Q1 2024 Gentex Corp Earnings Call

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Operator: Good day, and thank you for standing by. Welcome to Gentex Corp's first quarter 2024 financial results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would like to hand the conference over to your speaker today, Joshua Bursky. Please go ahead.

Speaker Change: Good day and thank you for standing by welcome. The Gentex reports first quarter 2024 financial results Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session I'll need to press star one on your telephone you will then hear an automated message advising your hand is.

Speaker Change: To withdraw your question. Please press star wouldn't want again, please be advised today's conference is being recorded I would like to turn the conference over to your speaker today Joshua Brodsky. Please go ahead.

Joshua Berski: Good morning, and welcome to the Gentex Corporation first quarter 2024 earnings release conference call. I'm Joshua Berski, Gentex Director of Investor Relations, and I'm joined by Steve Downing, President and CEO, Neil Boehm, CTO, and Kevin Nash, Vice President of Finance and CFO. This call is live on the internet and can be reached by going to the Gentex Corporation website and ir.gentex.com.

Joshua Brodsky: Thank you.

Joshua Brodsky: Good morning, and welcome to the Gentex Corporation first quarter 2024 earnings release Conference call I'm, Joshua Barsky, Gentex director of Investor Relations and I'm joined by Steve Downing, President and CEO, Neil Boehm, CTO, and Kevin Nash, Vice President Finance and CFO.

Joshua Brodsky: This call is live on the Internet and can be reached by going to the Gentex website in the IR Gentex com all contents of this conference call are the property of Gentex Corporation and May not be copied published reproduced rebroadcast retransmitted transcribed or otherwise the distributor.

Joshua Berski: All contents of this conference call are the property of Gentex Corporation and may not be copied, published, reproduced, rebroadcast, retransmitted, transcribed, or otherwise redistributed. Gentex Corporation will hold responsible and liable any party for any damages incurred by Gentex Corporation with respect to any unauthorized use of the contents of this conference call. This conference call contains forward-looking information within the meaning of the Gentex Safe Harbor Statement included in the Gentex Report's first quarter 2024 financial results press release from earlier this morning and as always shown on the Gentex website. Your participation in this conference call implies consent to these terms.

Joshua Brodsky: Gentex Corporation will hold responsible or liable any party for any damages incurred by Gentex Corporation with respect to any unauthorized use of the contents of this conference call is.

Joshua Brodsky: This conference call contains forward looking information within the meaning of the Gentex Safe Harbor statement included in the Gentex reports first quarter 2024 financial results press release from earlier this morning, and as always shown on the Gentex website.

Joshua Brodsky: Your participation in this conference call implies consent to these terms.

Joshua Berski: Before we jump into our prepared remarks, I wanted to take a moment to address our upcoming annual shareholder meeting and the proxy vote. Glass-Lewis recently released their proxy voting recommendations for Gentex. However, their analysis lacked factual and logical accuracy on multiple fronts.

Speaker Change: Before we jump into our prepared remarks, I wanted to take a moment to address our upcoming annual shareholder meeting and the proxy vote.

Speaker Change: <unk> has recently released their proxy voting recommendations for Gentex.

Speaker Change: Our analysis lacked factual and logical accuracy on multiple fronts I would like to briefly address a few of these items.

Joshua Berski: Regarding board oversight of cybersecurity and human capital, both of these items are detailed in our proxy. Oversight for these functions is part of the audit committee's listed duties. They are included on page 12 for cybersecurity and page 18 for human resources.

Speaker Change: Regarding board oversight of cyber security and human capital. Both of these items are detailed in our proxy oversight for these functions are part of the audit committee's lifted duty. They are included on page 12 for cyber security and page 18 for human resources.

Joshua Berski: Regarding our company's reported percentages of racial and ethnic minorities on the board, we follow NASDAQ's guidelines for disclosure. This information is included on our website in the board of directors section and at ir.gentex.com and also included each year in the back of our annual report. Regarding the recommendation to vote against our nominating and Corporate Governance Committee Chair, Ms. Leslie Brown, due to a lack of female representation on the board, we encourage shareholders to ignore glass. Since 2016, when Ms. Brown joined our board as our first female board member in the company's history, Gentex has continued to identify and nominate qualified, capable, intelligent thought leaders to our board.

Speaker Change: Regarding our company reported percentages of racial and ethnic minorities on the board we follow Nasdaq's guidelines for disclosure. This information is included on our website in the board of directors section at.

Speaker Change: At IR Dot Gentex Dot Com and also included each year in the back of our annual reports.

Speaker Change: Regarding the recommendation to vote against our nominating and corporate governance Committee chair Ms. Redwood Brown due to a lack of female representation on the board, we encourage shareholders to ignore glass Lewis since 2016, when Ms. Leslie Brown joined our board as our first female board member in the company's history. Gentex has continued to identify and nominate qualified capable intelligent thought leader.

Joshua Berski: In this process, we have added seven new board members to our board, and the new director nominee, Dr. Bill Pink, will be our eighth new board member if elected in this year's election. Each of these new members, and our current new director nominee, have exemplary backgrounds, capabilities, and experience. Of these new members, two have improved the board's gender diversity, and three, including Dr. Pink, if elected, have improved the board's racial diversity.

Speaker Change: To our board in this process, we have added seven new board members to our board and the New director nominees Dr. Bill Pink will be our eighth New board member effectiveness years ago.

Speaker Change: Each of these new members and our new director nominee exemplary backgrounds capabilities and experience.

Speaker Change: Of these new members to have improved the board's gender diversity at three including Dr. Pankaj selected have improved the board's racial diversity, if we assume that all of our director nominees will be elected as identified in the proxy. This means that five of our last eight member additions will have improved diversity. We believe the work Miss Brian is doing as evidenced by the sustained growth and diversity on our board.

Joshua Berski: If we assume that all of our director nominees will be elected as identified in the proxy, this means that five of our last eight member additions will have improved diversity. We believe the work Ms. Brown is doing, as evidenced by the sustained growth in diversity on our board, is indicative of her performance and the company's progress. Glass-Lewis's recommendation to vote against a female board member because there are not enough female board members is as illogical as it sounds.

Speaker Change: Is indicative of our performance and the Companys progress glass Lewis his recommendation to vote against or female board member because there are not enough female board members is as logical as it sounds we hope the glass Lewis updates their policies to consider the chairs gender in this process as well as the progress we've made as a company toward increasing diversity on our board.

Joshua Berski: We hope that Glass-Lewis updates their policies to consider the chair's gender in this process, as well as the progress we've made as a company toward increasing diversity on our board. I would welcome any calls with investors who use Glass-Lewis for their proxy voting recommendations, and I'm happy to clarify Gentex's position on items contained within these reports. I will now hand the call over to Steve Downing for our prepared remarks.

Speaker Change: Welcome any calls with investors, who use glass Lewis for the proxy voting recommendations and I'm happy to clarify John Texas position on items contained within these reports.

Speaker Change: I will now hand, the call over to Steve Downing for our prepared remarks, Steve.

Steven R. Downing: Thanks Josh, we got that out of the way. For the first quarter of 2024, net sales increased 7% versus last year to $590.2 million, despite the fact that actual light vehicle production declined by 3% in our primary market. It's also important to note that light vehicle production declined from the beginning of the quarter forecast, which resulted in revenue levels being approximately $20 million lower than our original expectations. Despite the lower than expected light vehicle production, revenue for the quarter was not only a company record, but also represented a 10% outperformance versus the underlying market.

Steven R. Downing: Thanks, Josh we got that out of the way.

Steven R. Downing: For the first quarter of 2024, net sales increased 7% versus last year to $592 million. Despite the fact that actual light vehicle production declined by 3% in our primary markets.

Steven R. Downing: It's also important to note that light vehicle production declined from the beginning of quarter forecast, which resulted in revenue levels being approximately $20 million lower than our original expectations.

Steven R. Downing: Despite the lower than expected light vehicle production revenue for the quarter was not only a company record, but also represented a 10% outperformance versus the underlying market.

Steven R. Downing: The revenue growth in the first quarter was driven by strong content growth because of higher launch rates and increased take rates of our full-display mirrors and other advanced features, as well as strong growth in our outside auto-dimming mirror business, which has been the case for the last several quarters. The work we have been executing to increase our total number of features, including investments in additional electronic technologies, is beginning to provide additional revenue growth opportunities while de-risking the business by reducing our dependence on light vehicle production.

Steven R. Downing: The revenue growth in the first quarter was driven by strong content growth because of higher launch rates and increased take rates of our full display mirrors and other advanced features and strong growth in our outside auto dimming mirror business, which has been the case for the last several quarters.

Steven R. Downing: The work we have been executing to increase our total number of features including investments in additional electronic technologies is beginning to provide additional revenue growth opportunities while de risking the business by reducing our dependence on light vehicle production.

Steven R. Downing: For the first quarter of this year, the gross margin was 34.3%, which was an increase of 260 basis points versus the first quarter of last year. The increase was the result of raw material cost reductions, higher sales levels, customer price changes made after the first quarter of 2023, and manufacturing-related efficiencies. We continue to make very good progress on our margin recovery plan that we estimated would take until the end of 2024 to complete. However, when compared to the fourth quarter of 2023, the gross margin declined by 20 basis points.

Steven R. Downing: For the first quarter of this year. The gross margin was 34, 3%, which was an increase of 260 basis points versus the first quarter of last year.

Steven R. Downing: The increase was the result of raw material cost reductions higher sales levels customer price changes made after the first quarter of 2023 and manufacturing related efficiencies.

Steven R. Downing: We continue to make very good progress on our margin recovery plan that we estimated would take until the end of 2024 to complete.

Steven R. Downing: When compared to the fourth quarter of 2023, the gross margin declined by 20 basis points. However, it is important to note that during the fourth quarter of last year. There was approximately 50 basis points of gross margin benefit stemming from onetime customer cost recoveries.

Steven R. Downing: However, it is important to note that during the fourth quarter of last year, there was approximately 50 basis points of gross margin benefit stemming from one-time customer cost recovery. Additionally, the gross margin was in line with our expectations despite revenue levels that came in below the beginning of the quarter forecast. Further improvements in gross margin that we have targeted for the rest of this year are dependent on sales levels, product mix, raw material cost reductions, and further efficiencies in manufacturing. We remain focused and confident in the Gross Margin Recovery Plan that we established last year and will continue to execute throughout the remainder of this year.

Steven R. Downing: Additionally, the gross margin was in line with our expectations. Despite revenue levels that came in below that beginning of quarter forecast.

Steven R. Downing: Further improvements in gross margin that we have targeted for the rest of this year are dependent on sales levels product mix raw material cost reductions and further efficiencies in manufacturing.

Steven R. Downing: We remain focused and confident in the gross margin recovery plan that we established last year and will continue to execute throughout the remainder of this year.

Kevin C. Nash: Operating expenses during the first quarter were $72.9 million, compared to operating expenses of $61.5 million in the first quarter of last year. The increase in operating expenses is primarily due to engineering staffing and related professional fees, as well as the addition of the e-site engineering and sales teams after the acquisition. Our operating expenses are trending in line with our expectations for the full year, with increases primarily focused on R&D. Operating expenses are expected to continue at the current pace, with some additional growth forecasted in the second half of this year, as we continue to invest in new products and technologies, new business awards, and VAVE initiatives for cost optimization of our bill of materials.

Steven R. Downing: Operating expenses during the first quarter were $72 $9 million compared to operating expenses of $61 $5 million in the first quarter of last year.

Steven R. Downing: The increase in operating expenses are primarily due to engineering staffing and related professional fees as well as the addition of the ESI engineering and sales teams after the acquisition.

Steven R. Downing: Our operating expenses are trending in line with our expectations for the full year with increases primarily focused on R&D.

Steven R. Downing: Operating expenses are expected to continue at the current pace pace with some additional growth forecasted in the second half of this year.

Steven R. Downing: As we continue to invest in new products and technology is new business Awards.

Steven R. Downing: Initiatives for cost optimization of our bill of materials.

Kevin C. Nash: As a result of the higher sales levels and increased gross profit, income from operations for the first quarter of 2024 increased 14% to $129.3 million. Net income increased 11% to $108.2 million, and earnings per diluted share increased 12% to $0.47 per share. I will now hand the call over to Kevin for some further financial details.

Steven R. Downing: As a result of the higher sales levels and increased gross profit income from operations for the first quarter of 2024 increased 14% to $129 $3 million.

Steven R. Downing: Net income increased 11% to $108 2 million and earnings per diluted share increased 12% to <unk> 47 per share.

Steven R. Downing: I will now hand, the call over to Kevin for some further financial details. Thanks, Steve.

Kevin C. Nash: Automotive net sales in the first quarter increased by 7% to $577.6 million, despite a reduction in auto dimming mirror unit shipments of 2% for the quarter and light vehicle production in our primary markets declining by 3% compared to the first quarter of 2023. Other net sales in the first quarter were $12.6 million compared to $13.3 million in the first quarter of 2023. This was driven by a $2.5 million decrease in fire protection sales, which was partially offset by a $1.8 million increase in dimmable aircraft window sales compared to the first quarter of last year. share repurchases.

Kevin C. Nash: The motive net sales in the first quarter increased by 7% to $577 6 million. Despite a reduction in auto dimming mirror unit shipments of 2% for the quarter and light vehicle production in our primary markets declining by 3% compared to the first quarter of 'twenty three.

Net sales in the first quarter were $12 6 million compared to $13 3 million in the first quarter of 'twenty. Three this was driven by a $2 $5 million decrease in fire protection sales, which was partially offset by a $1 $8 million increase in demo aircraft windows sales compared to the first quarter of last year.

Kevin C. Nash: During the first quarter, we repurchased 1.2 million shares of common stock at an average price of $35.84. As of March 31, 2024, the company has approximately 14.7 million shares remaining available for repurchase under the previously announced plan. We remain committed to repurchasing additional shares in support of our capital allocation strategy, but share repurchases will vary from time to time and will take into account macroeconomic issues, market trends, and other factors we deem appropriate.

Kevin C. Nash: Share repurchases during the first quarter, we repurchased one 2 million shares of common stock at an average price of $35 84.

Kevin C. Nash: And as of March 31 of 24, the company has approximately $14 7 million shares remaining available for repurchase from the previously announced plan.

Kevin C. Nash: We remain committed to repurchase additional shares in support of our capital allocation strategy.

Kevin C. Nash: Share repurchases will vary from time to time, and we will take into account macroeconomic issues market trends and other factors, we deem appropriate.

Kevin C. Nash: Looking at the balance sheet, the balance sheet comparisons mentioned today are as of March 31st, 24 and compared to December 31st, 23. Cash and cash equivalents were $249 million compared to $226.4 million. Short-term and long-term investments combined were $311 million, up from $299.1 million, which includes fixed income investments, as well as the company's equity and cost measures. The cost receivable was $341.6 million, up from $321.8 million due to the higher level of sales during the first quarter.

Kevin C. Nash: Looking at the balance sheet the balance sheet comparisons mentioned today are as of March 31, 24, and compared to the December 30, 123, cash and cash equivalents were $249 million compared to $226 4 million.

Kevin C. Nash: Short term and long term investments combined with $311 million up from $299 1 million.

Kevin C. Nash: Which includes fixed income investments as well as the company's equity and cost method investment.

Kevin C. Nash: Accounts receivable was $341 6 million up from $321 8 million due to the higher level of sales during the first quarter.

Kevin C. Nash: Inventories were $436.6 million, up from $402.5 million, and accounts payable increased to $191.8 million from $184.4 million. Looking at the preliminary cash flow items, first quarter 2024 cash flow from operations was $129.9 million compared to $120.9 million in the first quarter of last year.

Kevin C. Nash: Inventories were $436 6 million up from $402 5 million.

Kevin C. Nash: And accounts payable increased to $191 8 million from $184 4 million.

Kevin C. Nash: Looking at the preliminary cash flow items first quarter 2024 cash flow from operations was $129 9 million.

Kevin C. Nash: Compared to $120 9 million in first quarter of last year.

Neil Boehm: CapEx for the first quarter was $31.9 million compared to $42.8 million in the first quarter of 2023, and depreciation and amortization was $24 million for the first quarter compared with $24.7 million for the first quarter of last year. I'll now hand the call over to Neil for a product update. Thank you, Kevin.

Kevin C. Nash: Opex for the first quarter was $31 9 million compared to $42 8 million in the first quarter of 'twenty three.

Kevin C. Nash: Appreciate it and amortization was $24 million for the first quarter compared with $24 7 million for the first quarter of last year.

Kevin C. Nash: I'll hand, the call over to Neil for a product update. Thank you Kevin in the first quarter of 2024, there were 31 net new nameplate launches of our interior and exterior auto dimming mirrors and electronic features.

Neil Boehm: In the first quarter of 2024, there were 31 net new nameplate launches of our interior and exterior auto-dimming mirrors and electronic features. This is the highest first-quarter launch rate for the company since 2015, and over 60% of these net launches were advanced features. For the advanced features in the quarter, the full display mirror, home link, and outside auto-dimming mirrors led the way. Now for a full display mirror-up. We're excited to announce our 16th OEM customer for full display mirrors, Polestar. Our full display and your shipments to Polestar are for the Polestar 4 vehicle, which will be available in all of our major markets globally.

Neil Boehm: This is the highest first quarter launch rate for the company since 2015 and over 60% of these net launches were advanced features.

Neil Boehm: For the advanced features in the quarter full display mirror homelink and outside auto dimming mirrors led the way.

Neil Boehm: Now for our full display mirror update.

Neil Boehm: We're excited to announce our 16th OEM customer for full display mirror Pollstar are.

Neil Boehm: Our full display mirror shipments to pollstar for the Pollstar for vehicle, which will be available in all of our major markets globally.

Neil Boehm: The addition of this OEM customer helps to further demonstrate the global appeal of this technology as well as its acceptance on different vehicle architectures.

Neil Boehm: In addition to the new OEM customer launch, we've seen great growth and expansion of the technology at our existing customers.

Steven R. Downing: The addition of this OEM customer helps to further demonstrate the global appeal of this technology, as well as its acceptance on different vehicle architectures. In addition to the new OEM customer launch, we have seen great growth and expansion of the technology at our existing customers. We are currently shipping full display mirrors on over 110 nameplates globally, and we are confident in our 2024 FDM shipment guidance of shipping an incremental 500,000 FDM units above the 2023 unit shipment.

Neil Boehm: We are currently shipping full display mirror on over 110 nameplates globally, and we are confident in our 2024 FTM shipment guidance of shipping an incremental 500000 <unk> units above the 2023 unit shipments.

Neil Boehm: Also in 2024, we expect to announce shipping full display mirror to at least one additional new OEM customer.

Neil Boehm: Calendar year 2024 has started off as an extremely busy launch here. The Gentex project and program teams are working hard to prepare the automotive and non automotive products for production.

Steven R. Downing: Also in 2024, we expect to announce shipping full display mirrors to at least one additional new OEM customer. Calendar year 2024 started off as an extremely busy launch year. The Gentex project and program teams are working hard to prepare the automotive and non-automotive products for production, while the operations team prepares to build and shift these exciting technologies. We're excited about the continued growth we're seeing with our technologies and appreciate all the hard work and dedication that the team at Gentex is putting in to ensure we execute flawlessly.

Neil Boehm: The operations team prepares to build and ship these exciting technologies.

Neil Boehm: We're excited about the continued growth, we're seeing with our technologies and appreciate all the hard work and dedication of the team at Gentex is putting in to ensure we execute flawlessly.

Neil Boehm: Also while we are launching a lot of products and technologies, we are continuing to evaluate opportunities to reduce the bill of material of existing programs as well as execute on the <unk> launches. We currently have in process.

Neil Boehm: These changes are critical for our margin recovery and stabilization plan, especially as we move into 2025.

Steven R. Downing: Also, while we're launching a lot of products and technologies, we are continuing to evaluate opportunities to reduce the bill of materials of existing programs, as well as execute on the VAV launches we currently have in process. These changes are critical for our margin recovery and stabilization plan, especially as we move into 2025. I'll now hand the call back over to Steve for guidance and closing remarks.

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

Steven R. Downing: Thanks Neil.

Steven R. Downing: The current forecast for light vehicle production for the second quarter of 2024 and full year 2024, and 2025 are based on the mid April 2020 for S&P Global mobility forecast for light vehicle production in our primary markets of North America, Europe, Japan, and Korea, plus China.

Steven R. Downing: The current forecast for light vehicle production for the second quarter of 2024 and full years 2024 and 2025 is based on the mid-April 2024 S&P Global Mobility Forecast for light vehicle production in our primary markets of North America, Europe, Japan, and Korea, plus China. Light vehicle production in these markets is expected to increase 3% for the second quarter of 2024 versus the same quarter last year. But when looking further at our primary markets, those regions are forecasted to decline by 2% compared to the second quarter of 2023.

Steven R. Downing: Light vehicle production in these markets is expected to increase 3% for the second quarter of 2024 versus the same quarter last year.

But when looking further at our primary markets those regions are forecasted to decline by 2% compared to the second quarter of 2023.

Steven R. Downing: For calendar year 2020 for light vehicle production in our primary markets plus China is forecasted to be flat when compared with light vehicle production for the prior year, but is expected to be down 1% when comparing only or primary markets.

Steven R. Downing: For calendar year 2024, light vehicle production in our primary markets, plus China, is forecasted to be flat when compared with light vehicle production for the prior year, but it is expected to be down 1% when compared only with our primary markets. Light vehicle production for calendar year 2025 in our primary markets plus China is forecasted to increase by 2% versus calendar year 2024, but it is expected to be flat when comparing only our primary markets. Given these production volume estimates, we are making no changes to our previously provided guidance for 2024.

Steven R. Downing: Light vehicle production for calendar year, 2025, and our primary markets plus China is forecasted to increase by 2% versus calendar year 2024, but is expected to be flat when comparing only or primary markets.

Steven R. Downing: Given these production volume estimates, we are making no changes to our previously provided guidance for 2024.

Steven R. Downing: Revenue for the year is expected to be between $2 45, and $2 $55 billion.

Steven R. Downing: Gross margins for the year are expected to be between 34% and 35%.

Steven R. Downing: Revenue for the year is expected to be between $2.45 and $2.55 billion. Gross margins for the year are expected to be between 34 and 35 percent. Operating expenses are expected to be between $295 and $305 million. Our estimated annual tax rate is forecasted to be between 16 and 18 percent.

Operating expenses are expected to be between $295 and $305 million.

Steven R. Downing: Our estimated annual tax rate is forecasted to be between 16 and 18%.

Steven R. Downing: Capital expenditures are expected to be between 225, and $250 million and depreciation and amortization is forecasted to be between 95 and $105 million.

Steven R. Downing: Additionally, based on the company's current forecast for light vehicle production for calendar year 2025, the company still expects calendar year 2025 revenue of approximately $2 65 to $2 $75 billion.

Steven R. Downing: Capital expenditures are expected to be between $225 and $250 million, and depreciation and amortization is forecasted to be between $95 and $105 million. Additionally, based on its current forecast for light vehicle production for calendar year 2025, the company still expects calendar year 2025 revenue of approximately $2.65 to $2.75 billion. We are on pace for record-setting revenue in 2024 and 2025, with much of that growth being driven by the expansion of our product content, including advanced feature growth and new electronic technology.

Steven R. Downing: We are on pace for a record setting revenue in 2024, and 2025 with much of that growth being driven by expansion of our product content, including advanced feature growth and new electronic technologies.

Steven R. Downing: The outgrowth versus the market demonstrates that our product strategy is succeeding with our customers and consumers and we are excited to see several of the new technologies that we've invested in over the last several years begin to generate revenue and profitability for the company.

Steven R. Downing: Revenue outperformance has been exciting to see but I'm also very pleased with our progress toward improved profitability while.

Steven R. Downing: The outgrowth versus the market demonstrates that our product strategy is succeeding with our customers and consumers, and we are excited to see several of the new technologies that we have invested in over the last several years begin to generate revenue and profitability for the company. Revenue outperformance has been exciting to see, but I'm also very pleased with our progress toward improved profitability. While a tremendous amount of work remains to be done this year as we execute additional cost improvement initiatives, we remain confident in our ability to accomplish our plan of reaching a 35-36% gross margin range by the end of 2024. That completes our prepared comments for today. We can now proceed to questions. Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 1.

Steven R. Downing: While a tremendous amount of work remains to be done this year as we execute additional cost improvement initiatives, we remain confident in our ability to accomplish our plan of reaching a 35% to 36% gross margin range by the end of 2024.

Speaker Change: That completes our comp prepared comments for today. We can now proceed to questions. Thank you ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone. If your question has been answered your question with yourself from the queue. Please press star one again, we will pause for a moment, while we compile the Q&A roster.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Yes.

Our first question comes from Luke junk with Baird. Your line is open.

Luke L. Junk: Hi, good morning, Thanks for taking my questions.

Luke L. Junk: Maybe if we could start with just any updated indicators for full year FTM volumes I. Appreciate it you are reiterating the guidance that you provided previously, but just hoping we can maybe.

Operator: Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 1-1 on your telephone. If your question has been answered or you wish to remove yourself from the queue, please press star 1-1 again. We will pause for a moment while we compile our Q&A list. Our first question comes from Luke Junk with Bayard. Your line is open.

Luke L. Junk: Talking finer detail on any changes you're seeing.

Luke L. Junk: Great set of customers, which it seems like into that and then back of the envelope first quarter numbers seemed.

Luke L. Junk: Very strong just trying to reconcile that with what it might mean to the full year and any potential upside. Thank you.

Speaker Change: Yes, I would say on FTM volumes for the year were right in line with that initial beginning of the year forecast.

Luke L. Junk: Morning, thanks for taking my questions. Maybe we could start with just some updated indicators for full-year FDM volumes. Appreciate that you're reiterating the guidance that you provided previously, but just hoping we can maybe talk in finer detail on any changes you're seeing in take rates at customers, which it seems like you hinted at, and then, you know, back of the envelope, the first quarter numbers seemed very strong. Just trying to reconcile that with what it might mean to the full year and any potential upside. Thank you.

Speaker Change: If you look at take rates, we kind of had a pretty good indication at the end of last year, what take rates for this year, we're going to be.

Speaker Change: If anything we feel like we were probably a hair conservative is we tend to be when we estimate.

Speaker Change: Launch, especially launch take rates are a little more difficult to predict than mid cycle take rates.

Speaker Change: Look at how many how long we've been in production now with MDM, and which Oems who have been on there with we feel pretty comfortable what's happening. This year, obviously the back half of the year always has a little bit of risk as it relates to interest rates and what's going on economically.

Steven R. Downing: Yeah, I would say on FDM volumes for the year, we're right in line with that initial beginning of the year forecast. If you look at take rates, we kind of had a pretty good indication at the end of last year of what take rates for this year are going to be. You know, if anything, we feel like we were probably a hair conservative as we tend to be when we estimate launch rates, especially launch take rates, which are a little more difficult to predict than, you know, mid-cycle take rates.

Speaker Change: But we're off to such a shock such a strong start to the year, we feel really confident in our ability to hit those numbers for the year.

Speaker Change: And then switching gears to margins and just the.

Speaker Change: Gross margin walk from here, just trying to unpack how much lift if you will was in the first quarter margin from things that you're working on this year versus remaining areas of opportunity I guess, especially thinking of already negotiated supplier concessions based on my understanding some of them were in mechanics.

Steven R. Downing: If you look at how long we've been in production now with FDM and which OEMs we've been on there with, we feel pretty comfortable with what's happening this year. Obviously, the back half of the year always has a little bit of risk as it relates to interest rates and what's going on economically, but we're off to such a strong start to the year. We feel really confident in our ability to hit those numbers for the year.

Luke L. Junk: And then switching gears to margins and just the gross margin walk from here, just trying to unpack how much lift, if you will, was in the first quarter margin from things that you're working on this year versus remaining areas of opportunity, I guess, you know, especially thinking of already negotiated supplier concessions that, based on my understanding, are somewhat more mechanically rolling going forward. So yeah, just trying to square the one key margin versus the full year as well. Thank you.

Rolling going forward, just trying to square the <unk> margin versus the full year as well. Thank you.

Speaker Change: Yes so.

As you know a lot of the work in 2024 was going to be about customer price supplier price reduction. So that's probably one of the bigger benefits beneficiaries in the quarter. So if you look at all compared to the first quarter of last year.

Speaker Change: Raw material price reductions is about 150 basis points of improvement.

Speaker Change: Versus last year.

Speaker Change: Our manufacturing efficiencies so overhead.

Steven R. Downing: Yeah, so as you know, a lot of the work in 2024 is going to be about supplier price reduction. So that's probably one of the bigger beneficiaries in the quarter.

Speaker Change: Like there's about 100 125 basis points of improvement.

Speaker Change: You need to look at.

Speaker Change: Labor scrap and yield and that was probably 75 basis points of improvement.

Steven R. Downing: So if you look at, you know, compared to the first quarter of last year, raw material price reduction is about 150 basis points of improvement versus last year. Our manufacturing efficiencies, so overhead and the like, are about 100 to 125 basis points of improvement. We need to look at Labor, Scrap, and Yield.

Speaker Change: Freight and duty was 25 to 30 basis points, and then that was offset by about 100 basis points of pricing reductions to the customer until that gets you in the ballpark of kind of where we ended the quarter from a margin from 31, 7% to 34 three.

Speaker Change: And then Luca from Q1 now through Q4.

Steven R. Downing: That was probably 75 basis points of improvement. Freight and duty was 25 to 30 basis points. And then that was offset by about 100 basis points of pricing reductions to the customer. And so that gets you in the ballpark of kind of where we ended the quarter with a margin from 31.7 to 34.3. Yeah, and then Luke.

Speaker Change: We expect to get to the 35% to 36 is really driven by a couple of key areas number one is the growth in the business should provide some overhead leverage.

Speaker Change: Really the next biggest one is going to be focused on PPV. So when we heard of PPV, we talk about.

Speaker Change: What is the purchase price variance from the beginning of the year to end of the year that we're getting from our supply base.

Steven R. Downing: Yeah, and then Luke, from Q1 now through Q4, how we expect to get to 35 to 36 is really driven by a couple key areas. Number one is that growth in the business should provide some overhead leverage.

Speaker Change: First quarter is always a little thin, we have inventory leftover from prior year. So you don't get a full read through in Q1. So we would expect some margin tailwind from price reductions from the supply base and then on the manufacturing side Youre really looking at efficiencies and scrap overtime and yield loss that we expect to achieve throughout the year.

Steven R. Downing: Really, the next biggest one is going to be focused on PPV. So when we refer to PPV, we talk about what the purchase price variance is from the beginning of the year to the end of the year that we're getting from our supply base. First quarter is always a little thin.

Speaker Change: That is all very helpful. Thank you and then just.

Speaker Change: Smaller item nonoperating, but just other income swung to a <unk>.

Steven R. Downing: We have inventory left over from the prior year, so you don't get the full read-through in Q1. So we would expect some margin tailwinds from price reductions from the supply base. And then on the manufacturing side, you're really looking at efficiencies and scrap over time and yield loss that we expect to achieve throughout the year.

Speaker Change: <unk> this quarter, just what was going on there and what we should expect the rest of this year on that line. Thank you.

Speaker Change: Yes, that's really a combination of fair value adjustments of some of our tech investments and then mark to market adjustments of some of our.

Luke L. Junk: That is all very helpful, thank you. And then just a smaller item, non-operating, but just other income swung to expense this quarter, just what was going on there, and what we should expect the rest of this year in that line.

Speaker Change: More public investments, so that will be volatile a little bit as you go through new round of investments or again some of that stuff is subject to mark to market conditions.

Speaker Change: Got it I'll leave it there thank you.

Steven R. Downing: Yeah, that's really a combination of fair value adjustments on some of our tech investments and then mark-to-market adjustments on some of our more public investments. So that will be volatile a little bit as you go through new rounds of investments or, again, some of that stuff is subject to mark-to-market conditions.

Speaker Change: Thanks Luke.

Speaker Change: One moment for our next question.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Our next question comes from Ryan <unk>.

Ryan: Guggenheim Securities Your line is open.

Ryan: Yes, good morning team. Thanks for taking my question.

Ryan: Hey, Ron looking.

Ryan: Looking at North American mirror shipments specifically.

Luke L. Junk: Got it. I'll leave it there. Thank you. Please take a moment for our next question.

Ryan: Down 7% versus the same period last year is there some kind of timing comparison issue, we should be aware of or anything.

Ronald John Jewsikow: Our next question comes from Ron Yipsikow of Guggenheim Securities. Your line is open.

Ronald John Jewsikow: Yeah, good morning team. Thanks for taking my question.

Steven R. Downing: Looking at North American mirror shipments specifically, down 7% versus the same period last year. Is there some kind of timing comparison issue we should be aware of or anything else? I guess it's quite a big delta versus light vehicle production, just trying to get a sense of kind of what drove the unit shipment declines.

Speaker Change: Anything else I guess.

Ron: Right, a big Delta versus versus light vehicle production. So just trying to get a sense of kind of what drove the unit shipment declines.

Speaker Change: Yes, there's always a timing issue that exists anytime youre talking about market trends and what's happening and when youre shipping versus when they're getting deployed in inventory and then.

Speaker Change: Other timing issue I always I always caution everyone to think about too is imagine back 18 months ago. It started supply shortages happen. There was some stockpiling happening at OEM levels. So that we know there were some definitely some pull ahead from certain Oems who are trying to make sure. They had inventory in house and then obviously that shakes out later once they realize they may have over bought slightly but.

Steven R. Downing: Yeah, there's always a timing issue that exists anytime you're talking about market trends and what's happening, when you're shipping versus when they're getting deployed, and inventory. And then the other timing issue I always caution everyone to think about too is imagine back 18 months ago when supply shortages started, there was some stockpiling at OEM levels, so we know there was definitely some pull ahead from certain OEMs who were trying to make sure they had inventory in house, and then obviously, that shakes out later once they realize they may have overbought slightly.

Speaker Change: I think the real big issue and probably the primary reason why you saw that change is certain Oems in particular in the market were more impacted than had been more impacted given what's going on and so some of those Oems are struggling more than others. So I'd say, it's really more of a mix issue, even even more so than a timing issue okay.

Steven R. Downing: But I think the real big issue and probably the primary reason why you saw that change is that certain OEMs in particular in the market were more impacted and have been more impacted given what's going on. And so some of those OEMs were struggling more than others. So I'd say it's really more of a mixed issue even more so than the timing issue. Okay.

Speaker Change: Okay, Yes that makes perfect sense.

Speaker Change: On the 35% to 36% gross margin exit rate I guess in light of I think.

Speaker Change: Pretty strong first quarter gross margins.

Speaker Change: And they were in line with your expectations. Despite lower revenue based on based on your commentary. So I guess could you help us characterize the exit rate do you expect to touch 36 by the end of this year reported it on a quarterly basis and any color on on <unk>.

Ronald John Jewsikow: Okay, yeah, that makes perfect sense. And on the 35 to 36 percent gross margin exit rate, I guess in light of the pretty strong first quarter gross margins. Um, and they were in line with your expectations, despite lower revenue based on your commentary. So I guess, could you help us characterize the exit rate? Do you expect to touch 36 by the end of this year, reported on a quarterly basis? And any color on PPV that you expect to get from here as well would be helpful.

Speaker Change: <unk> that you expect to get from from here as well would be helpful.

Speaker Change: Yes, I don't think we will get above the 36 by the end of the year I think thats, probably more of a 'twenty five plan depending on growth rates in 'twenty five.

Speaker Change: I will say kind of mid point of that of that range is absolutely achievable by the end of this year. So if you look at to your point Ron If you look at where we started Q1 out it was better than we had initially anticipated.

Steven R. Downing: I don't think we'll get above the 36 by the end of the year. I think that's probably more of a 25 plan, depending on growth rates in 25.

Speaker Change: Given given whats going on despite the $20 million loss in revenue given given some of the OEM changes so.

Steven R. Downing: But I'd still say kind of the midpoint of that range is absolutely achievable by the end of this year. So to your point, Ron, if you look at where we started Q1, it was better than we had initially anticipated, given what's going on, despite the $20 million loss in revenue, given some of the OEM changes. So we feel really good about where we're sitting here. And in fact, sequentially, the margin actually improved from Q4 if you take out that one-time pickup in Q4 of last year.

Speaker Change: We feel really good about where we're sitting here and in fact sequentially. The margin actually improved from Q4, if you take out that onetime pickups in Q4 of last year, and so and with very little not a lot of help from the PPV side or from the supplier cost side in Q1, we feel really strongly that we should we should be sitting a midpoint of that range by.

Speaker Change: The end of this year.

Speaker Change: Perfect and if I could just sneak one more in Steve you called out in the release kind of your ability to move beyond the kind of auto CPB light vehicle production model.

Steven R. Downing: And with very little, not a lot of help from the PPV side or from the supplier cost side in Q1, we feel really strongly that we should be sitting at the midpoint of that range by the end of this year.

Steven R. Downing: Elaborate on that and I guess given that it was in the release should we.

Steven R. Downing: Interpret that as improved line of sight to any of these kind of new technologies.

Steven R. Downing: Yes, I think I think there's two there's two major points there number one is.

Ronald John Jewsikow: Perfect. And if I could just sneak one more in,

Steven R. Downing: As we started to invest in new technologies some of the partnerships that we form some of the acquisitions, we're starting to introduce new technologies into automotive that might have much higher asps.

Steven R. Downing: Steve, you called on the release kind of your ability to move beyond the kind of auto CPV light vehicle production model. Can you elaborate on that? And I guess given that it was in the release, should we interpret that as improved line of sight to any of these new technologies?

Steven R. Downing: That starts to eliminate obviously some of the risk factor associated with total light vehicle production, obviously, and if you're an automotive supplier you're never going to get away from that completely.

Steven R. Downing: Yeah, I think there's two major points there. Number one is, as we've started to invest in new technologies, some of the partnerships that we formed, some of the acquisitions, we're starting to introduce new technologies into automotive that might have much higher ASPs. That starts to eliminate, obviously, some of the risk factor associated with total light vehicle production. Obviously, if you're an automotive supplier, you're never going to get away from it completely, When your average product is a base auto dimming inside mirror at $20, obviously, you need to sell a whole lot of those in order to make an impact in total revenue, versus when we start talking about certain feature sets that have ASPs in the hundreds of dollar range, you can start to, just like FDM, you can really start to grow even if there's a negative trend in the industry.

Steven R. Downing: But when your average product as a base auto dimming inside mirror at 20 Bucks, obviously, you need to sell a whole lot of those in order to make an impact in total revenue versus when we start talking about certain feature sets that have asps in the hundreds of dollars range. You can start to just like FTM right. You can really start to grow even if there is a negative trend in the industry.

Steven R. Downing: So one of the focuses we've had as a company over the last several years are saying, hey, we really need to focus on making sure. We find dollar content that adds value to the to our customers and also to the consumer to try to eliminate some of that variability that happens that we know what's going to happen all the time in automotive light vehicle production and then beyond that a lot of the other tech investments have been focused.

Steven R. Downing: One of the focuses we've had as a company over the last several years is saying, hey, we really need to focus on making sure we find dollar content that adds value to our customers and also to the consumer to try to eliminate some of that variability that happens that we know is going to happen all the time in automotive light vehicle production. Then, beyond that, a lot of other tech investments have been focused on areas outside of the automotive industry.

Steven R. Downing: On areas outside of automotive so when we look about the place product launching on the <unk> acquisition. There's a lot of other technologies that we're going to be launching later this year early next year that we're excited about because we think there's some growth opportunities outside of the automotive segment.

Steven R. Downing: Yes.

Speaker Change: Thanks for taking my questions.

Speaker Change: Thanks, Rob Thanks, Sir one moment for our next question.

Steven R. Downing: When we look at the place product launch, the eSight acquisition, there's a lot of other technologies that we're going to be launching later this year, early next year that we're excited about because we think there are some growth opportunities outside of the automotive segment.

Speaker Change: Our next question comes from James <unk> with BNP Paribas. Your line is open.

James: Hi, good morning, everyone.

James: Good morning, My first question.

James: First question is just on your chip redesign efforts to what extent.

James: As Gentex already benefited from this and what actions are still to come potentially on this on that effort.

Ronald John Jewsikow: Yep, makes perfect sense. Thanks for taking my question. Thanks Rob.

Speaker Change: Yes from a from an overall chip designer redo of a product design, if we backup theres a couple of different versions so to make sure I'm answering it properly for you. So the redesigns back to component shortages all of that activity that wasn't about the cost reduction.

Operator: One moment for our next question. Our next question comes from James Picariello with BNP Paribas. Your line is open.

James Albert Picariello: My first question is just on your chip redesign efforts. To what extent has Gentex already benefited from this, and what actions are still to come in that effort?

Speaker Change: Pieces, we initiated some of the <unk> initiative designs.

Steven R. Downing: From an overall chip design or redo of a product design, if we back up, there are a couple different versions, so I want to make sure I'm answering it properly for you. So the redesigns back to component shortages, all of that activity, that wasn't about the cost-reduction VAV pieces. We initiated some of the VAV initiative designs early this year, at the end of last year, but we won't really see any pickup of that until we get into more like late, or early, 25, before you start seeing some of the benefits of that.

Speaker Change: Earlier this year at the end of last year, but we won't really see any pickup of that until we get into more like $25 825 before you start seeing some of the benefit of that so we are in progress of that we've got launches active and we will continue to go through that as we evaluate other designs that we can try to pull costs.

Speaker Change: Cost out of as well, yes, as a general rule. If you look at the end of 'twenty, three and say everything done before that on the redesign side was all about just trying to get components to make sure. We can make shipments everything that happened really at the end of 'twenty three and going forward is going to be more focused on <unk> activity.

Steven R. Downing: So we are in the process of that. We've got launches active, and we'll continue to go through that as we evaluate other designs that we can try to pull bomb costs out of as well. Yes, there's a general rule. If you look at

Speaker Change: Activity.

Speaker Change: Yes.

Speaker Change: Got it.

Speaker Change: And then as we think about.

Speaker Change: The China opportunity to really tap into that market just wondering.

Speaker Change: If there is a.

Steven R. Downing: Yes, there's a general rule. If you look at the end of 23 and say everything done before that on the redesign side was all about just trying to get components to make sure we could make shipments, everything that happened really at the end of 23 and going forward is going to be more focused on VAVE activities.

Speaker Change: A high level update.

Speaker Change: On your progress there and then just on Capex my follow on on Capex, you've got the range of $2 25 to $2 50 in the first quarter.

Speaker Change: $32 million came in pretty light toward that range, just curious what drove the timing there and what what investments look like for the rest of the year toward toward that range. Thanks.

James Albert Picariello: And then, as we think about the China opportunity to really tap into that market, just wondering, you know, if there's a high-level update on your progress there. And then, just on CapEx, my follow-on on CapEx, you've got the range of $225 million to $250 million in the first quarter. $32 million came in pretty light toward that range. Just curious, you know, what your thoughts are on the timing there and what your investments look like for the rest of the year toward that range. Yeah, so I would say on the...

Speaker Change: Yeah, So I would say on the Capex side I'll go in reverse order with yes, but if you look at Capex, yes. It definitely came in a little lighter than we anticipated that's really a timing issue more than anything from the time you place. The order you got actually receive the equipment. Obviously, we've got several large building projects underway. This year as well. So we think the capex will definitely be weighted towards the second half.

Steven R. Downing: Yeah, so I would say on the CapEx side, I'll go in reverse order with you. But if you look at CapEx, yeah, it definitely came in a little lighter than we were anticipating. That's really just a timing issue more than anything.

Speaker Change: For the year for sure.

Speaker Change: The plan is to make up that ground and try to get the footprint in place and the capital equipment in place, especially for some of the larger projects we've been investing in.

James Albert Picariello: From the time you place the order, you have got to actually receive the equipment. Obviously, we got several large building projects underway this year as well. So we think the CapEx will definitely be weighted towards the second half of the year for sure. The plan is to make up that ground and try to get the footprint in place and the capital equipment in place, especially for some of the larger projects we've been investing in.

Speaker Change: Looking at some of those technologies, especially large area devices. They are cap heavy capex heavy projects and so we know theyre going to draw that engineering effort prototype effort. All of those are going to require some heavy capex. So we're excited for the opportunity in the market because we believe there is a lot of interest in those technologies.

James Albert Picariello: If you start looking at some of those technologies, especially large area devices, they are CapHeavy, CapEx-heavy projects. And so we know they're going to require that engineering effort, prototype effort, all those are going to require some heavy CapEx. So we're excited about the opportunity in the market because we believe there is a lot of interest in those technologies. And we will be investing in those probably a little more towards the back half of this year.

Speaker Change: And we will be investing in those probably even a little more towards the back half of this year.

On the China front, yes, obviously the market continues to grow I mean, it's amazing when you look at total light vehicle production seven years ago, what what percentage of that was done in China versus what it is today.

Speaker Change: Obviously, we know there's a lot of opportunity there right.

Speaker Change: Right now our primary focus and where our wins are coming from our base auto dimming and outside auto dimming on the advanced feature side, we do have a couple at the <unk> projects as well there the competitive side, though is the difficult side in China whenever you're importing a heavy electronic content, especially in a mirror and a mere form factor.

James Albert Picariello: On the China front, yeah, obviously, the market continues to grow. I mean, it's amazing when you look at total light vehicle production seven years ago and what percentage of that was done in China versus what it is today. Obviously, we know there's a lot of opportunity there, right? Right now, our primary focus and where our wins are coming from are base auto-dimming and outside auto-dimming. On the advanced feature side, we do have a couple FDM projects as well.

Speaker Change: The duties and tariffs that have increased a lot over the last seven years really start to limit our ability to grow at the rate we would like to so it's something that we're continually looking at and trying to make sure. We've got the right supply chain model Bill in place to help support and grow inside of that market.

James Albert Picariello: The competitive side, though, is the difficult side in China. Whenever you're importing heavy electronic content, especially in a mere form factor, the duties and tariffs that have increased a lot over the last seven years really start to limit our ability to grow at the rate we would like to. It's something that we're continually looking at and trying to make sure we've got the right supply chain model built in place to help support and grow inside of that market. Thanks, guys.

Bill Pink: Thanks, guys.

Speaker Change: Thanks, James I don't remember for our next question.

Speaker Change: Our next question comes from David Whiston with Morningstar. Your line is open.

Operator: Thanks James. One moment for our next question. Our next question comes from David Whiston with Morning Star. Your line is open.

David Whiston: Thanks, Good morning.

David Whiston: I guess you called out in the press release, some advanced feature growth beyond that.

David Whiston: Thanks, good morning. I guess you called out in the press release some advanced feature growth beyond FDM. I was just curious what features lately have been getting better take rates to drive that revenue outperformance.

David Whiston: I was just curious what features lately have been getting.

David Whiston: Is it better take rates to drive that revenue outperformance.

David Whiston: Yes, if you look at I mean really the features that we have internally that we've been talking about for a while that has really shown some strength as a combination of.

Steven R. Downing: Yeah, if you look at the features that we have internally that we've been talking about for a while that have really shown some strength as a combination of an FDM, obviously, DVR projects, ITM is back to producing good revenue, and HomeLink actually held up really well. Beyond that, you know, kind of what we're referencing are some of the newer technologies that we've shown at CES that we believe over the next several years are going to help drive growth, a lot of interest in driver monitoring and cabin monitoring.

Speaker Change: <unk> obviously.

Speaker Change: DVR projects ITM is back to producing good revenue Homelink actually has held up really well.

Beyond that kind of what we're referencing are some of the newer technologies that we've shown at CES that we believe over the next several years are going to help drive growth a lot of interest in driver monitoring in cabin monitoring.

Steven R. Downing: And a lot of the other kind of advanced features that we've shown at the CES show, obviously, are still starting to garner a lot of interest. But if you look at what's cool about those product launches is they're used in combination with existing mirror platforms. And we're usually able to pretty quickly add feature content to a vehicle by going through our current geography being the mirror location.

Speaker Change: And a lot of the other kind of advanced features that we've shown at the CES show, obviously are still starting to garner a lot of interest.

Speaker Change: But if you look at the what's cool about those product launches is there a using combination with existing mirror platforms.

Speaker Change: And we're able to usually pretty quickly add feature content into a vehicle by going through our current geography being the mere locations.

Steven R. Downing: Okay, and what international regions are driving exterior growth?

Speaker Change: Okay and.

Speaker Change: What international regions are driving exterior growth.

Steven R. Downing: So if you look at where we've been growing a lot on outside mirrors, we've had a lot of success, obviously, in Western Europe and Japan and Korea. Obviously, the other one, although not quite as big from a total volume standpoint, the penetration of our outside auto dimming into the Chinese market has also been growing very quickly.

Speaker Change: So if you look at if you look at where we've been growing a lot on the outside mirrors, we've had a lot of success, obviously in western Europe.

Speaker Change: And Japan and Korea, obviously, the other one although not as quite as big from a total volume standpoint, if you look at the penetration of our outside auto dimming enter the China market has also been growing very quickly.

David Whiston: And you mentioned some large building projects this year. You guys have already completed an exterior plant. Are you building another one?

Speaker Change: Okay, and you mentioned some large building projects. This year you guys had already completed and exterior plant are you building in Netherlands.

Steven R. Downing: We're building a new plant on our North Riley campus, and that one should be completed this year and ready for occupancy probably by mid-year. If you look at the other one, we made an announcement about a daycare center. That got delayed based on some regulatory support issues that we needed help with. So we'll be starting work on that here soon. And then we have a brand new distribution center that we have been working on for the last 12 to 18 months that we'll be getting ready for production this year as well.

Speaker Change: We're building a we're building a new plant on our North Riley campus.

And that one and that one will be that when it should be completed this year and ready for occupancy probably by mid year. If you look at if you look at the other one we had made an announcement about a daycare center.

Speaker Change: <unk> got delayed based on some regulatory support issues that we need to help with so we will be completing will be starting work on that here soon.

Speaker Change: And then we have a brand new distribution center that we that we had been working on really for the last 12 months to 18 months that will be going into product getting ready for production this year as well.

Steven R. Downing: And can you remind me what's going on in North Riley? So that'll be a combination of features.

Speaker Change: And can you remind me remind me whats going in northern Riley.

Speaker Change: So that'll be a combination of features theres going to be some R&D area inside of that building for a large area devices there'll also be expansion.

Steven R. Downing: So that'll be a combination of features. There's gonna be some R&D area inside of that building for large area devices. And there'll also be an expansion of inside auto dimming, as well.

Speaker Change: Inside auto dimming.

Speaker Change: As well.

Operator: One moment for our next question. Our next question comes from Mark Delaney with Goldman Sachs. Your line is open.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you David.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from Mark Delaney with Goldman Sachs. Your line is open.

Mark Trevor Delaney: Good morning and thanks for taking my questions. I hope you could speak a little bit more on the revenue cycle for the year. You spoke about some headwinds in the first quarter, and I'm hoping to better understand if you think that was purely due to customer program launch timing, or is there perhaps a sign that LVP for the year is perhaps shipping out a little bit lower than you previously expected? And maybe talk a little bit more broadly on how you see LVP by region and if you have any different opinions compared to where S&P is forecasting.

Mark Trevor Delaney: Hi, good morning, and thanks for taking my questions.

Mark Trevor Delaney: Hoping you could speak a little bit more on the <unk>.

Mark Trevor Delaney: Revenue cadence for the year, you spoke about some headwinds in the first quarter and I'm, hoping to better understand if you think that was purely due to customer program launch timing or is there perhaps a sign that <unk> for the year is perhaps shaping up to be a little bit lower than you previously expected and maybe talk a little bit more broadly on how you see RVP by region. If you have any different opinions compare.

Mark Trevor Delaney: Would you wear S&P is forecasting.

Steven R. Downing: Yeah, I would say there was definitely a little bit of pullback by OEMs that wasn't really expected. So the question, you know, the million-dollar question, obviously, is, is that a trend that's going to continue throughout the year, or is it more just a one-time occurrence? I think this year, just like the last couple years, we've been a little bit more bearish on S&P's projections, and I think that served us really well in terms of our forecast. We've been a little more conservative, and that's really kind of always trended in our favor.

Speaker Change: Yes, I would say there was definitely a little bit a little bit of pullback by Oems that wasn't really expected. So the question there are a million.

Speaker Change: Question, obviously is that a trend thats going to continue throughout the year or is it more just.

Speaker Change: Kind of a one time occurrence I think this this year just like the last couple of years, we've been a little bit more bearish on S&P's projections and I think that served us really well in terms of our forecast we've been a little more conservative and Thats really kind of always trended in our favor if.

Steven R. Downing: If you look at the regions, I think, you know, if you look at the growth throughout most of the year, China's kind of overperforming the rest of the market. So if you look at Western Europe, North America, especially, and then Japan, and Korea, you know, we see those kind of relatively flat, really, moving through the next 18 months. And so our forecast is really based on that type of a model. They're not over the top volumes by any stretch in any of those regions, so we don't feel like it's overperforming. And therefore, it needs to settle back down.

If you look at the regions I think if you look at the growth throughout most of the year China's kind of over performing the rest of the market. So if you look at Western Europe, North America, especially in Japan and Korea.

Speaker Change: See those kind of relatively flat really moving through the next 18 months and so our forecast is really based on that type of a model they're not over the top volumes by any stretch in one of those regions. So we don't feel like it's over performing and therefore it needs to settle back down if you look at it we think those are pretty good stasis points in terms of light vehicle production in each of those regions.

Steven R. Downing: If you look at it, we think those are pretty good stasis points in terms of light vehicle production in each of those regions. When you look at what's kind of driving our ability to outperform that, you start talking about feature content. And so when we look at each of those OEMs, their deployment of the technology, how each OEM, including some of our customers, are talking about the fact that they're focusing on higher-end vehicles, trying to look at dollar content to help offset the fact that, you know, total light vehicle production may never come back to where it was, that suits us really well. I mean, what we try to work really hard on is making sure our products fit the consumer, and it drives revenue and profitability for our OEM customers as well.

Speaker Change: When you look at our what's kind of driving our ability to outperform that you start talking about feature content and so when we look at each of those Oems their deployment of the technology, how each OEM, including some of our customers talking about the fact, they are focusing on higher end vehicles trying to look at dollar content to help offset the fact that total light vehicle.

Speaker Change: Production may never come back to where it was.

Speaker Change: Suits us really well I mean, what we try to work really hard on is making sure our products fit with the consumer and it drives profit revenue and profitability for our OEM customers as well.

Steven R. Downing: Thanks for all that color, Steve. My other question was trying to better understand some of the opportunities within China. I mean, you spoke about selling in the Chinese region, but when I think about the Polestar win you announced today, when I think about some of the ambitions of the Chinese domestic OEMs to grow their businesses in Europe and other international regions, South America and others, maybe you could talk about your opportunity to support some of those Chinese domestic OEMs with some of their international expansion efforts. Yeah, I think it's a very interesting...

Speaker Change: Thanks for all that color Steve My other question was trying to better understand some of the opportunities within China, you spoke about selling in the China region, but when I think about the polestar win you announced today when you think of some of the ambitions of the China domestic Oems to grow their businesses in Europe and other international regions.

South America and others, maybe you could talk about your opportunity to support some of those China domestic Oems with some of their international expansion efforts.

Steven R. Downing: Yeah, I think it's a very interesting model. If you take the global politics out of where cars are produced and where they're going to be moved to over time, given the fact that we have a good footprint in the North American market, which is where a lot of focus right now is in terms of expansion and who's going to be trying to import vehicles here, if you think about production closer to the North American market in support of North America, we feel like we're structured really well to help capitalize on

Speaker Change: Yes, I think it's a very interesting model.

Speaker Change: If you take the policy global politics out of where cars are produced and where theyre going to be move to over time.

Speaker Change: Given that given the fact that we have a good footprint in the North American market, which is where a lot of focus right now in terms of expansion and who is who is going to be trying to import vehicles. Here. If you think about production closer to the North American market in support of North America, we feel like we're structured really well to help capitalize on those the biggest challenges. We have are obviously if something's produce.

Steven R. Downing: The biggest challenges we have are obviously if something's produced completely in China and then exported, there's obviously the geopolitical side of the tariff structure right now that puts us at a little bit of a disadvantage, and so we'll have to get more creative if we want to capitalize on those opportunities in the domestic China market, especially as it relates to high-end electronic content, because that's when the duties and tariffs really start to affect our competitiveness.

Speaker Change: <unk> completely in China, and then export it we have there is obviously the geopolitical side of the tariff structure right now that puts us at a little bit of a disadvantage and so we'll have to get more creative if we want to capitalize on those opportunities in the domestic China market, especially as it relates to high end electronic content, because thats when the duties and tariffs.

Speaker Change: Start to affect our competitiveness.

Operator: One moment for our next question. Our next question comes from Josh Nichols with B Raleigh. Your line is open.

Thank you.

Speaker Change: One moment for our next question.

Speaker Change: Yes.

Speaker Change: Our next question comes from Josh Nichols with B Riley Your line is open.

Michael Joshua Nichols: Yes, Thanks for taking my question, great to see the margins come in better.

Michael Joshua Nichols: In the vein of moving beyond the slight vehicle production model you talked about at your investor day recently, if you could provide any kind of updates on, I think, driver and in-cabin monitoring, maybe some of the earlier opportunities. I think you may be releasing something later with at least one OEM later this year. Any progress update on that? And also, if you could just kind of touch on what the competitive dynamics of that type of offering look like?

Michael Joshua Nichols: For the quarter.

Michael Joshua Nichols: In the vein of moving beyond this light vehicle production model you've talked about.

Michael Joshua Nichols: Investor Day recently.

Michael Joshua Nichols: If you could provide any kind of updates on.

Michael Joshua Nichols: I think like driver in in cabin monitoring maybe some of the earlier opportunities I think it may be.

Michael Joshua Nichols: Leasing something later with at least one OEM later this year any progress update on that and also if you could just kind of touch on what the competitive dynamics of that type of off rate looked like.

Steven R. Downing: Yeah, so you're absolutely right. At our investor and analyst day, we did talk about really having several awards in that space. It's a very difficult product to manufacture and build, given the content and what it looks like and how we're trying to achieve it. So we're in launch right now with our engineering teams, and feel very good about where we're at. Obviously, there's a lot of learning that you do whenever you're launching a product of that complexity. But when we move through the end of 24 and the end of 25, we expect to have several launches of that type of product. And so it's exciting.

Speaker Change: Yes, so youre absolutely right at our Investor and Analyst Day, We did we did talk about really having several awards and that's in that space.

Speaker Change: Very difficult product to manufacture and build given the given the content and what it looks like and how we're trying to achieve it. So we're in launch right now.

Speaker Change: With their engineering teams feel very good about where we're at obviously, there's a lot of learning that you deal whenever you're launching a product of that complexity.

Speaker Change: But when.

Speaker Change: When we move through the end of 'twenty four and in the 25, we expect to have several launches of those of that type of product and so it's exciting.

Michael Joshua Nichols: In terms of what the competitive set looks like on that product, if it's a baseline version of DMS and CMS, especially on the DMS side, there are quite a few players who could do it in different portions or geographies of the vehicle. So whenever you're dealing with base DMS, though, there's going to be more competitors, a lower margin profile, but great revenue generation. And so what we're focused on in these first few launches is making sure we execute flawlessly in terms of the technical aspects of the product.

Speaker Change: In terms of how what the competitive set looks like on that product. If it is a baseline version of BMS and CMS, especially on the Dms side Theres quite a few players who can do it in different portions of our geographies other vehicle and so if you look at what we've been focused on over the last several years most of the industry. A couple of years ago was all focused on kind of a center.

Speaker Change: Stack her or.

Speaker Change: Right behind the steering wheel kind of locations for cameras.

Speaker Change: We're pushing hard on obviously go on higher up in the vehicles. So you could get an increased feature set and that's a trend we're starting to see in automotive now as Oems are really starting to.

Michael Joshua Nichols: Longer term, as we add additional functionality and features, that's where we see opportunities for margin expansion. And so that's one of the reasons why we made the acquisition in Israel to really focus on full cabin monitoring beyond just driver monitoring, because we believe there's a feature set there that can help drive revenue and profitability, not only for ourselves, but for our OEM customers as well.

Speaker Change: Come to grips with where you could position cameras in a vehicle and what other features that you can get so whenever youre dealing with base Dms, though theres going to be more competitors lower margin profile, but great revenue generation.

Speaker Change: So what we're focused on on these first few launches, making sure we execute flawlessly in terms of the technical aspects of the product longer term as we add additional functionality and features thats, where we see opportunities for margin expansion and so that's one of the reasons why we made the acquisition in Israel to really focus on full cabin monitoring beyond just driver monitoring.

Michael Joshua Nichols: Thanks for the color on that. I'll hop back in the queue. Appreciate it, guys. Thanks, Josh.

Speaker Change: Because we believe there is a feature set there that can help drive revenue and profitability not only for ourselves, but for our OEM customers as well.

Operator: Thanks, Josh. Again, ladies and gentlemen, if you have a question or a comment at this time, please press star 1-1 on your telephone. One moment for our next question. Our next question comes from John Murphy with BFA. Your line is open.

Speaker Change: Thanks for the color on that and I'll hop back in the queue. Appreciate it guys.

Speaker Change: Thanks, Josh again, ladies and gentlemen, if you have a question or comment at this time. Please press star one on your telephone one moment for our next question.

Speaker Change: Our next question comes from John Murphy with BMO. Your line is open.

John Joseph Murphy: Good morning, guys. Just one question on gross margin. I mean, historically, when you build a facility, there's been some pressure on gross and total margin, but that doesn't seem like that's what's happening this year. But, sort of on the flip side, when it's done and starts to be filled up, the margins expand. That's not really part of, you know, the way you guys have kind of talked about margins. More recently, I'm just curious, is there potential, as this facility on North Riley Campus gets ramped up in 25 and 26, that we could see, you know, upside to this exit rate of 35 or 36% gross at the end of this year?

John Joseph Murphy: Good morning, guys. Just one question on gross margins I mean, historically when you when you build a facility there has been some pressure on gross and total margin.

John Joseph Murphy: But that doesn't seem like that's what's happening this year.

John Joseph Murphy: But sort of on the flip side, when it's done and starts to be filled up the margins expand.

John Joseph Murphy: Not really part of the way you guys have kind of talked about margins.

John Joseph Murphy: I'm just curious is there potential as this facility in your North rally campus gets ramped up in 'twenty, five and 26 that we could see.

John Joseph Murphy: Upside to this exit rate of $35 to 36% growth at the end of this year.

Steven R. Downing: Yeah, I think probably not at the end of this year, but throughout the next 25, as that plant comes online and it starts to drive revenue for the company, there is opportunity, obviously, for further expansion beyond that, depending on what we fill it with, what kind of products we're getting sourced, and what the total mix of the business is. Part of the reason, there are really two major reasons why adding a plant doesn't have the negative impact that it used to have.

Speaker Change: Yes, I think I think probably not at the end of this year, but throughout 'twenty five as that plant comes online and then start and it starts to drive revenue for the company. There is opportunity obviously for further expansion beyond that depending on what we fill it with what kind of products, we're getting source and what the total mix of the business as part of the reason theres.

Speaker Change: Really two major reasons, why adding a plant doesn't have the negative impact that it used to have number one is just the law of large numbers. So as we've grown the incremental impact of adding a plan is less on an overall percentage basis of the business. So we're able to absorb that easier.

Steven R. Downing: Number one is just the law of large numbers. As we've grown, the incremental impact of adding a plant is less on an overall percentage basis of the business, so we're able to absorb that easier. Number two is how we spend and how we bring plants on tends to be controlled over a better period. A, and B, we're actually able to do it in a more likely time-to-revenue fashion. Instead of having this massive event where it's a cliff event where you're adding hundreds of people all at once, we're actually able to scale that much better by moving product out of existing buildings to help fill it. Usually, we have a portion of that revenue already flowing through once a plant comes online, which helps us soften that beachhead of on-ramping a new facility.

Two is how we how we spend and how we bring plants on tends to be controlled over a better period.

Speaker Change: A and B, we're actually able to do it in a more in a more likely time to revenue fashion instead of having a massive event, whether it's a cliff event, where you're adding hundreds of people all at once we tried it we are actually able to scale that much better by moving product out of existing buildings to help fill and so usually we have portion of that revenue.

Speaker Change: Already flowing through once the plant comes online, which helps us kind of soften that beachhead of on ramping a new facility.

John Joseph Murphy: That's incredibly helpful. And then just a second one on unit volume, you know, down 2% in the quarter. The quarter was good, but that was maybe a little bit lighter than we were expecting. You know, as we think about the FY24 guidance, you definitely haven't given us, or at least I don't recall you giving us a unit volume forecast in that. Is that something you'd be comfortable giving us now? And what are your thoughts on unit volume growth in 24?

Speaker Change: That's incredibly helpful. And then just a second one on unit volume down 2% in the quarter quarter was good but that was maybe a little bit lighter than we were expecting and as we think about the FY 'twenty four guidance, you're definitely havent, given us or at least I don't recall, you, giving us unit volume forecast and that is that something you'd be comfortable giving us now.

Speaker Change: Are you kind of thoughts for unit volume growth in 2004.

Steven R. Downing: Honestly, we've kind of moved away from volume estimates just because they are very cyclical and, obviously, as we've grown in the Chinese market, even harder to predict than the rest of our markets. We tend to focus on the top line.

Speaker Change: Honestly, we've kind of moved away from volume estimates just because they are very cyclical and then obviously with that as we've grown in the China market, even harder to predict than the rest of our markets. We tend to focus on the top line and the reason why we do that is if you look at there is a lot of puts and takes geographically and from a mix standpoint, but then.

Steven R. Downing: And the reason why we do that is, if you look at it geographically and from a mix standpoint, but then also between OEM customers. What we do understand, though, is that with the growth in content, we're actually able to offset some of those unit volume issues. So it's a little harder to predict, but quite frankly, this quarter is a prime example where, yeah, there were some headwinds on the unit volume that we didn't love, but we were able to offset them because we were getting more than a payoff on the FDM and the dollar content side.

Speaker Change: Also between OEM customers.

Speaker Change: What we do understand though is that with the growth in content, we're actually able to offset even some of those unit volume issues. So it's a little harder to predict but quite frankly this quarter is a prime example, where yes. There is some headwinds on the unit volume that we didn't love, but we are able to offset it because we are getting more than a pay off on the <unk> and the dollar content side.

Steven R. Downing: And so we're working really hard to change the kind of what we're focused on. Number one, less dependent on total units in order to get to revenue growth. And then, number two, a little less susceptible to mixed changes, geographical issues, geopolitical issues, and also certain OEMs that may be struggling from time to time.

Speaker Change: And so we're working really hard to be to change kind of what we're focused on number one is less dependent on total units in order to get to revenue growth and then number two.

Speaker Change: A little less susceptible to mix changes geographical issues geopolitical issues and also certain Oems that may be struggling from time to time.

John Joseph Murphy: Yeah, it just seems like you may be on the cusp of both UNIT and MIX both being positive soon, so that's kind of why I was asking. Thank you very much, guys.

Speaker Change: Yes. It just seems like you may be on the cusp of both unit and mixed both being positive soon so thats kind of why I was asking thank you very much guys.

Steven R. Downing: I hope so.

Speaker Change: I hope so.

Joshua Berski: And I'm not showing any further requests at this time. I turn the call back over to Josh.

Speaker Change: Yeah.

Speaker Change: And I'm not showing any further question at this time I'd like to turn the call back over to Josh.

Operator: This concludes our conference call. Thank you everyone for your time today. We appreciate your participation and hope you have a great weekend.

Michael Joshua Nichols: This concludes our conference call. Thank you everyone for your time today. We appreciate your participation and hope you have a great weekend.

Operator: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

Speaker Change: Ladies and gentlemen. This concludes today's presentation you may now disconnect and have a wonderful day.

Speaker Change: Okay.

Speaker Change: [music].