Gentex Corporation Aktie

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?

'

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.

Good day, and thank you for standing by. Welcome to the Gentex Second 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 second 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 1 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.

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

Thanks, Josh. Gentex completed its acquisition of Fox on April 1 of this year, and we did our best in the press release from this morning to provide information for both what we call core Gentech, meaning without Box and consolidated Gentex, which includes financial performance for both Gentex and Box. Additionally, in an effort to not repeat this caveat throughout the call, it is important to remember that for any year-over-year or quarter-over-quarter comparisons, the second quarter of last year did not include Box. In the second quarter of 2025, consolidated net sales were $657.9 million, which represents a 15% increase over the second quarter of last year.

Core Gentex revenue for the quarter was $579 million, which represents a 1% growth rate versus last year on a decline of 2% in light vehicle production in our primary markets. VOXX revenue for the second quarter was $78.8 million. Given the overall weak light vehicle production in our primary regions, we are very pleased with our sales levels this quarter. This is particularly notable given the impact that tariffs and counter tariffs have had on demand for our products, especially in the China market.

Overall, sales into China for Gentex during the quarter were approximately $33 million compared to our beginning of year forecast of $50 million to $60 million for second quarter sales. Despite revenue headwinds related to tariffs, and reduced sales into the China market, the company more than offset these challenges through strong growth in Full Display Mirror and other advanced features, along with incremental revenue from the VOXX acquisition. Our consolidated gross margin for the quarter was 34.2%, up from 32.9% in the second quarter of last year.

Core Gentex's gross margin was 35.3% and a 240 basis point improvement versus last year. Sequentially, we saw a 210 basis point improvement in core gross margin, reflecting the continued success of our margin improvement initiatives. The improvements were driven by purchasing cost reductions, favorable product mix and operational efficiencies, although they were partially offset by tariffs that were not reimbursed during the quarter.

Additionally, on an adjusted basis, consolidated gross margin was 34.6% when excluding 2.5 million purchase accounting adjustment related to the VOXX acquisition. During an incredibly difficult operating environment, this quarter's gross margin performance is a testament to the hard work and discipline the entire team has put into our margin improvement effort. Operating expenses for the quarter were $106.8 million, up from $73.7 million last year, primarily due to the Box acquisition.

VOXX accounted for $23.9 million of that increase, plus $1.5 million in acquisition-related costs on the box side and $600,000 in costs relating to severance expenses for VOXX. Core Gentex operating expenses were $80.7 million, up from $73.7 million, but this included expenses of $1 million in acquisition-related costs for Gentex and $6.2 million in early retirement incentives for core Gentex. When we adjust for these onetime items, core Gentex operating expenses were down slightly versus last year, which is in line with our expectation, strategy and execution of the work we have been doing on our cost reduction program.

Consolidated income from operations was $118.5 million compared to $114.9 million last year. However, core Gentex operating income was $123.8 million, up 8% year-over-year. Additionally, when adjusted for the onetime expenses mentioned previously, core Gentex operating income was $130.9 million, a 14% increase over last year. Our effective tax rate for the quarter was 17.2%, up from 15.1% last year primarily due to lower stock-based compensation tax benefits and a reduced form derived intangible income deduction. Consolidated net income for the quarter was $96 million, up 12% from $86 million last year.

On an adjusted basis, net income was $105.8 million, a 23% increase versus last year. Consolidated earnings per share were $0.43, up 16% versus last year. When we adjust earnings per share for the onetime expenses mentioned previously, EPS was $0.47, a 27% increase over last year.

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

Thank you, Steve. Gentex's automotive net sales were $566.5 million in the second quarter of '25, which were negatively affected by the company's lower-than-expected sales into the China market due to the impact of counter tariffs but were more than offset by increased advanced feature mirror sales. Net sales from Gentex's other product lines, which includes dimmable aircraft windows, fire protection products, medical devices and biometrics were $12.5 million in the second quarter of '25 compared to $13.6 million in the second quarter of '24. And as previously mentioned, VOXX Net sales contributed $78.8 million during the second quarter of 2025. 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 second quarter of 2025, the company repurchased 5.7 million shares of its common stock at an average price of $2.13 per share for a total of $126.2 million. And year-to-date, the company has repurchased 8.8 million shares for a total of $202.2 million at an average price of $22.97 per share. And on July 16 of 25, the company announced a new share repurchase authorization from the Board of Directors of an additional 40 million shares representing more than 18% of the company's outstanding shares as of June 30, '25. This new authorization is in addition to the company's existing repurchase authorization. And with this new authorization, as of today, the company now has approximately 40.6 million shares authorized for repurchase under the plan.

The company intends to continue to repurchase % shares of its common stock in the future in support of the previously disclosed capital allocation strategy, but share repurchases will vary from time to time and will take into account macroeconomic issues, market trends and other factors the company deems appropriate. Shifting over to the balance sheet. Today's comparisons, our figures as of June 30 versus December 31, '24.

These numbers include the initial purchase accounting estimates from the Fox acquisition as of April 1. And while they reflect our best estimates, they may be subject to change throughout the measurement period. Starting with liquidity. Cash and cash equivalents were $119.8 million, down from $233.3 million at year-end, primarily as a result of the Fox acquisition and share repurchases during the quarter. Short-term and long-term investments totaled $290.1 million compared to $361.9 million at the end of '24. These investments include both fixed income securities and our equity and cost method holdings.

Total accounts receivable stood at $372.9 million. Of that, $317.5 million was attributable to Gentex and $55.4 million came from the VOXX acquisition. The increase in core Gentex receivables was primarily driven by higher sequential sales and the timing of the sales within the quarter. Total inventories were $473.3 million with $380.9 million representing core Gentex inventory. That's down from $436.5 million at year-end, largely due to reductions in raw material inventory. The remaining $92.4 million in inventory is tied to the Fox acquisition and consolidated accounts payable was $212.6 million. And within that, core Gentex accounts payable was $156.3 million, down from $168.3 million at the end of '24, primarily due to lower inventory purchases during the quarter. and the remaining $56.3 million reflects payables associated with VOXX.

And as it relates to cash flow, the company is still in process of finalizing operating cash flow metrics for the quarter, and we'll provide those details in its upcoming Form 10-Q filing. Capital expenditures for the second quarter of 25 were approximately $31.1 million compared to $31.8 million in the same period last year. And year-to-date, capital expenditures totaled $67.8 million, up from $63.6 million in the first half million. And depreciation and amortization expense for the second quarter was approximately $27.4 million, including $0.8 million attributable to VOXX and $26.6 million related to Gentex. This compares to $23.9 million in the second quarter of '24. And on a year-to-date basis, depreciation and amortization totaled $52.9 million compared to $47.9 million in the prior year period. I'll now hand the call over to Neil for a product update.

Thank you, Kevin. In the second quarter of 2025, we had 18 net new nameplate launches of our interior and exterior auto-dimming mirrors and electronic features. Over half of these launches in the quarter included advanced feature content with Full Display Mirror and HomeLink being the primary technologies introduced. The launch cadence has been strong over the past several quarters, and the teams have been doing an outstanding job to make them successful. Now for an update on Full Display Mirror.

In the second quarter, Full Display Mirror launch on the Cadillac [indiscernible] Ferrari 296 GTB, Genesis G60, Hyundai, Ionic 9 and the Mitsubishi Outlander. These new launches bring our total number of nameplates launched to 139. With 6 months of actual performance and improved visibility around program launches -- we now expect Full Display Mirror unit shipments for the full year of 2025 to increase by approximately 150,000 to 300,000 units compared to 2024. We -- interest in the Full Display year product family remained strong even in the challenging production environment, particularly in North America. In addition to the growth in units in 2025, we continue to anticipate announcing an additional OEM customer for Full Display Mirror later this year.

Full Display Mirror has been one of Gentex's primary growth drivers and we remain fully committed to its continued advancement. We're actively investing in next-generation camera and display technologies, new feature content and a deeper focus on user experience to ensure the platform remains at the forefront of the market. Another product focus area for us has been large area devices. In the second quarter, our team made strong progress in optimizing initial production lines for large area applications like Sunroof Advisors and advanced key technical aspects such as [indiscernible] and film durability.

Our customers remain highly engaged and we're working closely with them to align product capabilities with their evolving expectations. For large area devices, our target is to bring this technology to production within the next 24 months.

Turning to VOXX. Now that we've completed our first full quarter working alongside their teams, we're focused on gaining a deeper understanding of their product lines, cost structures and operational opportunities. The various technology and product platforms this acquisition brings, like iris-based biometrics and the Premium Audio group, will create some new and unique product opportunities, and we're excited to engage into these areas going forward. We've taken a deliberate approach to not rush the integration so that we can ensure alignment across departments.

As with our core Gentex technologies, we're focused on balancing quality, cost, performance and design, and I remain optimistic that our ability to enhance each of these metrics across our expanded portfolio. Finally, we're excited to announce that we began shipments of our new place product line through a major big box retail partner during the quarter. Place is a suite of advanced multifunctional smoke and carbon on oxide alarms designed to elevate home safety, comfort and security through room specific intelligence.

The system is managed via an intuitive mobile app and features an industry-first low-frequency sounder engineered to improve alarm effectiveness for deep sleepers, children and individuals with hearing impairment. It also aligns with emerging safety standards, including updated residential codes recently adopted in states like California. As a long-standing leader in commercial fire protection and sensing technologies, the launch of Place marks a significant milestone in our strategy to bring cutting-edge accessible home safety solutions directly to consumers and further expand Gentex's presence in the rapidly growing smart home market.

Gentex is an innovation-driven technology company. Our focus on R&D over the past several years has enabled us to generate a strong pipeline of both automotive and nonautomotive products and technologies, and we're excited about the potential to have to help drive our growth into the future.

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

Thanks, Neil. Our light vehicle production forecast for the third quarter and the remainder of the year is based on the mid-July 2025 S&P Global Mobility outlook for North America, Europe, Japan, Korea and China. For the third quarter of 2025, global light vehicle production is expected to be relatively flat compared to the third quarter of last year, while light vehicle production in our primary markets is projected to be down approximately 1% for the quarter.

In the fourth quarter, global production is expected to decline by approximately 6% with similar declines anticipated for our primary markets. For the full year 2025, light vehicle production in our primary markets is now expected to be down 3% year-over-year with North American production projected to fall by approximately 4% compared to last year. Based on this updated production outlook, our first half performance, reduced demand in China due to the recently implemented counter tariffs and the expected contribution from the VOXX acquisition, we are revising our full year 2025 guidance. This updated guidance reflects the anticipated impact of all known tariffs effective as of today. We now expect consolidated revenue, including Box to be in the range of $2.44 billion and $2.61 billion, which is higher than our previous estimate of $2.15 billion and $2.32 billion without VOXX.

Revenue from Gentex's primary markets is expected to be in the range of $2.1 billion and $2.2 billion. Revenue from the China market is projected at $100 million to $125 million and box revenue is estimated to contribute between $240 million to $280 million. Consolidated gross margin, including VOXX, is expected to be between 33% and 34%. Core Gentex without Fox is now expected to be between 34% and 34.5%, and which is a significant improvement from our prior range of 33% to 34%.

VOXX gross margin is anticipated to be in the range of 27% to 29%. Consolidated operating expenses, excluding severance, are expected to be between $370 million to $390 million. Core Gentex operating expenses are expected to remain unchanged at $300 million to $310 million. VOXX operating expenses are projected to be between $70 million and $80 million, excluding severance. Our effective tax rate is now expected to be in the range of 16% to 17% and versus our previous estimate of 15% to 17%. Capital expenditures remain unchanged at $100 million to $125 million for the year.

And lastly, consolidated depreciation and amortization is expected to be between $91 million and $98 million. This includes $90 million to $95 million for Gentex and $1 million to $3 million for Box. The second quarter began with a flurry of activity that has not slowed down. We closed the VOXX acquisition on April 1 and then move very quickly into a chaotic period of global trade uncertainty that lasted for the entire quarter and remains unresolved. It was nevertheless a very productive quarter as we continue to make progress on our path toward improved profitability.

Our teams are performing at a very high level, and our operational efficiency is improving significantly versus the same time last year. These improvements played a key role in driving strong revenue and profitability improvements despite revenue reductions in the domestic China market and the lower-than-expected light vehicle production in our primary markets. Over the next several quarters, the company will continue executing the margin improvement initiatives that are targeted to get the core margin profile in line with our long-term target of 35% to 36%. We are working on those targets -- while we are working on those targets, we are also working with the VOXX team to ensure the combined organization is appropriately structured to support long-term profitability and shareholder value.

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

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

Steve, maybe if we could start with just the underpinnings of gross margin, certainly, I think one of the big stories this quarter. And just curious to get your thoughts on the factors that are now within your controls, we're starting to see the gross margin improvement efforts internally really showing up in the P&L and continuing to work on that versus some of the uncertainty that's still out there, be it industry traction volume, [indiscernible]is kind of like you've turned the corner on getting your arms around the margin trend? Is that how you feel as well?

Yes. I'd say, I mean, honestly, if you go back over this, it's been a little over 2 years that we've been working on margin improvement really since the force electronics cost increases that we incurred post COVID, but since that time, there was a lot of other factors, obviously, the labor crisis and other factors on the industry that caused some problems. So it felt like over the last 2 years, every time we made progress, there was some type of headwind that we kind of reset the bar lower this quarter really starts to show the work that's been going on and it read through all the way through the income statement, which I think is a really positive sign to your point. And just kind of walk through that a little bit. The way we kind of categorize this, we'd say there was a negative in the quarter between pricing and tariffs of 50 to 100 basis points were kind of the negatives on margin. But then there were several positives, but the biggest ones were PPV. So our savings from our supply base, that was 100 to 150 basis points. And then labor and overhead savings were 150 to 200 basis points positive. So when you start looking at those trends, we don't see those reversing in the second half of the year. If you look at the pricing from the commodities that we buy, those should be locked in for the rest of the year. And then if you look at the labor and overhead, as long as revenues stay in this range, we should have a very efficient and our operational efficiencies are definitely showing the signs of improving. The steps that we look at in terms of predicting how are we going to do in the second half of the year.

And then just switching gears to China. Certainly, that's coming up in the guidance relative to now less bad tariff situation. But just curious how you're thinking about kind of strategically incrementally, I mean, clearly, the market is open again to some extent, but still a challenging market with respect to competitiveness, payment terms, et cetera?

Yes. I mean, for us, the biggest challenge in the China market is because almost all of those sales are exports out of the U.S. into the China market. the threat of those counter tariffs when they got over 100% basically had all of our customers in China, reconsidering what to do with our product. on a large degree, it's either some of it got resourced to local suppliers, but the vast majority of it just they punted on the technology itself and just removed it from the vehicle. And that's also in keeping 2 things. It's not just the tariffs. It's also the decrease in profitability for OEMs in the domestic China market. A lot of them, and this is well documented, obviously, in that industry, but there's been a lot of challenge with their profitability. And so some of the content and features are starting to get squeezed out from a product planning standpoint. And so we're relooking at that China market, trying to determine how do we find a way to grow there. In this market, the way and the current uncertainty as it relates to tariffs and counter tariffs. We haven't found that winning formula yet. But like we've always said, that market does tend to be a little lower than average margin profile. And so there is definitely some help there as that business shrunk. It's not obviously helpful on the revenue side, but it does help on the margin side.

Got it. And then lastly, just Hoping to get a little more commentary on larger devices midyear. So I guess what you're sharing today sounds like good news in terms of engineering unlocks and aligning to what customers are expecting. But for that view to bring production within the next 24 months, can there be some conservatism in there potentially?

There could be a little bit. The team has done an amazing job these last -- I'll say last 6 months of this first part of the year, getting processes improved to get the visual characteristics performance all the above on the product and technology to customer level that can really help us accelerate bringing it to market. So there could be -- I mean, 24 months, I think, is a pretty safe window. I think we'll -- we should be able to achieve something sooner than that. But there's a lot of variables that are still in line in achieving the product that the end customer is looking for. So still working really hard team is doing a phenomenal job, but feel pretty comfortable that within those 24 months, we should be able to get there.

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

A couple of questions, I guess on Box now that you've had another sort of quarter to adjust it and it's in the guide. Obviously, the EBIT is breakeven this year. It looks like it's a $100 million annualized OpEx run rate. How should we think about that level on a go-forward basis in terms of either synergies or cost savings that could come out as we think about the next couple of years?

Yes. If you look at the overall OpEx on the box side, we know there's some synergies in combining the 2 organizations. Part of that is you have 2 separately publicly traded companies going down to 1. We know that will bring about a lot of those. We also know as Neil's team engages with their engineering teams. There's definitely some overlap and some synergies that we think we can accomplish there. The same thing with the back office side of the house. We definitely know that working together, we can definitely find ways to be more efficient. One of them will take a little longer, but that's also ERP integrations. Our system, we believe, is a more efficient system that will help with the workload that's manually required today inside of the box system that we believe we can help with. So this is a 12- to 18-month process. but definitely want to get that OpEx on a percentage basis, probably won't get all the way to the Gentex level, but definitely closer to that.

Percent of sales.

On a percentage of sales basis, yes.

Yes, as a percent of sales. Okay. So over a couple of years, you think that's sort of a reasonable...

Yes, very much so.

Okay. And then just sticking on VOXX. Like I know with the audio side of the business, when you sort of talked when you first bought it, at the highest or tax uncertainty. There was maybe some decisions that had to be made about sourcing from China versus sort of other alternatives. And that seems more clear when tariffs were 145% or higher, maybe less clear at current levels. I know it's not like we have full tariff certainty yet, but do you have any sort of harder views of what you plan to do there? Or when you think a decision would be made?

Yes. So the audio team, so primarily [indiscernible] teams have done a phenomenal job of proactively getting sourcing decisions made reduce that risk. So in that case, in particular, now as a consumer electronics company, they have a lot more flexibility than an automotive supplier does for sure. And so a lot of those they've made -- already made decisions with the existing supply base of how to reduce the risk and exposure to tariffs out of the China market. And so they're actively pursuing relocation of manufacturing in their supply base currently. I would expect that within 12 months, basically that most of those transitions will have been handled already. And so to your point, it will be nowhere near that kind of 100% that was threatened and worrisome. They're obviously based on trade deals that are happening between the U.S. and the rest of the world. There will be some tariffs that will exist for the long period, but it will be significantly lower than what that 100% risk factor was.

Okay. Last one for me, just on sort of the core Gentex mirror business. I think like second quarter production did certainly come in better, that benefited from you. We're seeing some signs of softening schedules in the back half. do you think there was any -- like would you classify that as any sort of like pull forward or shifting in timing? Or I guess, how do you sort of view those the cadence of sort of production 2Q through the balance of the year?

Yes. If you look at Q2 and what we're seeing in Q3, we think Q3 is going to be very similar to Q2. I think the softening is really going to happen in Q4, and that's -- if you look at our primary markets, North America and Japan, Korea markets are the ones that are probably on a year-over-year basis in Q4 going to be down the most -- if you look at it, there was some pull forward a little bit. We did push back on that with our customers. In other words, what they were looking for was some shipments ahead of trade deadlines. We just worked with them very openly about, well, we could do that for you, but you're going -- we're going to incur a tremendous amount of cost on the overtime side. If that's something you need us to do, we'll do. But we got to talk about the expense associated with that. And most of our customers made decisions based on that delta cost basis of whether or not they wanted us to pull ahead schedules. So I don't think it was as much as what has been speculated. There definitely was a little bit, but I wouldn't say it was a significant portion of our revenue was a pull forward from the back half of the year into Q2.

Our next question comes from the line of James Picariello with BNP Paribas.

This is Jake on for James. Now that you've had a chance to have a full quarter owning VOXX really dig into the business. How do you think about what portion of VOXX revenue should be considered noncore could be divested versus what you guys definitely want to kind of fold into the core business?

Well, I think if you look at that total business, right, I mean it really breaks up into really 2 separate buckets, right, in terms of revenue. You have the premium audio. And part of the reason we were excited about premium audio is Neil referenced our place launch and that move into what we're trying to do is expand our HomeLink brand into home automation. And so both our place product and the [indiscernible] brands were part of that strategy of how do we combine that business and start to become a bigger player in the home automation space. and start to leverage our manufacturing capability in home electronics as well. And so I look at that and say that was really part of what we are really attracted to in the acquisition of FOX. The other 2 pieces are really a very similar piece of business to what we do. So you have an OEM piece of the business that VOXX on the electronic side handles and then they have an automotive aftermarket business. And so they've done distribution for us for a long period of time, and we're very familiar with what their distribution model looks like. As we sit here today, both of those are still interesting pieces of business for us where we look at that and say, hey, how can we know we can help improve the overall profitability of those businesses. And so we want to leverage our supply base on the cost reduction side from a bill of material standpoint, but then also look at how can we get those products to market quicker at a lower OpEx.

And then the one last piece is the biometrics, which we -- has always been part of our growth path for -- in the mirror growth, and we got -- we're getting our hands on the underlying algorithm through that acquisition. So the EyeLock piece is more of a longer-term strategy, but being able to own that technology was important, too.

All right. And then I just wanted to quickly follow up on China. How should we think about the first half, second half split? And then what does the run rate look like going forward into 2026 and beyond?

Yes. If you look at the first quarter was almost a normal quarter for us, really, in terms of exports into China. I think I was at $43 million, I believe, and then $33 million. I would say probably in the back half, you're probably more like $25 million per quarter roughly. And then after that, I mean, who knows? But if a deal gets done, that's sub-50% tariff rates, then I would say it's probably $75 million to $110 million book of business for us going forward versus the $240 million, $250 million we are anticipating this year.

Our next question comes from the line of Josh Nichols with B. Riley.

Great to see the margin and the revenue bump coming in here. I know -- I think last quarter, things have been shifting a lot with the tariff news and whatnot, mix was a big question, right, last quarter. And clearly, mix has become a pretty big tailwind for this quarter. You're seeing FDM other advanced feature mirrors move higher. I'm kind of curious like what's changed a little bit on what you're hearing from your customers for how they're focusing on mix for some of these higher value products and what continues to be a little bit of a challenging light vehicle production market.

Yes. I think overall, what you're seeing is kind of return to where we were a couple of years ago where OEMs were focused on profitability, knowing that overall light vehicle production isn't probably going to be what anyone would like -- but based on that, how do you -- that does tend to shift part of the upper half of the production volume into higher mix for us, that's good. At the same time, though, you'll see some OEC declines and that's obviously a negative on the margin profile side. And so there is some good news in there, but there's also -- there also is some decontenting and some focus on costs from an OEM standpoint that have negatively impacted our OEC volumes. And so it's not all positive tailwinds. We actually fought through some additional headwinds. And so the financial performance, given that full context was actually very, very good. When you look at losing that type of OEC volume on a year-over-year basis that is a pretty negative both operationally, but also on the over margin profile. And so while there is some definite trend towards FDM and increased take rates on advanced features, the outside portion of the book of business is definitely struggling a little.

And just to touch on like VOXX real quick. I think at a high level, you mentioned it, it's running around breakeven today. But when you look at the opportunity for margin expansion. I think the guidance for VOXX is like 27% to 29%. This year, you guys your core business is running the best-in-class numbers, 34-plus percent this year. Like how much do you think that those margins for Box could improve over the next, say, 12 to 24 months, as you mentioned, probably not to the level that you guys are operating at at the core business given the nature of it. But I'm just curious how much of that synergies and operating leverage is going to be coming through the gross margin line of VOXX.

Yes, I would say I don't know about -- given the industries, I think on the clip side, you have -- you can improve it in a quicker environment because of the cycle and how quickly those products are redesigned, and that tends to be reset the margin profile of consumer electronics quicker. And every 1 of those redesigns gives you an opportunity to improve bill. The automotive side, obviously takes a little longer. But I would say if you're looking out 2 years or so, I think 200 to 300 basis points of improvement in the gross margin is absolutely achievable.

And then last question for me. You touched on the dimmable glass a very big opportunity there. Good to see the progress the company has been making on that front. On driver monitoring, a little bit more near-term revenue opportunity. Any updates on that? I know you expect to do a little bit of revenue this year and -- but that could ramp to be more material over the '27 [indiscernible] frame?

Right. Yes, exactly. So we start our second customer will go to production here in the late Q3, early Q4 and then the additional -- actually, there's customer 2 will be late Q3, early Q4. Customer 3 will be late Q4, early Q1 of next year. And then the fourth one will also be early first half of 2026 with, as you said, volumes will be ramping up over the next couple of years, really 27 into 28 is when it becomes more significant or substantial.

[Operator Instructions] Our next question comes from the line of Ron Jewsikow with Guggenheim Securities.

Maybe starting on just the FDM growth, the increase in the guide. Any color on kind of what's driving the roughly 5% upside versus prior shipment expectations? I guess, want to unpack like I don't think it's probably light vehicle production volumes? Or is it take rates? Is it launches coming quicker than expected? Just kind of what you're seeing?

It's really a combination of both of those. I'd say the launch cadence and both take rates, I mean, we have line of sight to what this could be. I think we were a little bit more pessimistic on in the first half of the year than what actually happened. And so with that, we were -- like we had talked at the beginning of the year that we thought there was a little bit more risk factors there. given the strong first half of the year and the launches that Neil referenced in the second half, our confidence is starting to increase in us hitting those numbers, primarily based on what's already happened this year, but then also even with the lower production volumes, if you look at how we're laid out across those OEMs and what those take rates could look like, we think there's a little less risk factor now than what we thought at the beginning of the year. And so yes, I think take rates continue to trend positive and then the launches have not slowed down. And I think that's one of the big improvements in the back half of this year. OEMs are still committed to their product launch cycles, and we're hitting those.

Okay. That's super helpful color. And I want to maybe double tap or it might be triple or quadruple at this point on the China guide. I guess just -- what is the reason in your estimation that the China market is not bouncing back, I think, post tariff relief to to kind of pre-tariff levels. Is local competition filling the void? Was there kind of enough inventory in the channel already that OEMs were able to use that? Or is there kind of just de-contenting at certain as a result of tariffs?

Yes. If we are -- all 3 of them are true, but the single biggest one is decontenting. If you look at -- and this is really driven by the profitability of the OEMs in that market right now being squeezed very, very tight, a lot of them, and you've seen the announcements on negative margin profile for several OEMs and other struggling just to break even A lot of it has been driven by decontent and trying to get the cost per vehicle down. There has been a little bit of replacement on local competition, but I would say that's a much, much smaller percentage of the business loss in China is driven by that, more of it's driven by decontenting.

Okay. That's helpful color. And if I could just squeeze one more in. On the tariffs or the net tariff costs that weren't reimbursed this quarter, it seems like it was maybe $4 million to $5 million of net cost -- sorry.

It was about 2.7.

Okay. Do you expect those to be reimbursed in the second half? Or is that just kind of assumed as kind of leakage in the guide?

No. The team is very clear that our expectation is that we're going to get at least most, if not all, of that reimbursed.

Our next question comes from the line of David Whiston with Morningstar.

[indiscernible] In terms of the core company, getting that gross margin target of 35% to 36%, what major activities still need to be done to get to that level?

Right now, if mix stayed the same, I would tell you we're there. But we have additional things that we had kicked off that we're still working on. That includes some product redesigns, definitely it all started, if you go back to when the cost increases happen on the electronics piece, there were several things that we began working on. Some of those redesigns we're still working on that we haven't fully executed yet. There's obviously continuous improvement on the manufacturing piece, throughput, yields, scrap costs, those types of things. Also, one of the things that we always work on is replacement products, and that can mean different things, right? So some of our incoming bill materials are impacted by tariffs from different regions. So looking for alternative supply. And so we're constantly looking at those saying how do we derisk the business to make sure we get to this margin profile and stay at it for a longer period of time.

And then on your supply chain, how much exposure do you guys have to [ rarest ] and magnet materials from China upstream?

I

Would say on the rarest, there's quite a bit of exposure on the coating side for core Gentex, right? There's a lot on the precious metal side. and our coatings especially. Obviously, with the Clips acquisition, [indiscernible] became a much bigger piece of Magnus weren't a problem for us. pre-acquisition. But obviously, that is something that the [indiscernible] team and the premium audio team has been working really hard on to make sure that does not become an issue for them and their ability to deliver to their customer base. I would say they've done a really good job of derisking that supply as much as humanly possible in this environment. Not that it's not that it's completely risk-free, but right now, we feel like we have a very good buy of how to make sure to maintain supply of magnets for their speaker products.

And I'm currently showing no further questions at this time. I'd like to hand the call back over to Josh O'Berski for closing remarks.

Thank you, everyone, for your time today. As a reminder, we will be at SEMA in November, if any investors are interested in joining us, please reach out. But this concludes our conference call. Have a great weekend.

This concludes today's conference call. Thank you for your participation. You may now disconnect.