Q2 2024 Gentex Corp Earnings Call

Good day and thank you for standing by. Welcome to the 2024 2nd Quarter Gentex Financial Results Conference Call. At this time, all participants are in listen-only mode.

Operator: At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will 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'll now hand the conference over to your first speaker today, Joshua Bursky, Director of Investment Relations. Please go ahead.

After the speaker's presentation, there will be a question and answer session.

To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded.

I would like to hand the conference over to your first speaker today, Joshua Bursky, Director of Investment Relations. Please go ahead.

Josh Wilberski: Good morning, and welcome to the Gentex Corporation second quarter 2024 earnings release conference call. I'm Josh Wilberski, 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. 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.

Joshua Bursky: Thank you.

Josh Wilberski: This conference call contains forward-looking information within the meaning of the Gentex Safe Harbor Statement included in the Gentex Report's second 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. I'll now hand the call over to Steve Downing for our prepared remarks.

Josh Wilberski: Good morning and welcome to the Gentex Corporation's second quarter 2024 earnings release conference call. I'm Josh Wilberski, Gentex Director of Investor Relations, and I'm joined by Steve Downing, President and CEO , Neil Boehm, CTO.

Joshua Bursky: and Kevin Nash, Vice President of Finance and CF.

Joshua Bursky: CFO.

Speaker Change: 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.

Joshua Bursky: 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.

Joshua Bursky: This conference call contains forward-looking information within the meaning of the Gentex Safe Harbor Statement included in the Gentex Report's second quarter 2024 financial results press release from earlier this morning and as always shown on the Gentex website.

Steven R. Downing: For the second quarter of 2024, the company reported net sales of $572.9 million compared to net sales of $583.5 million in the second quarter of last year. For the second quarter of 2024, light vehicle production in North America, Europe, and Japan declined by 3% compared to the second quarter of last year.

Joshua Bursky: Your participation in this conference call implies consent to these terms. I'll now hand the call over to Steve Downing for our prepared remarks. Steve? Thank you, Josh.

Steven R. Downing: For the second quarter of 2024, the company reported net sales of $572.9 million compared to net sales of $583.5 million in the second quarter of last year.

Speaker Change: For the second quarter of 2024, light vehicle production in North America, Europe , and Japan, Korea declined by 3% compared to the second quarter of last year.

Steven R. Downing: During the second quarter of 2024, light vehicle production weakened in most of our primary markets. In fact, the quarter began with sales coming close to forecast for both April and May, but then saw a significant change in June that left us well below our forecast for the quarter. In total, the company's revenue for the second quarter of 2024 fell short of our beginning of quarter forecast by approximately $50 million, with the biggest impact coming from expected shipments to some of our largest customers.

Speaker Change: During the second quarter of 2024, light vehicle production weakened in most of our primary markets. In fact, the quarter began with sales coming close to forecast for both April and May, but then saw a significant change in June that left us well below our forecast for the quarter.

Speaker Change: In total, the company's revenue for the second quarter of 2024 fell short of our beginning of quarter forecast by approximately $50 million, with the biggest impact coming from expected shipments to some of our largest customers.

Steven R. Downing: As we look to the second half of 2024, light vehicle production forecasts continue to show weakness versus prior year performance, but we expect to return to meaningful outgrowth versus the underlying market. For the second quarter of 2024, the gross margin was 32.9% compared to a gross margin of 33.1% for the second quarter of last year. The second quarter of 2024 gross margin was primarily impacted by sales levels that were well below our forecast for the quarter and slightly lower than prior year levels.

Speaker Change: As we look to the second half of 2024, light vehicle production forecasts continue to show weakness versus prior year performance, but we expect to return to meaningful outgrowth versus the underlying market.

Speaker Change: For the second quarter of 2024, the gross margin was 32.9%, compared to a gross margin of 33.1% for the second quarter of last year.

Speaker Change: The second quarter of 2024 gross margin was primarily impacted by sales levels that were well below our forecast for the quarter and slightly lower than prior year levels.

Steven R. Downing: Additionally, an unfavorable product mix resulted from lower-than-expected shipment levels, with full-display mirror unit shipments and exterior mirror unit shipments being the most effective. Unfortunately, lower sales levels and weak product mix more than offset the positive impact of purchasing cost reductions for the quarter. While our material cost reductions are in line with our estimates for 2024, our gross margin recovery plan for the year is partially dependent on sales growth and product mix improvements that did not materialize during the second quarter.

Speaker Change: Additionally, unfavorable product mix resulted from lower-than-expected shipment levels, with full-display mirror unit shipments and exterior mirror unit shipments being the most affected.

Speaker Change: Unfortunately, the lower sales levels and weak product mix more than offset the positive impact of purchasing cost reductions for the quarter.

Speaker Change: While our material cost reductions are in line with our estimates for 2024, our gross margin recovery plan for the year is partially dependent on sales growth and product mix improvements that did not materialize during the second quarter.

Steven R. Downing: Given our historical contribution margins on incremental sales, we believe that our gross margins would have been in line with our overall plan for 2024 had revenue been close to our forecast. Overall, we are very pleased with our progress on the Margin Recovery Plan that we estimated would take until the end of 2024 to complete.

Speaker Change: Given our historical contribution margins on incremental sales, we believe that our gross margins would have been in line with our overall plan for 2024 had revenue been close to our forecast.

Speaker Change: Overall, we are very pleased with our progress on the Margin Recovery Plan that we estimated would take until the end of 2024 to complete.

Steven R. Downing: While the gross margin for the second quarter did not meet our expectations, we continue to believe that we have the right plan and team to execute our full gross margin recovery plan. Operating expenses during the second quarter of 2024 increased by 12% to $73.7 million compared to operating expenses of $65.8 million in the second quarter of last year. Operating expenses increased quarter over quarter primarily due to staffing and engineering-related professional fees.

Speaker Change: While the gross margin for the second quarter did not meet our expectations, we continue to believe that we have the right plan and team to execute our full gross margin recovery plan.

Speaker Change: Operating expenses during the second quarter of 2024 increased by 12% to $73.7 million compared to operating expenses of $65.8 million in the second quarter of last year.

Speaker Change: Operating expenses increased quarter over quarter primarily due to staffing and engineering related professional fees.

Steven R. Downing: Our operating expenses are trending in line with our expectations for the full year, with increases primarily focused on R&D and launches of new programs and products. Operating expenses, especially R&D expenses, are expected to continue at the current pace for the rest of this year as we continue to invest in innovative products and technologies, new business awards, and VAVE initiatives for cost optimization of our bill of materials.

Speaker Change: Our operating expenses are trending in line with our expectations for the full year, with increases primarily focused on R&D and launches of new programs and products.

Speaker Change: Operating expenses, especially R&D expenses, are expected to continue at the current pace for the rest of this year as we continue to invest in innovative products and technologies, new business awards, and VAVE initiatives for cost optimization of our bill of materials.

Steven R. Downing: Income from operations for the second quarter of 2024 was $114.9 million, compared to income from operations of $127.3 million for the second quarter of last year. Other income swung to a loss of $13.5 million for the second quarter of 2024, compared to income of $1.3 million in the second quarter of last year. The change was primarily driven by non-cash losses of $18.3 million, resulting from mark-to-market adjustments and other market adjustments of certain holdings within the company's tech investment portfolio, which were partially offset by interest income.

Speaker Change: Income from operations for the second quarter of 2024 was $114.9 million compared to income from operations of $127.3 million for the second quarter of last year.

Speaker Change: Other incomes swung to a loss of $13.5 million for the second quarter of 2024 compared to income of $1.3 million in the second quarter of last year.

Speaker Change: The change was primarily driven by non-cash losses of $18.3 million, resulting from mark-to-market adjustments and other market adjustments of certain holdings within the company's tech investment portfolio, which were partially offset by interest income.

Steven R. Downing: During the second quarter of 2024, the company had an effective tax rate of 15.1%, which was primarily driven by the benefit of the foreign-derived intangible income deduction. Net income for the second quarter of 2024 was $86 million, compared to net income of $109.2 million for the second quarter of last year. The decrease in net income for the second quarter was driven by lower net sales and income from operations compared to the second quarter of last year, as well as the previously mentioned changes in other income.

Speaker Change: During the second quarter of 2024, the company had an effective tax rate of 15.1 percent, which was primarily driven by the benefit of the foreign-derived intangible income deduction.

Speaker Change: Net income for the second quarter of 2024 was $86 million, compared to net income of $109.2 million for the second quarter of last year.

Speaker Change: The decrease in net income for the second quarter was driven by lower net sales and income from operations compared to the second quarter of last year, as well as the previously mentioned changes in other income.

Steven R. Downing: Earnings per diluted share for the second quarter of 24 were $0.37 compared to earnings per diluted share of $0.47 for the second quarter of 23. Earnings per diluted share for the second quarter of 24 were impacted by lower net sales and operating income, as well as the previously mentioned changes and other income for the quarter. I'll now hand the call over to Kevin for some further financial details.

Speaker Change: Earnings per diluted share for the second quarter of 24 were $0.37 compared to earnings per diluted share of $0.47 for the second quarter of 23.

Speaker Change: Earnings per diluted share for the second quarter of 24 were impacted by the lower net sales and operating income, as well as the previously mentioned changes and other income for the quarter. I'll now hand the call over to Kevin for some further financial details. Thanks, Steve.

Kevin C. Nash: Automotive net sales in the second quarter of 2004 were $559.3 million, compared to $574.1 million in the second quarter of last year. However, auto-dimming mirror unit shipments decreased by 6% during the second quarter of 2004 compared to the second quarter of last year.

Kevin C. Nash: Automotive net sales in the second quarter of 2004 were $559.3 million compared to $574.1 million in the second quarter of last year. Auto-dimming mirror unit shipments decreased by 6% during the second quarter of 2004 compared to the second quarter of last year.

Kevin C. Nash: Other net sales in the second quarter of 2014 were $13.6 million, compared to $9.4 million in the second quarter of last year. This was driven by a $2.9 million increase in dimmable aircraft window sales and a $1.3 million increase in fire protection sales compared to the second quarter of last year. Looking at share repurchases, during the second quarter, we repurchased 1.4 million shares of common stock at an average price of $34.43 per share, and as of June 30, 2024, the company will have approximately 13.2 million shares remaining available for repurchase under the previously announced plan.

Kevin C. Nash: Other net sales in the second quarter of 2014 were $13.6 million compared to $9.4 million in the second quarter of last year. This was driven by a $2.9 million increase in dimmable aircraft window sales and a $1.3 million increase in fire protection sales compared to the second quarter of last year.

Kevin C. Nash: Looking at share repurchases, during the second quarter we repurchased 1.4 million shares of common stock at an average price of $34.43 per share. And as of June 30 of 2024, the company has approximately 13.2 million shares remaining available for repurchase from the previously announced plan.

Kevin C. Nash: 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 that we deem appropriate.

Kevin C. Nash: We remain committed to repurchase 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 that we deem appropriate.

Kevin C. Nash: Looking at the balance sheet, the balance sheet comparisons mentioned today are as of June 30, 2024 as compared to December 31, 2023. Cash and cash equivalents were $260.2 million as compared to $226.4 million. Short-term and long-term investments combined were $323.6 million, up from $299.1 million, which included fixed income investments as well as the company's equity and cost method investments. Accounts receivable was $306.6 million, down from $321.8 million, due to the timing of sales within the quarter.

Neil Boehm: Inventories were $463.5 million, up from $402.5 million, and accounts payable increased to $206 million from $184.4 million. Looking at preliminary cash flow items for the quarter, second quarter 2024 cash flow from operations was $129.3 million, up from $120.9 million in the second quarter of last year. And year-to-date cash flow from operations was $259.1 million compared to $241.8 million for calendar year 23. Capital expenditures for the second quarter were $31.8 million, compared with $47.5 million for the second quarter of last year.

Kevin C. Nash: Looking at the balance sheet, the balance sheet comparisons mentioned today are as of June 30 of 24 as compared to December 31 of 23.

Kevin C. Nash: Cash and cash equivalents were $260.2 million compared to $226.4 million. Short-term and long-term investments combined were $323.6 million up from $299.1 million, which includes fixed income investments as well as the company's equity and cost method investments.

Kevin C. Nash: The cost receivable was $306.6 million down from $321.8 million due to the timing of sales within the quarter.

Kevin C. Nash: Inventories were $463.5 million up from $402.5 million. And accounts payable increased to $206 million from $184.4 million.

Kevin C. Nash: Looking at preliminary cash flow items for the quarter, second quarter 2024 cash flow from operations was $129.3 million.

Kevin C. Nash: up from $120.9 million in the second quarter of last year. And year-to-date cash flow from operations was $259.1 million compared to $241.8 million for calendar year 23.

Kevin C. Nash: Capital expenditures for the second quarter were $31.8 million, compared with $47.5 million for the second quarter of last year. Year-to-date capital expenditures were $63.6 million, compared to $90.3 million for calendar year 23.

Neil Boehm: Year-to-date capital expenditures were $63.6 million, compared to $90.3 million for calendar year 23. And depreciation and amortization for the second quarter was $24 million, compared with $24.8 million for the second quarter of 2023. And year-to-date DNA was $47.9 million, compared with $48.9 million for calendar year 23. I'll now hand the call over to Neil for a product update. Thank you

Neil: And depreciation and amortization for the second quarter was $24 million, compared with $24.8 million for the second quarter of 2023. And year-to-date DNA was $47.9 million, compared with $48.9 million for year-to-date 23. I'll now hand the call over to Neil for a product update.

Neil Boehm: Like the first quarter of 2024, the second quarter was an extremely busy launch quarter with 32 net new nameplate launches of our interior and exterior auto-dimming mirrors and electronic features. Over 65% of these net launches were advanced feature launches, with full display mirror, home link, and outside auto-dimming mirrors leading the way. As we look forward to the third quarter, we anticipate that this heavy launch rate will continue.

Neil: Thank you, Kevin. Like the first quarter of 2024, the second quarter was an extremely busy launch quarter, with 32 net new nameplate launches of our interior and exterior auto-dimming mirrors and electronic features.

Neil: Over 65% of these net launches were advanced feature launches, with full display mirror, home link, and outside auto dimming mirrors leading the way. As we look forward at the third quarter, we anticipate that this heavy launch rate will continue.

Neil Boehm: Now for a full display mirror update. We're excited to announce that during the second quarter, we began shipping full display mirrors to three new OEM customers, bringing our total to 19. We are now shipping full display mirrors for the Acura ZDX, the Citroen Berlingo, and the Peugeot Partner.

Neil: Now for a full display mirror update. We're excited to announce that during the second quarter, we began shipping full display mirrors to three new OEM customers, bringing our total to 19. We're now shipping full display mirrors for the Acura ZDX, the Citroën Berlingo, and the Peugeot Partner.

Neil Boehm: The addition of these OEM customers 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 launches, we continue to see great growth and expansion of our technology at our existing customers. We are currently shipping full display mirrors on over 115 nameplates globally.

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

Neil: In addition to the new OEM customer launches, we continue to see great growth and expansion of our technology at our existing customers.

Steven R. Downing: And despite the impacts of the second quarter, we're still on track to achieve our 2024 FDM unit shipment guidance of shipping an incremental 500000 FDM units above the 2023 unit. The first half of 2024 has been extremely busy as we've launched more projects than ever before. 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 that we execute flawlessly.

Neil: We are currently shipping Full Display Mirror on over 115 nameplates globally.

Neil: And despite the impacts of the second quarter, we're still on track to achieve our 2024 FDM unit shipment guidance of shipping an incremental 500,000 FDM units above the 2023 unit shipments.

Neil: The first half of 2024 has been extremely busy as we've launched more projects than ever before. 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.

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

Neil: Also, while we're launching a lot of products and technologies, we continue to evaluate opportunities to reduce the bill of materials on existing programs, as well as execute the VAV launches we are currently having in process.

Neil: These changes are critical for our Margin Recovery and Stabilization Plan as we move into 2025 and beyond.

Steven R. Downing: The company's current forecasts for light vehicle production for the third quarter of 2024 and full years 2024 and 2025 are based on the mid-July 2024 S&P Global Mobility Forecast for light vehicle production in North America, Europe, Japan, Korea, and China. Light vehicle production in these markets is expected to decrease by approximately 5% in the third quarter of 2024 versus the same quarter last year. For calendar year 24, light vehicle production in these markets is forecasted to decline by approximately 2% when compared with production in calendar year 23.

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

Steven R. Downing: Thanks, Neil. The company's current forecasts for light vehicle production for the third quarter of 2024 and full years 2024 and 2025 are based on the mid-July 2024 S&P Global Mobility Forecast for light vehicle production in North America, Europe , Japan, Korea, and China.

Speaker Change: Light vehicle production in these markets is expected to decrease by approximately 5% for the third quarter of 2024 versus the same quarter last year.

Speaker Change: For calendar year 24, light vehicle production in these markets is now forecasted to decline by approximately 2% when compared with light vehicle production in calendar year 23.

Steven R. Downing: Light vehicle production for calendar year 25 is forecasted to increase by 2% versus the calendar year 24 forecast in these markets. Based on this light vehicle production forecast and actual results for the first six months of 2024, we are making certain changes to our previously provided guidance for Calendar Year 24, as follows.

Speaker Change: Light vehicle production for calendar year 25 is forecasted to increase by 2% versus the calendar year 24 forecast in these markets.

Speaker Change: Based on this light vehicle production forecast and actual results for the first six months of 2024, we are making certain changes to our previously provided guidance for County Year 24 as follows.

Steven R. Downing: Revenue for the year is expected to be between $2.4 and $2.5 billion. Gross margins for the year are expected to be between 34 and 34.5 percent. Operating expenses are still expected to be between $295 and $305 million. Our estimated annual tax rate is forecasted to be between 15 and 16 percent.

Speaker Change: Revenue for the year is expected to be between $2.4 and $2.5 billion. Gross margins for the year are expected to be between 34 and 34.5 percent. Operating expenses are still expected to be between $295 and $305 million.

Steven R. Downing: Capital expenditures are expected to be between $175 and $200 million, and depreciation and amortization is forecasted to be between $95 and $100 million. Additionally, based on the company's updated forecast for light vehicle production for calendar year 2025, as well as year-to-date actual results for calendar year 2024, the company is updating its forecast for calendar year 2025 revenue estimates to be approximately $2.6-$2.7 billion. The company continues to be on pace for record revenue in 24 and 25, despite the recent changes to the light vehicle production environment, vehicle mix, and regional mix that impacted our performance in the second quarter.

Speaker Change: Our estimated annual tax rate is forecasted to be between 15 and 16 percent.

Speaker Change: Capital expenditures are expected to be between $175 and $200 million dollars. And depreciation and amortization is forecasted to be between $95 and $100 million dollars.

Speaker Change: Additionally, based on the company's updated forecast for light vehicle production for calendar year 2025, as well as year-to-date actual results for calendar year 2024, the company is updating calendar year 2025 revenue estimates to be approximately $2.6 to $2.7 billion.

Speaker Change: The company continues to be on pace for record revenue in 24 and 25, despite the recent changes to light vehicle production environment, vehicle mix, and regional mix that impacted our performance in the second quarter.

Steven R. Downing: Additionally, tremendous work has been accomplished on our Gross Margin Improvement Plan, despite the temporary step back during the second quarter of this year. We fully expect to achieve our ultimate goal of a 35-36% margin for the company, even if there is a slight delay in achieving those results. Given the market conditions, we have adjusted our estimates for 2024 and 2025 based on the impact of the second quarter of this year, but we continue to forecast strong growth and profitability as we head into the second half of this year and prepare for 2025. That completes our prepared comments for today, and we can now proceed to questions.

Speaker Change: Additionally, tremendous work has been accomplished on our Gross Margin Improvement Plan, despite the temporary step back during the second quarter of this year. We fully expect to achieve our ultimate goal of a 35-36% margin for the company, even if there is a slight delay in achieving those results.

Speaker Change: Given the market conditions, we have adjusted our estimates for 2024 and 2025 based on the impact of the second quarter of this year, but we continue to forecast strong growth and profitability as we head into the second half of this year and prepare for 2025.

Operator: Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A list. Our first question comes from the line of Luke Young of Baird. Your line is now open.

Speaker Change: Thank you. At this time, we will conduct the question and answer session. As a reminder to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.

Speaker Change: Our first question comes from the line of Luke Young of Baird. Your line is now open.

Steven R. Downing: Good morning everyone. Thanks for taking the questions. Let's start with guidance, Steve. Hoping you could just square some of your expectations in the back half of the year on the top line. It looks like you're essentially taking the two key myths versus your expectations out of the revenue guidance. Can you just maybe talk about what you're seeing in July thus far and in schedules more broadly relative to how you're guiding the back half, both overall sales and then the mixed impacts to gross margin within that as well? Thank you. Yeah, thanks.

Luke L. Junk: Good morning, everyone. Thanks for taking the questions.

Luke L. Junk: Just start with, on the guidance, Steve, hoping you could just square...

Luke L. Junk: Some of your expectations in the back half of the year on the top line, it looks like you're essentially taking

Speaker Change: the two key myths versus your expectations out of the revenue guidance. Can you just maybe talk about what you're seeing in July thus far and in schedules more broadly relative to how you're guiding the back half both overall sales and then the mixed impacts to gross margin within that as well? Thanks.

Steven R. Downing: Yeah, thanks, Luke. Well, one of the things that I'll definitely start kind of with the Q2 impact, and we referenced in our prepared comments that, you know, a lot of the shortfall that happened in the quarter, almost 60-70% of it was in June, pretty unexpected. When you look at the data that you even put together in your report about what happened in June from a production standpoint, a lot of our largest customers, so, you know, GM, Volkswagen, Toyota, those are very, they were very significantly impacted during the month.

Speaker Change: Thank you.

Speaker Change: Yeah, thanks Luke.

Speaker Change: Yeah, one of the things that definitely I'll start kind of with the Q2 impact

Speaker Change: And we referenced in our prepared comments that, you know, a lot of the shortfall that happened in the quarter, almost, you know, 60-70% of it was in June .

Speaker Change: Pretty unexpected. When you look at the data that you even put together in your report about what happened in June from a production standpoint, a lot of our largest customers, so GM, Volkswagen, Toyota, they were very significantly impacted in the month.

Steven R. Downing: If you look further down that list, other large customers, you know, Hyundai, Kia, BMW, Stellantis, these were all, you know, pretty significant customers for us that faced some serious headwinds in June. But they were very different; the actual orders were very different than the releases coming into the quarter.

Speaker Change: If you look further down that list, other large customers, you know, Hyundai, Kia, BMW, Stellantis.

Speaker Change: These were all pretty significant customers for us that faced some serious headwinds in June .

Steven R. Downing: If we look out now at the second half, we look at the same OEMs' expectations of their production levels and take rates of our products, and some of the new launches that Neil referenced, we continue to see a lot of strength in the back half of this year. So, you know, taking into account the 5% drop in production for the third quarter, and the fourth quarter forecast for light vehicle production is still showing down kind of 2% to 3% across the board, but when we look at that and we look at what our take rates are, where our forecasts and releases show, we're still seeing pretty significant outperformance in the back half of this year. So, you know, we're taking a very hard look at all that release information and the customer data, but we still believe we're going to get back to that strong outperformance in the back half.

Speaker Change: They were very different, the actual orders were very different than the releases coming into the quarter. If we look out now in the second half, we look at the same OEMs, expectations of their production levels and take rates of our products and some of the new launches that Neil referenced.

Speaker Change: We continue to see a lot of strength in the back half of this year. So, you know, taking into account the 5% drop in production for the third quarter and the fourth quarter.

Speaker Change: vehicle production is still showing down kind of two to three percent across the board. But we look at that and we look at what our take rates are, what our forecasts and releases show. We're still seeing a pretty significant outperformance in the back half of this year. So, you know, we're taking a

Speaker Change: Very hard look at all that release information and the customer data But we still believe we're going to get back to that strong outperformance in the back half

Steven R. Downing: And then similarly, could you maybe talk about line of sight to ramping up FDM volumes specifically in the back half, you know, appreciate the confirmation of still 500k incremental units for the year overall, especially thinking about new launches to the extent that, you know, you mentioned that, you know, these are already live? Should we think of those as really already in flight at this point, which would reduce the launch risk, or is there still some potential movement on timing, which could impact FDM specifically? No, I'm not.

Speaker Change: And then, similarly, could you maybe talk about line of sight to ramping FDM volumes specifically in the back half, you know, pre-shift D?

Speaker Change: The confirmation is still 500k incremental units for the year overall, especially thinking about

Speaker Change: New launches, to the extent, you know, you mentioned that, you know, these are already live, should we think of those as really already in flight at this point, which would reduce the launch risk, or is there still some potential movement on timing, which could impact FDM specifically?

Steven R. Downing: If you look at the launch side, pretty much everything stayed on time during this process. I think the single biggest risk factor when it comes to FDM is what's happening macroeconomically and the trim level forecast that an OEM puts out and the expectation of take rates for a high-end product like an FDM. Are those going to hold given the interest rate environment? So far, we haven't seen a drastic change for many of our customers in terms of take rates for FDM.

Speaker Change: If you look at the launch side, pretty much everything stayed on time during this process. I think the single biggest risk factor when it comes to FDM is what's happening macroeconomically and is the trim level forecast that an OEM puts out and expectation of take rates for a high-end product like an FDM, are those going to hold given the interest rate environment? So far, we haven't seen a drastic change for many of our customers in terms of take rates of FDM. In fact, I'd say over the last 18 months, the trend has been slightly better than forecasted take rates on FDM. This one that obviously impacted June was primarily driven about overall production, not really about changes in take rates.

Steven R. Downing: In fact, I'd say over the last 18 months, the trend has been slightly better than forecasted take rates on FDM. This one that obviously impacted June was primarily driven by overall production, not really about changes in take rates.

Kevin C. Nash: And then maybe for Kevin, just relative to how this all flows through to EPS, how should we think about other income in the back half of the year? I appreciate, you know, it's hard to predict some of these market-related things, but at a high level, should we still be thinking there's some mark-to-market risk that could offset underlying interest income and any way to better calibrate that piece of P&L?

Kevin C. Nash: Got it. And then maybe for Kevin, just relative to how this all flows through to EPS, how should we think about other income in the back half of the year? I appreciate, you know,

Speaker Change: It's hard to predict some of these market-related things, but at a high level, should we be still thinking there's some mark-to-market risk that could offset underlying interest income and just any way to better calibrate that piece of the P&L? Thank you.

Speaker Change: Yeah, I think most of the impact from mark-to-market adjustments has been realized if you look at, you know, we have a public company, Holdings.

Speaker Change: that I think that are fairly discounted at this point. We will have some of our tech investments that will be ongoing offsets to our other income.

Speaker Change: But, you know, that should be, you know, we would expect those to be about $2 million per quarter.

Speaker Change: Net income going forward if you look at our fixed income portfolio offset by the ongoing tech losses So that's kind of where one to two million dollars of of income in the back half of the year per quarter

Speaker Change: Outside of mark to market, but I think that that should be mostly realized at this point. Yeah, most of the risk out of the portfolio has already been expensed in the second quarter.

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

Kevin C. Nash: Thank you.

Speaker Change: Thank you, one moment, for our next question.

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

Michael Joshua Nichols: Yeah, thanks for taking my question. I wanted to kind of touch on one thing...

Michael Joshua Nichols: is, you know, you talked about you're still on track to kind of hit the target for this year despite

Michael Joshua Nichols: Some cuts to the light vehicle production forecasted.

Speaker Change: You've been seeing more and more take rates and new customers, particularly in larger OEMs and stuff that's more midstream as opposed to just higher end than what we've seen historically.

Speaker Change: What's your expectation longer term for FPM and how do you think about the addressable market as it becomes more mainstream and not just a higher level product offering and how that could kind of supplement growth not just this year but longer term over the next two three years?

Kevin C. Nash: I think most of the impact from mark-to-market adjustments has been realized if you look at, you know, we have public company holdings and that I think they are fairly discounted at this point. We will have some of our tech investments that will be ongoing offsets to our other income. But you know, that should be about a two million per quarter net income going forward. If you look at our fixed income portfolio offset by the ongoing tech losses, so that's kind of where one to two million dollars of income in the back half of the year per quarter Outside of mark-to-market, but I think that that should be mostly realized at this point.

Kevin C. Nash: Yeah, most of the risk in the portfolio has already been expensed in the second quarter.

Speaker Change: Yeah, Josh, that's an excellent point and a great question. I think, you know, one thing's for sure, the launches, especially this quarter, you start talking about volume OEMs introducing this product, they're not going to be at the same take rates as a higher end OEM or a luxury vehicle or even trucks and SUVs. However, it starts to open the door for much higher volume opportunities by hitting the volume brands. And so, very, very exciting. We knew this was coming. Obviously, we've been working on it for quite some time to get these vehicles launched. The one thing that's interesting, and I'd say that's probably the most favorable part of FDM is the fact that it doesn't really have a geographical bias. A lot of our products are focused on certain markets, you know, whether it's Homelink or, you know, other features that are very specific to an industry.

Operator: I'll leave it there, thank you.

Operator: Thank you, one woman, for our next question. Our next question comes from the line of Josh Nichols of BRiley. Your line is now open.

Speaker Change: [inaudible]

Speaker Change: Thanks for that. You're also working on some other technology offerings. You talked a lot more at your investor day. Just curious, like,

Steven: Your thoughts about what the progress the company has been making in terms of driver monitoring, right? I think at least one OEM was expected to launch at some point this year, dimmable glass, longer term, and how that's trending and what the expectations are as we kind of continue to think beyond the current year.

Steven R. Downing: Yeah, thanks for taking my question. I wanted to kind of touch on one thing, you talked about being still on track to kind of hit the target for this year, despite some cuts to the light vehicle production forecast. You've been seeing more and more take rates and new customers, particularly from larger, larger OEMs and stuff that's more midstream as opposed to just higher end than what we've seen historically.

Speaker Change: Sure, absolutely. Yep, we're still on target for this calendar year with an OEM on driver monitoring, and then into 2025 and 2026, there are some additional projects that are in launch as well. So we're seeing some good momentum, some good progress.

Steven R. Downing: What's your expectation longer term for FPM? And how do you think about the addressable market as it becomes more mainstream and not just a higher-level product offering and how that could kind of supplement growth, not just this year but longer term over the next two, three years?

Speaker Change: and, you know, using our geographic real estate in the vehicle to be able to execute that, so great momentum there.

Steven R. Downing: Yeah, Josh, that's an excellent point and a great question. I think, you know, one thing's for sure, the launches, especially this quarter, when you start talking about volume OEMs introducing this product, they're not going to be at the same take rates as a higher end OEM or a luxury vehicle or even trucks and SUVs.

Neil Boehm: However, it starts to open the door for much higher volume opportunities by hitting the volume brands. And so very, very exciting. We knew this was coming.

Speaker Change: Large dimming devices is moving forward really well. We've talked pretty openly in the past about a lot of technical challenges and issues.

Neil Boehm: Obviously, we've been working on it for quite some time to get these vehicles launched. The one thing that's interesting, and I'd say that it's probably the most favorable part of FDM is the fact that it doesn't really have a geographical bias. A lot of our products are focused on certain markets, you know, whether it's Homelink or other features that are very specific to an industry or a region. FDM, on the other hand, is really a globally accepted product. And so it opens up a lot of opportunity for us. We do believe that over the next several years, FDM will continue to be a tailwind to our growth story.

Speaker Change: and the push to get there, we're making really good progress there. And I think that in the next couple years, we'll be excited to talk about where we can see that getting deployed and executed. And we're also, one of the things we talked about at CES this year and showed a lot of demonstrations on is large dimmable visors.

Speaker Change: Great momentum from CES, a lot of customer interest in that product.

Speaker Change: using

Speaker Change: Dimming technology, right, that we've been working on and developed and the processes that we've been working on even with large area devices to help deploy

Speaker Change: Visors to the vehicle. So we're excited about where it is. There's still some you know technical challenges and hurdles like there always are and that's why it's hard to do and why you know to be successful at it we solve the problems and will give us an advantage. So we're excited what where they can lead us in the next couple years.

Neil Boehm: Thanks. You're also working on some other technology offerings. You talked a lot more at your investor day. Just curious, like, your thoughts about the progress the company has been making in terms of driver monitoring, right? I think at least one OEM was expected to launch at some point this year, dimmable glass in the longer term and how that's trending and what the expectations are as we kind of continue to think beyond the current year.

Neil Boehm: Sure, absolutely. Yep, we're still on target for this calendar year with an OEM on driver monitoring, and then into 2025 and 2026, there are some additional projects that are in launch as well. So we're seeing some good momentum, some good progress, and, you know, using our geographic real estate in the vehicle to be able to execute that. So great momentum there.

Neil Boehm: Large dimming devices are moving forward really well. We've talked pretty openly in the past about a lot of technical challenges and issues and the, you know, the push to get there. We're making really good progress there, you know, and I think that in the next couple of years, we'll be excited to talk about where we can see that getting deployed and executed. And we also, you know, one of the things we talked about at CES this year and showed a lot of demonstrations on are large dimmable visors.

Neil Boehm: Great momentum from CES, a lot of customer interest in that product using dimming technology right that we've been working on and developing, and the processes that we've been working on even with larger devices to help deploy visors to the vehicle. So we're excited about where it is; there are still some technical challenges and hurdles, like there always are, and that's why it's hard to do, and why you know to be successful at it, we solve the problems and it will give us an advantage. So we're excited about where they can lead us in the next couple of years.

Speaker Change: And that last question for me, just a follow-up, just because the driver monitoring is more near-term. I'm just kind of curious, when you look at the market opportunity there, even if it's just in Europe where there's like different regulation, if it's likely to expedite adoption relative to some other regions.

Speaker Change: What's your thoughts on the opportunity for how big that product offering could be if we look a few years down the line for the company? Is it going to be a material growth driver? I'm just curious how you think about that driver monitoring market.

Neil Boehm: And that last question for me, just a follow-up, just because the driver monitoring is more near term, I'm just kind of curious, when you look at the market opportunity there, even if it's just in Europe, where there are different regulations, if it's likely to expedite adoption relative to some other regions, what are your thoughts on the opportunity for how big that product offering could be if we look a few years down the line Is it going to be a material growth driver? I'm just curious how you think about the driver monitoring market.

Speaker Change: Yeah, I think it has the opportunity to be material to the overall growth of the business. You know, the beginning, if it's a baseline feature set, it will be slightly, it will be below corporate average margin profile because it is a more competitive product. But the revenue dollars are definitely significant and can and will really over the next few years provide some tailwind to our growth story.

Speaker Change: Appreciate it. Thank you all. I'll hop back into the queue.

Josh: Thank you, Josh.

Speaker Change: Thank you, one moment for our next question.

Neil Boehm: Yeah, I think it has the opportunity to be material to the overall growth of the business. You know, in the beginning, if it's a baseline feature set, it will be slightly below the corporate average margin profile because it is a more competitive product. But the revenue dollars are definitely significant and can and will really, over the next few years, provide some tailwind to our growth story.

Speaker Change: Yeah.

Speaker Change: Our next question comes from Ryan Brinkman of J.P. Morgan. Your line is now open.

Operator: I appreciate it. Thank you. I'll hop back into Q. Thanks, Josh.

Ryan Joseph Brinkman: Hi, great, thanks for taking my question.

Ryan Joseph Brinkman: I was hoping you could elaborate a little more on some of the customer or vehicle segment or product mix headwinds.

Speaker Change: you faced during the quarter that contributed to the softer revenue than one might have expected just looking at the headline production numbers.

Speaker Change: I know one of the things that changed the most during the quarter was lower production of battery electric vehicles. So curious if that might have been a driver. And then what gives you confidence that maybe some of these headwinds might be more temporal in nature when you look at the full year?

Operator: Thank you, one moment, for our next question. Our next question comes from the line of Ryan Brinkman of J.P. Morgan. Your line is now open.

Speaker Change: Yeah, if you look at, if you look at our primary headwind, um, was really driven by some of our largest customers were very impacted in the month of June . Um, and in fact, what's, what's the spirit part of the quarter was in April and May, those same customers were absolutely hitting their numbers or very close to their numbers.

Speaker Change: So what happened in June was very unusual in terms of what the impact was, how severe, how quickly, and then obviously the million-dollar question is how long-lasting are those impacts? Are they permanent trends? Were they one-time adjustments?

Steven R. Downing: Hi, great, thanks for taking my question. I was hoping you could elaborate a little more on some of the customer or vehicle segment or product mix headwinds you faced during the quarter that contributed to the softer revenue than one might have expected just looking at the headline production numbers. I know one of the things that changed the most during the quarter was lower production of battery electric vehicles, so curious if that might have been a driver, and then what gives you confidence that maybe some of these headwinds might be more temporal in nature when you look at the full year.

Speaker Change: From everything we're seeing, right, and I always hesitate to be optimistic or after something like that happens, but, you know, based on what we're seeing, it seems as though production will go back to pretty much an ordinary course, and the data so far in July also suggests that. Right now, as we sit here at this point, July is off to the start we had expected. We're right in line with where we expect the month to come out, so whatever happened in June definitely appears to be, at least at this stage, to be a one-time event. One of the things we are watching, though, is that those OEMs that were most impacted and that affected us the most,

Steven R. Downing: Yeah, if you look at our primary headwind was really driven by some of our largest customers being very impacted in the month of June. And in fact, what's the spirit part of the quarter was, in April and May, those same customers were absolutely hitting their numbers or very close to their numbers. So what happened in June was very unusual in terms of what the impact was, how severe, how quickly, and then obviously, the million dollar question is, how long-lasting are those impacts? Are they permanent trends?

Speaker Change: We're making sure that we're keeping an eye on releases, take rates, looking at the data as it rolls out to make sure if we see anything start to happen or repeat that we can adjust quicker to those changes than what we were able to in June .

Speaker Change: That's very helpful. Thanks. And then lastly, could you maybe provide an update on some of the smart home fire protection products and strategy that you talked about at CES?

Speaker Change: earlier this year. I know you were looking to maybe sign one of the big box retailers at some point during the year, maybe the summer. Any kind of update there?

Steven R. Downing: Were they just one-time adjustments from everything we're seeing, right? And I always hesitate to be optimistic or after something like that happens. But, you know, based on what we're seeing, it seems as though production will go back to pretty much an ordinary course. And the data so far in July also suggests that right now, as we sit here at this point, July is off to a good start, as we had expected; we're right in line with where we expect the month to come out.

Speaker Change: I'll give you a quick update relative to the product launch. So, the initial target was launching in the last half of, well, in Q3 here. Right now, we're looking at the first part of Q4 is when the launch will actually go. We've had some...

Speaker Change: development challenges in some of the testing on some of the features that we're working through right now and should be ready to go in the middle of Q4 to actually go to production.

Speaker Change: Great, thank you.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Our next question comes from the line of James Picariello of PNB Paribas. Your line is now open.

James Albert Picariello: Hey, good morning everybody. I want to ask about, I wanted to ask about your, your base interior mirror volumes and, you know, look, your, your largest customer is Toyota as a percentage of sales.

Speaker Change: They just announced last night that their production, global production, August through October , was going to be down 2% year-over-year. I'm just curious, based on...

Speaker Change: the timing lead lag between your sourcing with, you know, with a key OEM customer like that? Is it possible that you've already experienced?

Speaker Change: That type of forward-looking decline and that showing up in your week, you know, first half volume shipments.

Speaker Change: Yeah, I would say you're spot on. If you're talking about, you know, planned production reductions or volumes from an OEM perspective happening starting in, you know, July or August .

Speaker Change: You know, more than likely, given the lead times, especially with the international shipment piece, you know, we're going to see a lot of that play out four to eight weeks in advance of when an OEM actually experiences those pullbacks. So, it is highly likely that what we experienced in June was a leading indicator of some pullbacks from certain OEMs in the second half of this year.

Steven R. Downing: So whatever happened in June definitely appears to be, at this stage, a one-time event. One of the things we are watching, though, is those OEMs that were most impacted and that affected us the most, we're making sure that we keep an eye on releases, take rates, and looking at the data as it rolls out to make sure if we see anything start to happen or repeat, we can adjust quicker to those changes than we were able to in June.

Steven R. Downing: And then lastly, could you just maybe provide an update on some of the smart home fire protection products and strategy that you talked about at CES earlier this year? I know you were looking to maybe sign one of the big box retailers at some point during the year, maybe the summer. Any kind of update there?

Steven R. Downing: I'll give you a quick update relative to the product launch. So the initial target was to launch in the last half of, well, Q3. Right now, we're looking at the first part of Q4 as when the launch will actually happen. We've had some development challenges in some of the testing on some of the features that we're working through right now and should be ready to go in the middle of Q4 to actually go to production. Great, thank you.

Operator: Thank you one moment for our next question. Our next question comes from the line of James Picariello of BNB Paribas. Your line is now open.

Speaker Change: Yeah, and just to follow up on this and to get your perspective.

Speaker Change: Again, going back to the base, or not base mirror, but your interior mirror shipments, right down 5% through the first half, year over year.

Steven R. Downing: Hey, good morning, everybody. I want to ask about, I wanted to ask about your, your base interior mirror volumes. And look, your your largest customer is Toyota as a percentage of sales. They just announced last night that their production, global production, August through October, was going to be down 2% year of year. I'm just curious based on, The timing, the lag between your sourcing with, you know, with a key OEM customer like that. Is it possible that you've already experienced that type of forward-looking decline, and that's showing up in your week, you know, first half volume shipments? Yeah.

Steven R. Downing: Yeah, I would say you're spot on. If you're talking about planned production reductions or volumes from an OEM perspective happening starting in July or August, more than likely, given the lead times, especially with the international shipment piece, we're gonna see a lot of that play out four to eight weeks in advance of when an OEM actually experiences those pullbacks. So it is highly likely that what we experienced in June was a leading indicator of some pullbacks from certain OEMs in the second half of this year.

Speaker Change: industry production, global LVP has not been down 5%.

Speaker Change: You know, we obviously covered the Toyota dynamic, but yeah, just what's what is the what is going on?

Speaker Change: and the first half volume trends based on your customer mix.

Speaker Change: I mean, I imagine your total customer mix isn't right. I mean, we could track it. It's not down 5%. So, yeah, what's truly happening here? Thanks. Well, if you remember when we talked about the first quarter results, there was a couple of key Detroit automakers that were that were essentially.

Steven R. Downing: Yeah, and just to follow up on this and to get your perspective. Again, going back to the base, or not base mirror, but your interior mirror shipments are right down 5% through the first half year over year, industry production, and global LVP has not been down 5%. You know, we obviously covered the Toyota dynamic. But yeah, just what's what is going on? And in the first half, volume trends based on your customer mix? I mean, I imagine your total customer mix isn't right. I mean, we could track it. It's not down 5%. So yeah, what's truly happening here? Thanks.

Steven R. Downing: Well, if you'll remember when we talked about first-quarter results, there were a couple key Detroit automakers that essentially halted production for the entire first quarter. And so, I mean, you're having a little bit of that carry over into the second quarter as they have heavy dealer inventories that are still carrying through.

Neil Boehm: , and Neil Boehm. We have a lot of questions about the halted production for the entire first quarter. And so I mean you're having a little bit of that carry over into the second quarter as they have heavy dealer inventories that are still carrying through. But we know that with our we know that

Steven R. Downing: But we know that with our vehicle mix and where we're highly contented, North America, we know that growth is coming from FDM. So, you're not necessarily going to see unit growth in the North American market. It's going to be content growth, and that's how we grow the top line. So, it's nothing more than seeing specific OEMs having overweight production loads as they try to manage their inventory.

Speaker Change: Vehicle Mix and where we're highly contented, North America, we know that growth is coming from FDM. So you're not necessarily going to see unit growth in the North American market. It's going to be content growth.

Speaker Change: and that's how we grow the top line. So, it's nothing more than seeing specific OEMs having overweight production loads as they try to manage their inventory.

Steven R. Downing: Well, I think regional mix is one of the comments we made at the end of the prepared comments, and that's an important one to look at. If you look at Q2 on a year-over-year basis, Europe was down 5 percent, Japan, and Korea were down 4.5 percent. And so if you look at our primary markets, right, being Europe, North America, Japan, Korea, North America was relatively flat in total production volume, but, you know, you look at the weighted average of the other two-thirds of that, of our primary markets being down basically 5 percent, that was the single biggest impact.

Speaker Change: Well, and I think regional mix is one of the comments we made at the end of the Prepared Comments, and that's an important one to look at. If you look at Q2 on a year-over-year basis, Europe was down 5 percent, Japan and Korea was down 4.5 percent.

Speaker Change: And so if you look at our primary markets, right, being Europe , North America, Japan, Korea. So North America was relatively flat in total production volume. But, you know, you look at the weighted average of the other two-thirds of our primary markets being down basically 5%. That was the single biggest impact.

Steven R. Downing: The other one is that obviously, the business that we do have in China is primarily weighted toward base auto dimming, and that's a very volatile market, much tougher to predict than the rest of the world. And so those are the primary contributors to why you see IEC volumes being down on a year-over-year basis.

Steven R. Downing: Thank you guys. Thanks, James.

Operator: Thank you, one, one, for the next question. Our next question comes from the line of John Murphy of Bank of America. Your line is now open.

Steven R. Downing: Good morning, guys. I'm questioning sort of on similar lines as everybody else, but maybe just can you talk about the potential content intake rates on your different products, particularly FDM, on EVs versus ICE vehicles, and is sort of this sort of deluge of EV delays and, you know, pushdowns on volume to the right, something that might impact the business short term or potentially even long term, and just trying to understand sort of the delta you see on opportunity between ICE and EVs.

Steven R. Downing: Yeah, I think if you look at the impact of FDM and you look at our take rates, the interesting part there is that we actually don't have a huge exposure to EVs for FDM. If you look at FDM, trucks, SUVs, a lot of the weight is more towards that side, so we're set up really well in the future as it relates to the impact.

Steven R. Downing: The impact of EVs, especially on the Tesla model, is really the OEC impact. So we don't have the IEC business at Tesla. We do have a tremendous amount of business on outside auto dimming mirrors and home link products with Tesla. And so those are kind of your risk factors.

Steven R. Downing: If you look at the rest of the EV manufacturers, especially traditional OEMs, really, our take rates are very similar on EVs, on a per technology basis, very similar to EVs versus what we see on ICE vehicles. And so we're not anticipating this push out or slow down and the BEV rollout impacting our FDM, and that's really why we wanted to reinforce our outgrowth this year on FDM and pick up the half a million units. We really wanted to focus on that because, despite some of the trends that are happening between ICE and BEV, we still feel comfortable with our take rates and where our FDM trajectory has taken us.

Speaker Change: Impacting our MDM and Thats really why we wanted to reinforce our outgrowth. This year on <unk> and pick it up to half a million units, we really wanted to focus on that because despite some of the trends that are happening between ice and bev.

Speaker Change: We still feel comfortable with our take rates and where our MTM trajectory has taken us.

Steven R. Downing: That's very helpful. And then there is just one second question. I mean, we're not expecting this, but God forbid, you actually see sort of a continued weak volume environment going forward. And like I said, that's not what we're expecting. And I don't think this is really rational, but there's always, you know, you have to consider the risks to the downside. Is there opportunity internally, sort of on a micro basis, to take cost out or operate more efficiently? I mean, you guys are usually pretty good at that. I'm just curious if there's room for you there.

Speaker Change: That's very helpful. And then just a second question I mean, we're not expecting this but god forbid you actually would see sort of a continued weak volume environment going forward and like you said, that's not what we're expecting I don't think thats, a rationale, but theres always you have to consider the risk to the downside is there opportunity internally sort of on a micro basis to take.

Speaker Change: Cost out or operate more efficiently I mean, you guys are usually pretty good at data I'm just curious if there is room there.

Steven R. Downing: Yeah, and you really start to see it in the second quarter. We were able to limit the amount of overtime we were working during Q2 because of the lower volume on the other side. There's obviously, if this unfortunately continued, we'd expect to operate in a zero overtime environment and then obviously be focused on throughput. In a more controlled or slower processing platform like that, we would also expect scrap and yield costs to drop.

Speaker Change: Yeah, and you really start to see it already in the second quarter, we were able to limit the amount of overtime. We are working during Q2 because of the lower volume side. There is obviously if this unfortunately continued we would expect to operate in a zero overtime environment, and then obviously be focused on throughput and a more controlled or a slower process.

Speaker Change: <unk> platform like that we would also expect like scrap and yield cost to drop obviously free and some of those other expenses or things you can look to optimize when the business slows down slightly.

Steven R. Downing: Obviously, freight and some of those other expenses are things you can look to optimize when the business slows down slightly. So there's plenty of opportunity in a lower production environment for us to continue to cost optimize.

Speaker Change: So there is plenty of opportunity.

Speaker Change: In a lower production environment for us to continue to cost optimize its kind of a wild transition right. If you look at coming out of last year, where we're behind almost the entire year.

Steven R. Downing: It's kind of a wild transition, right? If you look at coming out of last year where we were behind almost the entire year, working overtime like crazy, and then finally starting to stabilize throughout the beginning of this year. June was a weird month. In fact, if you look, there were actually quite a few shipments that we had built for delivery that OEMs didn't pick up at the end of the quarter, which also impacted things. Those are always difficult, right?

Speaker Change: Working overtime like Crazy and then.

Speaker Change: Finally, starting to stabilize throughout the beginning of this year June was June was a weird month. In fact, if you look there was actually quite a few shipments that we had built for delivery that Oems didn't pick up at the end of the quarter, which also impacted things those are always difficult right when Oems kind of Vale towards the end of a quarter end of a month, it's always a tricky environment right you have releases you're building.

Steven R. Downing: When OEMs kind of bail towards the end of a quarter, the end of a month, it's always a tricky environment, right? You have releases you're building to, you build those products, whether they choose to actually pick them up or not is entirely up to them. It's one of the abnormalities of our industry for sure. So we're watching, though. And if you look at pretty much since the end of June, most customer behaviors have returned to normal. And so that's why I'm cautiously optimistic about what's going to happen and roll out through the second half of this year.

Speaker Change: Do you build those products, whether they choose to actually pick them up or not it's entirely up to them.

Speaker Change: The one of the abnormalities of our industry for sure. So we're watching now and if you look at pretty much since the end of June most customer behaviors have returned to normal and so that's why.

Speaker Change: Cautiously optimistic about what's going to happen in rollout through the second half of this year.

Steven R. Downing: And just one last real quick one. I mean, the stock's down a fair amount here, far below the 34, 43 you bought it back in the second quarter. Are you in a blackout period? Can you get more aggressive quickly? Because it seems like an interesting pullback here.

Speaker Change: And just one last real quick one I mean, the stock's down a fair amount here.

Speaker Change: Far below the 34 43, you bought it back in the second quarter are you in a blackout period can you get more aggressive quicker.

Speaker Change: Quickly because it seems like an interesting pullback here.

Steven R. Downing: Yeah, we are today, but let's just say Monday we won't be, and honestly, we think this is a way overreaction to what just happened, especially when you look at our second half guide, which if you take the midpoint of that guide, we're actually implying a 10% growth rate in the back half of this year. So despite, obviously, what happened and some one-time charges on some write-downs, If you actually look at cash generation on the business in Q2, it was better than last year. So we feel really good about where we're at, and whenever the market overreacts, you tend to see us get a little more aggressive. Okay, thank you.

Speaker Change: Yes, we are we are today, but let's just say Monday, we won't be and honestly. We think this is a way overreaction to what just happened, especially in when you look at our second half guide, which if you take the midpoint of that guide, we're actually implying a 10% growth rate in the back half of this year. So despite obviously what happened and some one.

Speaker Change: Time charges on some write downs.

Speaker Change: It wasn't that bad if you actually look at cash generation on the business in Q2, it was better than last year.

So we feel really good about where we're at and whenever the market Overreacts, Your Tennessee us get a little more aggressive.

Operator: Okay. Thank you very much, guys. Have a great weekend. Thanks. Thanks to you, too.

Speaker Change: Okay. Thank you very much guys have a great weekend.

Speaker Change: Okay. Thanks, you too.

Operator: Thank you, Wong Wen, for the next question. Our next question comes from the line of Mark Delaney of Goldman Sachs. Your line is now open.

Speaker Change: Thank you Juan Lin for next question.

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

Steven R. Downing: Yes, good morning. Thank you very much for taking the time to answer my question. The first one is about the second half; 24 revenue got in. So Steve, you mentioned some normalization and customer behavior, and you're using customer schedules as an indicator for how you're guiding the second half of the year. I do want to better understand, given the gap you saw in June between schedules and actual sales, is there any extra conservatism you're using in the second half of this year? So some sort of haircutting you're doing relative to those schedules is perhaps a bit more than typical. That's the anticipation for the second half, 24 guys.

Mark Trevor Delaney: Yes, hi, good morning, and thank you very much for taking my question. The first one is about the second half 'twenty for revenue guidance, Steve you mentioned, some normalization in customer behavior, and youre using customer schedules as an indicator for how youre guiding the second half of the year I just wanted to better understand given the gap you saw in June between schedules.

Mark Delaney: Actual.

Speaker Change: Sales is there any extra conservatism of your union in the second half of this year.

Speaker Change: So sort of haircut and youre doing relative to those schedules as perhaps a bit more than the typical.

Speaker Change: The second half.

Steven R. Downing: Yeah, I'd say we're, you know, we've modeled this both on fully customer orders and our internal forecast, you know, based off of the global forecast. We also look at customer orders and behavior.

Speaker Change: Yes, I'd say I'd say, we're we've modeled this both to fully customer orders and our internal forecast based off.

Speaker Change: The global forecast.

Speaker Change: We also look at customer orders and behavior.

Steven R. Downing: In all these scenarios, we keep kind of popping back to the numbers that we provided today for the guide. And one of the things that's interesting there is, you look at what happened in the month of June and if you take the rest of the year out of it. So for the first six months of the year, that was an abnormality that happened in the month. It's always interesting when something like this happens, and you can't put your finger on exactly what the issue was.

Speaker Change: All of these scenarios, we keep kind of popping back to the numbers that we provided today for the guide and one of the things Thats interesting there is.

Speaker Change: You look at you look at what happened in the month of June and if you take the rest of the year out of it. So the first six months of the year that was an abnormality that happened in the month.

It's always interesting when something like this happens and you can't put your finger on exactly what that issue was.

Steven R. Downing: But what we're seeing in terms of customer behavior, releases, and light vehicle production forecast for the second half, you know, we truly believe that these numbers are achievable. Normally, when IHS comes out and they have, or S&P, sorry, when S&P comes out with their production numbers, we usually are a little more conservative than they are when it shows growth. I would say we're still doing that. It's not a drastic change, but I would say, you know, normally a 1% to 2% is kind of our pessimism that we build into most of their forecasts. And so that's pretty consistent with what we're doing in the second half guide.

Speaker Change: But what we're seeing in terms of customer behavior releases and fork and light vehicle production forecast for the second half we truly believe that these numbers are achievable.

Speaker Change: Normally when IHS comes out and they have or S&P, sorry, when S&P comes out with their production numbers. We usually are a little more conservative than they are when it shows growth I would say, we're still doing that it's not it's not a drastic change, but I would say you know normally up 1% to 2% wake is kind of our pessimism that we build in the most most.

Speaker Change: Their forecast and so that's pretty consistent with what we're doing in the second half guide.

Steven R. Downing: A very helpful economist. Thanks for that.

Speaker Change: That's very helpful. Thanks for that.

Steven R. Downing: My second question was to better understand the gross margin expansion opportunity, and part of that was coming from improved input costs. I think supply redesigns as well as trying to get some improved pricing from some of your materials and from your suppliers. Maybe you can provide an update on how that's tracking, and have you been affected at all by some of this volatility in the industry? Thank you. Yeah, so, a great question.

Speaker Change: The question was to better understand the gross margin expansion opportunity part of that was coming from improved input costs.

Speaker Change: <unk> supply redesigned as us as well.

Speaker Change: Trying to get some improved pricing in front of some of your.

Speaker Change: Materials from your suppliers, maybe you can provide an update on how that's tracking and have you been affected at all with those efforts by some of this volatility in the industry. Thank you.

Steven R. Downing: Yeah, so, great question. If you look actually through the quarter, comparing it to last quarter or last year's second quarter, PPV, or cost reductions on our input side, really performed as we had hoped, kind of like what we had talked about at the beginning of the year. It stepped up from the first quarter of this year sequentially and last year. I mean, it contributed about 150 to 200 basis points to the positive on the gross margin.

Speaker Change: Yes. So great question, if you look actually through the quarter comparing it to last quarter or last year's second quarter.

<unk>, our cost reductions on our inputs side really performed as we had hoped kind of like what we had talked about at the beginning of the year. It stepped up from the first quarter of this year sequentially and last year I mean, it contributed about 150 to 200 basis points to the positive.

Steven R. Downing: Unfortunately, with the sales levels the way they were, a lot of that was offset by fixed overhead and the mixed weakness that we talked about in the prepared comments as it relates to FDM and outside mirrors. So outside of that, yeah, we're really happy with how the purchase cost reductions have contributed to the margin expansion so far this year.

Speaker Change: On the gross margin Unfortunately.

Speaker Change: With the sales levels the way they were.

Speaker Change: A lot of that was offset by fixed overhead and the mix weakness that we've talked about in the prepared comments as it relates to FTM outside mirrors. So outside of that we're really happy with how the purchase cost reduction.

<unk> have contributed to the margin expansion so far this year.

Speaker Change: Okay.

Speaker Change: Thank you.

Mark Trevor Delaney: Thanks Mark.

Operator: Thank you one moment for the next question. Our next question comes from the line of David Whiston of Morningstar. Your line is now open.

Speaker Change: Thank you born woman for next question.

Mark Trevor Delaney: Yes.

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

David Whiston: Thanks, Good morning.

David Whiston: It sounds like the pullback was really across the board. It wasn't just in crossovers Suvs primarily correct.

Speaker Change: That's correct.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: It sounds to me too that your customers did really didnt give you any explanation as to what happened in June.

Steven R. Downing: No, unfortunately, they only tend to talk to us when they need us to do something that helps them.

Speaker Change: No. Unfortunately.

Speaker Change: Unfortunately, they only tend to talk to us when they need us to do something.

Speaker Change: That helps them so.

Speaker Change: So yes, there has been its unfortunately, its very quiet.

On the OEM side in terms of what happened I think personally if im guessing im going to say that there was a lot of the inventory on dealer lots is definitely improve so I think there was a portion of it that was hey inventories. There we're not we're not going to necessarily try to shove as many cars through this environment and kind of right size. The other part of it is I believe is that probably from an overall.

Speaker Change: Raw material side, if youre, an OEM I think they probably had been building inventories given the shortages that happened over the last couple of years and they are probably at a point, where they are at a level of like normalcy. When it comes to inventory. So I think there's probably a little bit of both things happening that drove this kind of a onetime change in shipment.

Steven R. Downing: Okay, um... So what about the Stellantis news this week that they want to pull back pretty hard in the second half of this year? That doesn't concern you for meeting your revised guidance?

Speaker Change: Okay.

Speaker Change: So what about the Atlantis news this week that they want to pull back pretty hard in the second half of this year that that doesn't concern you for meeting your revised guidance.

Steven R. Downing: No, it does. I mean, it's one of the things that are honestly partially reflected in the global light vehicle production data, assuming that there is some pullback with them in the second half of this year, and how severe that is. The comments are tough because if you look at where they're at, I mean, if that's in France, if that's more in Europe for volume vehicles, that's not going to impact us nearly as much as if it were Dodge or Chrysler vehicles where we have better content. So the question isn't just about whether or not they're going to pull back; the question is in what markets and on what vehicles and what platforms.

No. It does I mean, thats one of the things Thats honestly.

Speaker Change: It's partially reflected inside of the global light vehicle production data is assuming that there is some pullback with them in the second half of this year, how severe that is that the comments are tough because if you look at where they're at I mean, if that's in France, if thats more.

Speaker Change: In Europe for <unk>.

Speaker Change: Volume vehicles, that's not going to impact us nearly as much as if it's Dodge Dodge.

Speaker Change: Dodge or Chrysler vehicles, where we have better content. So the question isn't just about whether or not theyre going to pull back. The question is in what markets and what vehicles and what platforms.

Speaker Change: Yes.

Steven R. Downing: Okay, and finally, what drove the aircraft window increase?

Speaker Change: Okay, and then finally, what drove the aircraft window increase.

Steven R. Downing: Really, this is them just finally starting to build planes again. The last couple years have had very little revenue with Boeing especially. Now we're actually into the launches with Airbus as well, so Boeing is getting back on their feet in terms of 787 production, a little bit on the 777 side, and then the Airbus A350 product as well. And we're in refresh cycles on some of the original planes, so you get a little bit...

Speaker Change: Really this is them just finally, starting to build planes again.

Speaker Change: The last couple of years have been very little revenue with Boeing, especially now we're actually enter the launches with Airbus as well so Boeing getting back on their feet in terms of 787 production a little bit on the triple seven side and then the Airbus <unk> hundred 50 product as well and we're in refresh cycles on some of the original plan. So you get.

Steven R. Downing: And we're in refresh cycles on some of the original planes, so you get a little bit of... not aftermarket, but refurb, replacement sales, replacement sales of existing planes.

Speaker Change: A little bit of.

Speaker Change: Aftermarket not aftermarket.

Speaker Change: <unk> replacement sales placement sales of existing clients.

Speaker Change: Okay. Thanks, guys.

Speaker Change: Thank you Dave.

Operator: Thank you, one moment, for our next question. Again, as a reminder to ask a question, you'll need to press star 11 on your telephone. Our next question comes from a line with Ron Jebsikow of Guggenheim Security. Your line is now open.

Speaker Change #100: Thank you gentlemen for next question.

Speaker Change #101: Again as a reminder to ask a question you will need to press star one on your telephone.

Ronald John Jewsikow: Our next question comes from the line of Ron <unk> of Guggenheim Securities.

Steven R. Downing: Good morning and thanks for taking my question. Maybe I just want to clarify the comment that if revenues came in line with your expectations, your gross margins also would have been in line with plan. I guess we're calculating like a 79% decremental margin versus the first quarter on the gross profit line. So the downside, at least optically, does look like there's a bit more than just revenue downsides. Any color you can provide on whether it's a mix or some operational challenges caused by the late changes to schedules that you saw in June. And I guess also it sounds like that's normalized into July, but just kind of to repeat that it has.

<unk>.

Ronald John Jewsikow: Good morning, and thanks for taking my question.

Speaker Change #103: Okay Robert.

Speaker Change #104: Maybe just first wanted to clarify the comment that if revenues came in line with your expectations, but your gross margins also would've been in line with plan.

Speaker Change #105: I guess, we're calculating like a 79% decremental margin versus the first quarter on the gross profit line.

Speaker Change #106: So the downside at least optically. It does look like there is there is a bit more than just revenue downside.

Speaker Change #107: Any color you can provide on whether it's mix or some operational challenges caused by the late late changes the schedules that you saw in June and I guess also it sounds like that's normalized into July, but just kind of repeat that.

Steven R. Downing: Well, I think if you take the $50 million and you look at a contribution margin of 45 to 50 percent on those incremental sales, you can model it pretty closely. That gets us roughly in line, by itself gets us pretty darn close to in line with Q1 gross margin performance. The mixed issue that we talked about was really OECs being weaker than expected. And that's not because, not saying that they were down, not talking about just the fact that it's down, it's really the percentage of total revenue driven by OECs. So whenever that's a higher percentage, obviously, that's a tailwind.

Speaker Change #106: <unk>.

Speaker Change #108: Well I think if you take the $50 million and you look at our contribution margin of 45% to 50% on those on those incremental sales you can model out pretty closely that gets us roughly in line by itself gets us pretty darn close to in line with Q1 gross margin performance.

Speaker Change #108: The mix issue that we talked about was really <unk> and weaker than expected and thats not because <unk> not saying that they were down and certainly not.

Speaker Change #108: Talking about just the fact that it's down it's really the percentage of total revenue driven by overseas. So whenever that's a higher percentage obviously, that's a tailwind thats what we were expecting was.

Steven R. Downing: That's what we were expecting, the amount of OEC as a percentage of sales basis to be stronger than it was. So that's one big factor. The other was the regional mix. If you look at Q2, like I mentioned before, regional mix, right? Europe was down 5 percent, Japan, Korea was down 4.5 percent, and China was up 7.7 percent. So given the fact that we're underweight China and that that was really the only growth story in the quarter from a LVP standpoint, obviously, that didn't set up well for us.

Speaker Change #109: The amount of what we see as a percentage of sales basis being stronger than it was so that's the one big factor. The other was the regional mix. If you look at Q2 like I've mentioned before regional mix right Europe was down 5% in Japan Korea was down four 5%.

Speaker Change #109: China was up seven 7% so given the fact that we're underweight China.

Speaker Change #109: And that that was really the only growth story in the quarter from a <unk> standpoint.

Steven R. Downing: If you look at basically our primary markets, North America barely up, like up 1 percent or something, and then Europe and Japan and Korea both down close to 5. That's really the regional mix issue. And then the product mix issue was OEC being a little light, and FDM on a percentage of sales being lighter than we expected. Those are the single biggest drivers of the margin weakness.

Speaker Change #109: Obviously that Didnt set up well for us if you look at basically our primary markets North America barely up like up 1% or something and then Europe, Japan Korea, both down close to five that's really the regional mix issue and then the product mix issue was that we see being a little light.

Speaker Change #109: On a percentage of sales being lighter than we expected.

Speaker Change #109: Those are the those are the single biggest drivers of the margin weakness.

Steven R. Downing: Okay, that makes sense. And the drop in the tax rate being driven by foreign-derived intangible income, I think that implies foreign shipments are tracking better, at least as a percentage of the business, relative to North America. Is there anything you would call out? You mentioned the China business being up this quarter, at least for base mirror, but anything that's driving the lower tax rate or is there kind of other noise in that line?

Speaker Change #109: Okay.

Speaker Change #110: It makes sense and the drop in tax rate being driven by foreign derived intangible income I think that implies foreign shipments are tracking better at least as a percentage of the business relative to North America.

Speaker Change #111: Is there anything you would call out you called out the China business being up this quarter at least for base mirror, but anything thats driving the lower tax rate or is there kind of other noise in that line.

Steven R. Downing: I mean, it's a combination of the FDII and some discrete benefits from stock-based compensation, and R&D tax credits. I mean, the biggest reason that gets us from 21 down to 15 is FDII. I wouldn't say it's heavily outperformed or higher or lower than what we were initially expecting. It just ends up pushing us a little bit lower on the guide and tightens up for the year.

Speaker Change #112: It's a combination of the FDA, we have some discrete benefits from stock based compensation R&D tax credits I mean, the biggest reason that gets us from 'twenty, one down to <unk> as <unk> I wouldn't say, it's heavily outperform or higher or lower than what we were initially expecting it just ends up pushing us a little bit lower on the on the guide.

Speaker Change #112: And tightens up for the year.

Steven R. Downing: Okay, and then for FDM launches, I think last quarter Neil and the team called out one more launch customer this year, and you've had three this quarter, so is there the expectation for any additional customers as we move through this year, or is there a timeline for the next customer that you can provide?

Speaker Change #113: Okay, and then for <unk> launches I think last quarter, Neil and the team called out one more launch customer this year and you had three this quarter. So is.

Speaker Change #114: Is the expectation for any additional customers as we move through this year or is there a timeline for the next customer that you can provide.

Steven R. Downing: Yeah, I'm looking here. I think it looks like, well, there's a little bit of hesitation on my side because it's looking like it's later this year or early next year. So right now, it looks like we'll have an additional one late this year or early 2025. And there could be an additional one in 2025 then as well.

Speaker Change #115: Yes, Im looking here I think it looks like well there is a little bit of hesitation on my side because it seems like it's later this year, we will see an additional one it might move into the beginning part of next year. So right now it looks like we will have an additional one late this year or early 2025.

Speaker Change #115: There could be an additional one in 2000 25 billion as well.

Steven R. Downing: Okay, thanks. I appreciate that, and I'll hop back in the queue. Thanks for taking my question. Thanks, Ron.

Okay. Thanks, I appreciate that and then I'll hop back in the queue. Thanks for taking my questions.

Operator: Thanks, Ron. Thanks, Rob.

Ron: Thanks, Ron Thanks, Rob.

Josh Wilberski: Thank you. I'm showing no further questions at this time. I would now like to turn it back to Josh Roburski for closing remarks.

Speaker Change #117: Thank you I'm showing no further questions at this time I would like to turn it back to Joshua Persky for closing remarks.

Operator: Thank you everyone for your time and questions today. I hope you have a great weekend.

Joshua Persky: Thank you everyone for your time and questions today, and hope you have a great weekend.

Operator: Thank you for your participation in today's conference. This does conclude the program. We now disconnect.

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

Joshua Persky: Okay.

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Joshua Persky: Yeah.

Joshua Persky: Okay.

Joshua Persky: [music].

Joshua Persky: Okay.

Joshua Persky: Okay.

Joshua Persky: [music].

Joshua Persky: Okay.

Joshua Persky: [music].

Joshua Persky: Yes.