 in Q3, and so what you're seeing is a step up in overall tariff from Q2 to Q3. We haven't been reimbursed those yet. We would expect to get most of that reimbursed in Q4, but there's definitely a lag effect as the tariffs have been ramping up over the last few quarters. Unfortunately, there's a lag and how -- when you incur the expense versus when you can recover it.

Got it. And then last question for me, just lots of discussion around Nexperia, of course. Just curious to the extent that you have any direct supply chain exposure there, Neil, and then just what you're hearing from customers real-time.

Yes, absolutely. Yes, Nexperia, there is -- we do have some supply that we utilize from Nexperia. We do have some in-house inventory available. We've got -- unfortunately, if you go back a few years, we've been through this fire drill a few times on finding alternate supply, designing alternates in and doing it in a fast and expeditious way. So we are exercising that muscle again to find alternates and get the solutions moving to minimize any impact.

We're not expecting any significant impact in Q4, though.

No.

At least not from our side. Obviously, OEM exposure could create challenges from other suppliers, but...

Our next question comes from the line of Joseph Spak of UBS.

Maybe to sort of just follow up on some of the European commentary, I know you mentioned sort of the different sort of segment levels, but it also sounds like there's maybe just overall more pressure in that market. And I guess I'm just wondering is in some of those higher segments that you mentioned where you tend to have more content, are you seeing any change in ordering patterns from your customers? Like any consideration to decontent you to maybe make some of those vehicles more affordable? Or is this really just a period where you mentioned AB vehicles really outperform some of those larger vehicles?

No, Joe, it's definitely both. I mean you're seeing some decontenting on higher-end vehicles as well as OEMs look to try to get overall cost points lower. And obviously, as tariffs have impacted OEMs, they're looking for other creative ways to try to get their cost structure lower. So unfortunately, optional content does become in scope for some of them. I would say it's kind of a mix between both of those, both what the vehicle mix is and segmentation changing and then also some decontenting to avoid -- to help lower cost structure.

Okay. And then just maybe on the implied fourth quarter gross margin. I just want to -- it looks like maybe seasonally, the step down looks a little bit greater, if I'm doing my math right. And I just want to understand what's really sort of considered in that, whether there's still some -- I mean, I know you sort of just talked about some trouble getting reimbursements. Anything considered on like semi tariffs or anything else we should be thinking about?

No, if you look at the real impact and the step down, it's a couple fold. Number one is as a percent of total revenue, VOXX is going to be higher, which will have a little bit of a head -- put a little bit of a headwind on the overall weighted margin. And then the real big factor in the second half is the lower sales levels that we usually see in Q4, especially around the holidays. And so there's not like any structural changes or anything wrong with the cost structure. We actually think Q4 margin, if revenue were exactly the same, we would expect Q4 from a margin perspective to be very, very similar to Q3.

Maybe just one last quick one. Sorry, if I missed this in the prepared remarks, but is there any update on FDM, especially since I know at least here in the U.S., we're seeing some likely lower demand for EVs. And I think like that was, I'd say, an above-average sort of feature on EVs versus sort of ICE vehicles. And so just how you're thinking about that, especially headed into '26?

Yes, absolutely. Actually, Q3 was really good growth in FDM again. It's been strong and Q4 still looks really strong. So we -- I think last quarter, Q2 said we'd be 150,000 to 300,000 units above where we were in 2024. And so we just moved that to be 200 to 300 for the end of the year. So we still see us exceeding 2024 numbers by 200,000 to 300,000 units.

Okay. And any preliminary views into next year on that?

Not really. I mean, there's...

We're expecting to continue to grow, though.

Yes, it's not -- we see growth. Absolutely.

We'll give formal guidance coming in fourth quarter.

And our next question comes from the line of Josh Nichols of B. Riley.

Good to see the revenue and margin guidance for the year moving to the upper end of the range despite some of the European headwinds that you talked about. I just want to drill down a little bit into VOXX. We're about 2 quarters in now. Any updates on like synergy integration and the realization. Are you still on target to achieve those synergy levels that you previously kind of talked about 18 months after the close?

Yes, absolutely. I think if you look at the first -- through 2 quarters already, if you look at the overall numbers, it shows in this quarter that we -- that VOXX organization is positive on the net income side and accretive on the EPS side. And so that will be -- that was a little ahead of schedule, quite frankly. In that regard, we know the next couple of quarters, especially, there's a lot of work that has to happen to try to figure out where there's any redundancy or overlap between our 2 organizations.

We're starting to really make great progress with that organization. And looking forward to what the next 12 to 18 months can look like. But there's no doubt in the overall cash generation side of what we think that business can look like that we don't see any reason why we can't achieve those original targets.

Yes. And then just one follow-up, looking a little bit further out. Regarding the dimmable sunroofs and visors, you talked about, I think you said you expect to have those in market within 18 months, but operationally running in the first half of next year. What's left to be done in terms of achieving commercial viability for those today to really bring those to market? I'm just curious where you are or what's left to do? I know there's a lot of technicals that go into getting that OEM certified and just want a little bit of an update.

Yes. Those are still some of the bigger challenges, the requirements of taking that technology into automotive and meeting the environmental temperature, all of the above process requirements as well as when you have really large pieces of glass with a darkened surface, it's easy to see small issues in the process that the dimming materials put down. So that's the big part of the Q1 into Q2 of next year as we are getting that capability in-house so that we can get better control on that process quality.

So with those, I think those are some of the biggest hurdles that we still got in front of us. There's a lot of little challenges that we fight every day, but the team has been doing a great job keeping those down and trying to get focus on some of these bigger ones.

Our next question comes from the line of Ryan Brinkman of JPMorgan.

Is there any update you can provide on the place sort of retail consumer fire protection business? I realize it's only been a few months now in the Home Depot stores, but curious what -- any early feedback might be?

Yes. I think probably the most telling portion of that has been so far, the consumer feedback has been really good in terms of ease of install, app integration, what that looks like, ease of use. So I mean, that was our big focus right away. Wasn't just the overall sales levels, but the real focus was, hey, really for our first time going direct-to-consumer with something especially that's feature-rich and app-heavy, how do we make -- do we do a good job executing that app and the interaction side.

And so far, I mean, fingers crossed, that all looks like it's going really well in that launch initially. And we never expected necessarily DIY to be a big home run in terms of sales volume. And so the growth over the next couple of years is really going to be focused on how do we get direct to builders, how do you start working on additional channels beyond just big box retail. And so that's where the team is actively focused right now is, first focused on making sure the product was robust and the app was robust.

And then secondly, we got to start focusing and looking at how do we get into additional channels that are, quite frankly, new for us. But one of the things we have going for us in this regard is the -- some of the synergies on the VOXX side of the business. They have a lot more experience than we do in terms of how to market direct-to-consumer these type of products. And so we're working really hard with that team on how do we take advantage of the skill sets that they have to help us with the sales channels of that product.

Okay. And then just lastly, on the VOXX side, you got one question already about the, I guess, the opportunity from consolidating sort of the Gentex and VOXX people and systems and public company costs. Maybe just remind us of the targets there and of the cadence, too, because it seems like so far, like a lot of the early retirement announcements have been really on the Gentex side. Is that fair to say?

And in terms of the size of the opportunity, is it as simple to just kind of look at the relative difference in the gross margin profile and the operating margin profile of the 2 businesses and say that, that much can really be achieved? Or how much can you achieve and over what period of time? And what have you achieved so far?

Yes, I'll start with the overall target when we kind of got into this. We believe, given that level of revenue that it was absolutely possible to achieve kind of $40 million or so in free cash flow off of their business on a per annual basis. And that's still our goal. We've kind of targeted that to be in about 18 months post acquisition. And we still believe we're on the same timetable to make that happen. I'll let Kevin jump in with a few of the -- what we've kind of accomplished already and where we're at currently.

Yes. So if you look at some of the audit costs, I mean, we have reduced that overlap, insurance costs, I mean, you're -- between those 2, you're in the low $2 million to $3 million a year, plus you have some of the executive team overlap, those team -- they had run off. But they had already accounted for that prior. So that's why I don't see some of the severance expense coming from those things or the transition expense. But all told, we're over $10 million of annualized savings when you add up all the different things, and we continue to make progress beyond that every quarter.

And our next question comes from the line of James Picariello of BNP Paribas.

This is [ Srikanth ] on for James. You guys put a pretty great gross margins in the quarter, especially considering some of the headwinds you saw in Europe. So how should we think about that really going to next year? Are these sustainable? Or are there any other puts and takes we should keep in mind?

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Yes. I think as we head into next year and like we joke all the time, this is a big fingers cross moment as well. Hopefully, tariffs stabilize from this year going into next year. That would be the one big variable that obviously we can't control and don't really have a lot of insight into other than what's publicly available currently.

The other ones start to become more normal puts and takes. So you got pricing at the beginning of the year to our customer base and then what we can get out of the supply chain. Historically, for us, if we can try to offset or make those offset each other, then we got a really good opportunity to maintain the margin profile. And that's what our current stance is heading into next year is that we believe that if we could get up to this kind of high 34%, 35% range on gross margin leaving this year, that we'd be in really good shape to maintain that heading into next year. And we still believe that what our outlook looks like.

And that obviously factors in, in terms of overall sales levels and some of the things that are a little unpredictable right now in terms of what happens geographically and with our primary customers all over the world. But as we stand here today, we feel like we're in a really good spot that we've executed most of the cost control mechanisms we needed to internally to get to where we had predicted we would end this year at.

And so as we're -- the disciplines there, the efficiencies that we put in place. These are not onetime experiences. I mean these are recurring benefits that we'll see rolling forward. And so if I had to do a way too early version of what the margin will look like next year, I'd say it's really close to where we're at right now.

That's helpful. And then it's nice to see you guys have some good news point to in China. Do you think there's more room for improvement, should the trade situation stabilize a little bit more?

Yes. I would never say that it couldn't. I would say, right now, as we look at the China market, there's definitely a trend from OEMs there to go with domestic suppliers over international suppliers. And so we're seeing that trend kind of play out longer term. And so we're constantly looking at new products and saying, hey, it's a real market, significant. How do we try to make sure we have the right product offering to be competitive in that space. But I think there'll be a little more headwinds as we head into the next 18 months in the China market. And so we're kind of preparing ourselves for that.

Our next question comes from the line of Mark Delaney of Goldman Sachs.

I was hoping to circle back to the content challenges in trim mix issues that the company was speaking about that you've seen in the European market. I guess, first on that topic, as you think about what you've seen, especially the decontenting element and even in some of those CDE segment vehicles. As you think about that category, are there steps you think Gentex can take to get back to growth over market within Europe even with those -- within those segments? Or is it going to be more a function of you just need the market to recover for that category vehicle?

No, there's definitely -- I think there's definitely features. If you look at some of the new technology we've been working on, getting those into the marketplace, in-cabin monitoring, driver monitoring and then longer term, the stuff that Neil is referencing in terms of visors and large area devices, those products, in particular, have ASPs that are well above our current ASP and all have the potential to help us outgrow the marketplace even if it is in a declining market.

And so one of the reasons why you've seen such a focus on higher end tech over the last couple of years is preparing for these types of moments. I mean, I think this one is a little more drastic than even we had anticipated a couple of years ago in terms of the total impact of trade relations and what that's done from a margin compression standpoint for us. And so we're trying to make sure we have the right skills, the right products to make sure that we can find a growth opportunity.

And what we assume to be initially is probably just a flat market but it's actually become more of a declining market than what we even anticipated. And so the team stays really focused, and that's why you see us continuing to double down on the new tech development because that's the only really way to grow in this market currently.

And then just in terms of the breadth of the challenge, I mean, is it 1 or 2 OEMs in Europe where you've seen this effect? Or is it kind of a wider range of your customers there have been looking to find savings and you've seen the decontenting?

It's really -- it kind of comes down to a couple of OEMs. I mean everyone's been impacted in terms of -- a lot of OEMs have been impacted in Europe based off their volume and overall trim level, like what they're building and how -- what price point of vehicles they're selling. But the decontenting, I think, is really limited to a couple of OEMs in the European market.

Okay. And then I guess on this topic, kind of assuming on a global perspective, I mean, cost challenges and tariffs, I mean that's not isolated to Europe. And so I'm curious, do you think there's the risk or have you heard anything from customers this kind of thing may happen in Asia or the U.S.? It sounds like it's only been in Europe, but I'm hoping to kind of think about whether this would or would not occur elsewhere?

Yes. I mean, it's possible. I mean it's really -- that becomes more a function of where the vehicles end up, I believe, it's not just limited to European OEMs per se, but they definitely have -- they have more exposure to the overall European end market. I mean if you look at our primary customers in Asia, you're looking really at [ Honda ] and Toyota as the bulk of that revenue. And fortunately for us, both of those OEMs have held up very well through all this. And so we continue to find growth opportunities with both those OEMs.

Got it. That's actually my question, nice to see the progress this year with the FDM growth and everything you're working out with the large dimmable area devices, we'll keep an eye on that going forward.

[Operator Instructions] Our next question comes from the line of David Whiston of Morningstar.

On guidance, is there any chance of material upside in light of the October 17, the proclamation expanding the parts rebate on U.S. assembly? Or is that pretty much all baked in?

No. I think from a supply standpoint, I don't think it's going to change or impact a whole lot of what you're seeing. I mean if anything, what it does allow us to do, hopefully is it should lessen some of the controversy on tariff recoveries.

Okay. And then I guess, could you talk a bit about what's the resistance on FDM for the automakers that haven't yet adopted it? Are they just waiting for future vehicle programs and they know they want to do it? Or are there still some cost or logistical issues beyond that?

Well, you definitely always have the cost side. I mean, that's one that's -- with every OEM that we've been successful with, it's one of the obstacles you have to get past. Beyond that, I think the slow adopters at the beginning were the German OEMs. And I think that was really the only real hold out. If you look at most other OEMs, they had adopted the product to some level. The biggest challenge right now is how do you get it beyond small take rates into more mass market.

And the teams have made some real good progress on that in terms of what does standard equipment look like or close to standard equipment on high-level vehicles and have an optional content on lower-end vehicles. And that's where we're starting to see a lot of the revenue growth come from. It's not just pure number of nameplates you're on. It's more about what are those take rates.

I'm showing no further questions at this time. I would now like to turn it back to Josh O'Berski for closing remarks.

Thank you, everyone, for your time and questions. We hope you have a great weekend. This concludes our call.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.