Q3 2024 Gentex Corp Earnings Call
Okay.
Speaker Change: Good day, and thank you for standby and welcome to the Gentex Corporation third quarter 2024 financial results Conference call. At this time, all participants are in a listen only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session.
Speaker Change: Ask a question during the session you will need to press star one on one of your telephone you will then hear an automated message of watching your hand this race.
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Speaker Change: Please be advised that today's conference is being recorded.
Speaker Change: I'd now like to hand, the conference over to your Speaker today, Josh O'bremski director of Investor Relations. Please go ahead.
Speaker Change: Thank you.
Joshua Persky: Good morning, and welcome to the Gentex Corporation third quarter 2024 earnings release Conference call I'm, Joshua Persky, 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.
Speaker Change: All contents of this conference call are property of Gentex Corporation.
Speaker Change: And may not be copied published reproduced rebroadcast retransmitted transcribed or otherwise redistributed Gentex Corporation will hold responsible and liable any party for any damages incurred by Gentex Corporation with respect to any unauthorized use of the contents of this conference call. This conference call contains forward looking information within the meaning of the Gentex Safe Harbor statement included in the <unk>.
Reports third 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 will now hand, the call over to Steve Downing for our prepared remarks, Steve.
Speaker Change: Josh.
Speaker Change: For the third quarter of 2024, the company reported net sales of $608 $5 million compared to net sales of $575 $8 million in the third quarter of last year.
Speaker Change: For the third quarter of 2020 for global light vehicle production declined by 5% versus last year as light vehicle production weekend across all major regions, but especially in our primary markets.
Speaker Change: When compared to the third quarter of last year light vehicle production declined by 6% in our primary markets of North America, Europe, Japan and Korea.
Speaker Change: This decline was significantly worse than a 3% quarter over quarter decline forecasted at the beginning of the quarter.
Speaker Change: The light vehicle production declines resulted in a sales shortfall of approximately $25 million to $30 million for the quarter, but despite that weakness in our end markets. We are able to outperform our primary markets by 12%.
Speaker Change: For the third quarter of 2024, the gross margin was 33, 5% compared to a gross margin of 33, 2% for the third quarter of last year.
Speaker Change: The gross margin improved as a result of the higher revenue levels and purchasing cost reductions, which were partially offset by unfavorable product mix related to OEM mix geographical mix and IAC versus how we see mix.
Sequentially. The gross margin improved by 60 basis points as a result of the higher sales levels versus the second quarter and lower pricing reserves in the third quarter versus the first half of this year.
Speaker Change: Overall, we are pleased with the sequential improvement in gross margin, but the third quarter was still behind our margin forecast due to lower than expected sales driven by light vehicle production shortfalls product mix issues and overhead inefficiencies we.
Speaker Change: We remain committed to our gross margin recovery plan that we laid out over the last 18 months, but given the shifts in the market and light vehicle production mix, we expect that the company's margin recovery target won't be fully achieved until 2025.
Speaker Change: Operating expenses during the third quarter of 2024 increased by 13% to $78 $3 million compared to operating expenses of $69 million in the third quarter of last year.
Operating expenses increased quarter over quarter, primarily due to staffing and engineering related professional fees that are in line with our budget for the year and are primarily dedicated to R&D and launches of new programs and products.
Speaker Change: We expect that operating expenses will continue at the current pace for the rest of this year, despite the lower than forecasted light vehicle production and sales levels, we have experienced over the last few quarters.
Speaker Change: Due to the unexpected reduction in light vehicle production. This year, our R&D spend has outpaced sales growth on a percentage basis, which has negatively impacted on operating margin, but as we head into 2025, our operating expense growth should moderate and move back to a normalized growth rate that is more directly correlated to sales growth.
Speaker Change: The growth in operating expenses being driven by several new launches that are currently in development and expected to launch over the next two years and will provide growth opportunities for the company over the next several years as well as research projects in support of New technologies that we have showcased at CES. The last few years.
Speaker Change: Income from operations for the third quarter of 2024, it was $125 $7 million compared to income from operations of $122 $4 million for the third quarter of last year.
Speaker Change: Their income was $19 $7 million during the third quarter of 2024 compared to other income of $2 $1 million in the third quarter of last year.
Speaker Change: The change was primarily driven by noncash gains of $14 $5 million, resulting from mark to Mark adjustments and other at market adjustments of certain holdings within the company's tech investment portfolio as well as interest income from the Companys investment portfolio during.
Speaker Change: During the third quarter of 2024, the company had an effective tax rate of 15, 7%, which is primarily driven by the benefit of the foreign derived intangible income deduction.
Speaker Change: Net income for the third quarter of 2024 was $122 5, million% to 17% increase compared to net income of $104 $7 million for the third quarter of last year. The increase in net income for the third quarter was driven by the increase in net sales income from operations and other income.
Speaker Change: Compared to the third quarter of last year.
Speaker Change: Earnings per diluted share for the third quarter of 2024 were <unk> 53 and.
Speaker Change: An 18% increase compared to earnings per diluted share of <unk> 45 for the third quarter of last year.
Speaker Change: Earnings per diluted share for the third quarter of 2024 were positively impacted by the increased net sales and operating income as well as the increases in other income for the quarter.
Speaker Change: Thank you and I'll now hand, the call over to Kevin for some further financial guidance. Thanks.
Kevin: Thanks, Steve <unk>.
Kevin: Automotive net sales in the third quarter of 24 were $596 5 million compared to $564 5 million in the third quarter of 'twenty three.
Kevin: Auto Dimming mirror unit shipments decreased by 3% during the third quarter of 2004 compared to the third quarter of 'twenty three.
Kevin: Other net sales in the third quarter of 2024, which includes Dimmable aircraft Windows and fire protection products were $12 million compared to other net sales of $11 3 million in the third quarter of 2003.
Kevin: Fire protection sales increased by $1 8 million for the third quarter of 24 compared to the third quarter of last year and demo aircraft window sales decreased by $1 9 million for the third quarter of 24 compared to the third quarter of 2003.
Kevin: Additionally, in the third quarter of 24, the company recorded its first official sales of medical devices of <unk> 8 million from shipments of the previously acquired ESA co product line and business.
Kevin: Share repurchases during the third quarter of 24, the company repurchased three 2 million shares of its common stock at an average price of $30 16 per share as of September 30th 24. The company has approximately $10 1 million shares remaining available for repurchase pursuant to its previously announced share repurchase plan the company intends to continue to.
Kevin: Repurchase additional shares of its common stock in the future and support of the previously disclosed capital allocation strategy, but share repurchases will vary from time to time and will take into account macroeconomic issues market trends and other factors the company deems appropriate.
Kevin: Looking at the balance sheet, the balance sheet comparisons mentioned today or as of September 30th 24, and compared to December 31 of 2023 cash and cash equivalents were $179 6 million compared to $226 4 million short and long term investments combined with $346 1 million up from $299 1 million.
Kevin: Which includes fixed income investments as well as the company's equity and cost method investments accounts receivable was $356 3 million.
Kevin: From $321 8 million due to the timing of sales during the third quarter inventories were $449 3 million up from $402 5 million and accounts payable decreased to $182 6 million from $184 4 million.
Kevin: Looking at the preliminary cash flow items for the quarter third quarter third quarter 2024 cash flow from operations was $84 7 million compared to $125 9 million in third quarter of last year and year to date cash flow from operations was $343 8 million compared to $367 7 million for calendar year 'twenty three.
Kevin: Capital expenditures for the third quarter were $39 3 million compared to $31 1 million for the third quarter of last year and year to date capital expenditures were $103 million compared to $121 4 billion for calendar year 'twenty three.
Kevin: And depreciation and amortization for the third quarter was $22 9 million compared with $22 2 million for the third quarter of 2003 and year to date depreciation and amortization was $70 9 million compared with $71 million per year to date 23.
Speaker Change: I'll hand, the call over to Neil for a product update.
Neil: Thank you Kevin the third quarter of 2024 was again, a busy launch quarter in the quarter. We had 25 net new nameplate launches of our interior and exterior auto dimming mirrors and electronic features.
Neil: The first three quarters of 'twenty four have 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.
Neil: The full display mirror product had another great quarter with nine additional nameplates launching in the quarter.
Neil: We are now shipping full display mirror on over 124 nameplates globally and it continues to have great momentum on the full range of platforms from luxury to volume brands.
Neil: Even with all the changes in light vehicle production, we are still on track in 2024 to achieve our goal of an incremental 500000 units of full display mirror over the 2023 units shipments.
Neil: Also while we're launching a lot of products and technologies, we are continuing to evaluate opportunities to reduce the bill of material of existing programs as well as execute on the <unk> launches. We currently have in process.
This focus and effort will increase significantly as we move through the last part of 2024 and into early 2025, as we know that these improvements in our bill of materials and increases in efficiencies across the organization are key to our ability to achieve our gross margin objectives as a company.
Speaker Change: I'll now hand, the call back over to Steve for guidance and closing remarks.
Steve: Thanks Neil.
Speaker Change: The company's current forecast for light vehicle production for the fourth quarter of 2024 and full year 2024, and 2025 are based on the mid October 2020 for 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 4% for the fourth quarter of 2024 versus the same quarter last year, while light vehicle production in our primary markets of North America, Europe, Japan, and Korea is expected to be down 6% in the fourth quarter of 2024 compared to last year.
Speaker Change: <unk>.
Speaker Change: For calendar year 2020 for light vehicle production in North America, Europe, Japan, Korea, and China is now forecasted to decline approximately 2% compared to light vehicle production last year.
Speaker Change: Light vehicle production for calendar year, 2025 is forecasted to increase by 1% compared to calendar year 2024.
Speaker Change: <unk> fourth quarter, 2024, and calendar years, 2024, and 2025 forecasted vehicle production volumes from S&P Global mobility are included in our press release from this morning.
Speaker Change: Based on this light vehicle production forecast and actual results for the first nine months of 2024, we are making certain changes to our previously provided guidance for calendar year 2024 as follows.
Speaker Change: Revenue for the year is now expected to be between 235 and $2 $4 billion.
Gross margins for the year are now expected to be between 33, and a half and 34%.
Speaker Change: Operating expenses are still expected to be between $295 and $305 million. Our estimated annual tax rate is now forecasted to be between 15 and 15, 5% cap.
Speaker Change: Capital expenditures are now expected to be between 150 and $175 million depreciation.
Speaker Change: Depreciation and amortization is now forecasted to be between 90 and $95 million.
Speaker Change: The company continues to be on pace for a record revenue in 'twenty four and 'twenty five despite significant changes in the light vehicle production environment vehicle mix and regional mix that have impacted the production landscape.
Speaker Change: Obviously, the actual and forecasted light vehicle production deterioration has impacted our total revenue estimates for 2024, and 2025, but our 12% outperformance versus the underlying vehicle production numbers in our primary markets. During the third quarter gives us renewed confidence in our ability to continue to outperform the market.
Speaker Change: While the teams have done a phenomenal job, creating and executing our margin recovery plan industry conditions have created a slower growth environment that we intend to address with increased cost focused expense control and lower capital expenditures that more closely align with our updated revenue expectations as we have indicated the timely.
Speaker Change: To achieve our targeted gross margin of $35 to 36% will likely push into the 2025 calendar year, but we remain confident in our ability to accomplish our stated goal. Despite the industry headwinds that completes our prepared comments for today and we can now proceed to questions.
Speaker Change: Thank you.
Speaker Change: As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.
To withdraw your question. Please press star one again.
Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Luke junk with Baird. Your line is now open.
Luke Junk: Great. Thanks for taking the questions and good morning, everyone.
Speaker Change: Good morning.
Luke Junk: So let's start with hoping you could just walk us through the key growth drivers this quarter.
Luke Junk: Just a few points of growth in underlying your shipments in terms of outgrowth seems like FTM was a big contributor maybe if you could expand on FTM puts and takes and also just the factors supporting your unchanged full year expectation in what's obviously, a pretty dynamic market and beyond anything else that you'd call out that had an outsized impact this.
Luke Junk: Thank you.
Speaker Change: Yes, if you look at it. Thanks Luca if you look at the actual quarter like we referenced in the table IC and always see volumes were actually down on a year over year basis by FTM help pick up the rest of that difference. There is also some other advanced features that did well in the quarter.
Speaker Change: But if you actually look at the bulk of that growth came from FTM growth.
Speaker Change: Look I think you also might have mentioned question about like OEM side. So I mean, obviously there were some there were some ups and downs in the quarter based on different Oems and how they performed GM was quite strong, especially on the <unk> side for us in the quarter. There was a couple of others that obviously struggled not only with overall production.
Speaker Change: <unk>, but also some featuring content that caused some headwinds in the quarter.
Speaker Change: Yes.
Speaker Change: Understood and then for my follow up Steve just a bigger picture question in Opex bandwidth become.
Speaker Change: Creasing the challenging backdrop as you alluded to in your comments Opex growth. This year still looks a lot like it did in 2002 and 23 when production was growing high single digits and overall pushing around 13%.
Speaker Change: 14% of sales this year, just as you now contemplate the lower industry growth next year as well plus the gross margin improvement just being pushed out a little bit.
Speaker Change: Can you just double click on the opportunities.
Speaker Change: To rationalize spending realize there's still a lot of balls in the year from an engineering standpoint, right now as you drive towards those launches. The next couple of years, but can you just help us understand the path to slowing the growth rate in Opex next year and just.
Speaker Change: Percentage of sales more broadly where do you think that.
Speaker Change: To be on a more strategic standpoint as well thank you.
Speaker Change: Yes, it's a great question. If you look at if you look at our strategy as it relates to especially the R&D spend if you look at Opex. The SG&A side has actually been much.
Much more muted in most of that money has been dedicated towards R&D expenses and really it's been driven by commitments that we've already made a customers committed timelines on launches of a lot of the new features we've got several launches right now of our Dms and CMS cabin management solution. Those are obviously very in depth launches continued.
Speaker Change: On the <unk> front, and then on more on the or side.
Speaker Change: A lot of stuff that we've showed at CES that continues to consume resources that we continue to make great progress in the development of those technologies and are very optimistic about their ability to get to market over the next several years.
So that's kind of the current commitments that are driving the right to stay where it was and not and not trying to cut that because of the opportunities we see for growth from those developments, but then also the already customer committed developments that we have in place.
Speaker Change: Some of them are also the place product that we talked about so if you look at the E site launch so our first med Tech launch and then also our place products. So the detector products for our consumer.
We've continued to work on those and are approaching launches on many of those and Thats part of the reason why we see the ability to control that spend or at least the growth rate of that spend as we head into 2025, we know that.
Speaker Change: Lot of the programs that we've been in heavy development on we'll be launching and so we'll be able to redeploy some of those resources to new programs, but also we've had to add a lot of contractors to help get us over this hurdle rate and so as we move through those launches and as they move into production, we will be able to readdress, what does that staffing level look like what are the appropriate spends and what is it.
Speaker Change: What is it more of a maintenance level of R&D that we need based off the future direction of the company.
Speaker Change: Got it I appreciate that and I'll leave it there. Thank you.
Speaker Change: Thanks Luke.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of James Picariello with BNP Paribas. Your line is now open.
Hi, everybody.
James Picariello: Good morning, My first my first question is on <unk>.
James Picariello: The implied growth over market for next year right. So so this year's guidance now calls for five points.
James Picariello: And then for next year you were targeting.
James Picariello: Growth of our marketing six points now that looks.
Speaker Change: Thats trending towards four so just what's what's informing your update here on the growth over market really it's yes, I think youre probably onto it you just don't want to say it yourself, but really it's we're a little more pessimistic on what those published vehicle production volumes are.
Speaker Change: And so we would we would target that our outperformance is still in line with what you are saying, we're just manually adjusting that IHS the S&P numbers.
Speaker Change: More than what they published.
Speaker Change: Yes, Okay, that's a fair comment.
Speaker Change: My follow up just on gross margin, so 35% to 36%.
Achieved next year is that.
Speaker Change: Framed similarly to how it was for this year, where it's achieved by a certain quarter next year and then my very quick follow on to that is the investment income.
Speaker Change: Within the ETF spreadsheet here, it's been extremely choppy last quarter and this quarter is their stability from from here on.
Speaker Change: Thats It from me thanks.
Speaker Change: Yes, I think on that one real quick I would say that we would expect more stability in other income as we move forward on there is two specific incidences that happened last quarter and this quarter both of which were the exact involve the same underlying security and thats, what and Thats what drove both those changes.
Speaker Change: So if you look if you average those two out.
Speaker Change: Fairly flat.
Speaker Change: And so if you take that out we wouldn't expect that to happen again as we move forward.
Speaker Change: And then the other half of your question the margin all of the margin profile, yes. So.
Speaker Change: Normal as we head into 'twenty five I mean, despite all of the industry.
Speaker Change: Production Choppiness, we would expect the margin profile to really perform like it doesn't a normal year, so you'd see a little bit of a downturn.
Speaker Change: In Q1, and then Q2 Q3 Q4, we continue to build assuming those that our sales levels hit what we're expecting them to and so usually by mid second quarter, we're fully operational on PPV that we get from our supply base.
Speaker Change: Through most of the pain from the customer pricing side, and then we're starting to get into operational efficiencies of the new launches that are happening in the year for the year and so.
Speaker Change: Probably on a on a put a thumb in the air I would say probably the ability to hit that would be towards the back half of the year. It's not out of the line of questioning that it could happen sooner than that but I would say that's historically when we've had our best performances in the second half of the year.
Speaker Change: I appreciate it thanks guys.
Speaker Change: Thanks James.
Speaker Change: Our next question comes from the line of Ryan Brinkman with Jpmorgan. Your line is now open.
Ryan Brinkman: Great. Thanks for taking my question I, just wanted to check in with you on what.
Ryan Brinkman: Impact might've been on your operations during the quarter from sudden or unexpected customer downtime due to part shortages or does there need to manage inventory levels and how that compares to what your experience was in <unk> and what you might be expected in <unk> or we call you're calling out for Lantus inventory adjustments in June as had been impacted <unk> that company.
Ryan Brinkman: <unk> made some additional announcements and you've seen some announcements from BMW and VW and Mercedes just just curious what.
Ryan Brinkman: What your experience has been more.
Speaker Change: The good news is it youre exactly right. There was a there are definitely some margin headwinds and inefficiencies driven by cost last minute customer changes. The good news is given our inventory levels and where we're at with the supply base. It really wasn't a incoming raw material problem.
Really about scheduling and trying to make sure you balance operations efficiently and really what the impact there is the last minute changes drive over time more than anything else in gross inventory more than it wouldn't necessarily need to be if we had better line of sight.
Speaker Change: And it also drives more overtime and inefficiencies in the operation side always what comes with that Dennis scrap and yield loss issues as well so Tom you've kind of hit on a couple of other key players there as to Lantus, obviously has been very turbulent and they have their own struggles that we've been trying to make sure we're supporting them through but it definitely doesn't allow for that.
Speaker Change: Cleanest operating environment, and so I would say probably if you look at our between our overhead and scrap and yield increases I would say, probably 30 to 50 basis points of headwind was in the quarter from volatility.
Speaker Change: Okay. That's super helpful. Thanks, and then I just wanted to check in on that.
Some more questions around the other income super impressive.
Speaker Change: At the same time are you able to say, whether this was a mark to market on.
Speaker Change: Public security or on private security and if private was that a mark that was established by an external party or did you sort of perceive the need to make you change your I'm not sure how the accounting works and then and then more broadly what is your well firstly is it related to automotive technology and so.
Speaker Change: You need to make those investments or is it just you're invested in <unk> and.
Speaker Change: And what's your general approach I know you've returned a lot of capital to shareholders relative to your predecessors, but your general approach towards managing long term investments on the balance sheet versus given that capital to the investors to invest at their discretion.
Speaker Change: Yes, so we talked a little bit about it last quarter I mean, we're in one public security.
Speaker Change: Its publicly filed out there that we made an offer.
Speaker Change: For box back in May and.
Speaker Change:
Speaker Change: Subsequent to that prior to that actually they had a discount their stock price traded down significantly and so we actually made a we bought more shares in a private transaction.
Speaker Change: Since then the stock price has gone up and they've since also entered into a deal.
Speaker Change: The market the company and so we're participating currently participating in that process, but you saw the mark to market adjustments from the.
Speaker Change: Q2 on the downward side and then in Q3 a rebound.
Speaker Change: So.
Speaker Change: It is a publicly traded stock so its a mark to market adjustment the rest of the other income our long term strategy really there as we do invest in fixed income investments.
Speaker Change: High yield fixed income with <unk>.
Speaker Change: Typically three years or less.
Speaker Change: Horizon, So we say in the medium term.
Speaker Change: On the yield curve not to create de risks and be able to liquidate if we need to.
Speaker Change: And that we've been doing that for several years. This one on the public stock side is strategic in nature.
To further clarify we are they do have some technology, we're interested on the biometric side. They do have some automotive business.
Speaker Change: With some stuff that does have some technology as well as long as well as some other <unk>.
Speaker Change: Technologies that they're that they have under their portfolio.
Speaker Change: What is their general relation ship with you too are the distributor of your products do they manage the sales to some of your customers. As you would incorporate them then would there be some sort of margin enhancement from vertical integration, but not as much sales as like how would that work.
Speaker Change: Yes, so for a long time, we have been they have been a distributor of ours for our products into the aftermarket. So FTM homelink. Some of our other featured mirrors. They are they have a great distribution network and so we've been we've taken advantage of that for a long time, but they also own biometric asset.
Speaker Change: Formerly known as <unk>.
Speaker Change: In the aerospace and so you've seen us demonstrate that technology for a long time today, we do it with licensing and technology agreements, but.
Speaker Change: We have an interest in taking that further overtime. So thats a big part of it is.
Speaker Change: Potential for more access to the technology assets.
Speaker Change: Okay.
Speaker Change: Thanks, so much.
Ryan Brinkman: Thanks Ryan.
Speaker Change: Thank you. Our next question comes from the line of Ron <unk> with Guggenheim Securities. Your line is now open.
Speaker Change: Yes, good morning, and thanks for taking my questions.
Speaker Change: Good morning.
Speaker Change: Yes, maybe just following up on <unk> question on that.
The kind of upside this quarter was that more of a function of.
Speaker Change: Second quarter, Destocking, and just kind of returning to trend this quarter or are there some upcoming launches we should we should be excited about.
Speaker Change: You probably have that list of launches.
Speaker Change: On a year would be my guess, but yeah like Neil mentioned, there were actually nine launches nine new nameplates launched in the quarter and so yes. Some of those we are pretty excited about like I did mentioned earlier in that question to <unk> Boston was quite strong in the quarter. It was we did have some headwinds from some other oes who had some had some issue.
Speaker Change: Yes.
Speaker Change: But all in all if you look at the growth both with existing customers, especially GM that happened in the quarter and then also followed on with the launches that Neil referenced there was a very strong <unk> quarter.
Speaker Change: Okay, and then just as we go into the fourth quarter.
Speaker Change: One of your supplier peer yesterday sounded quite pessimistic on kind of the European production environment and I do think there was there was a bit of a luxury bend to that softness.
Speaker Change: I guess, if thats something youre seeing and is there conservatism embedded in your in your fourth quarter guide to kind of reflect this just given you do ship, obviously more more outside mirrors, particularly to the luxury customers.
Speaker Change: Yes, I would say, yes were definitely a little more on the pessimistic side as it relates to that market right now I don't know that I would go quite as far as the quotes that you referenced at least at our impact to us isn't that severe.
Speaker Change: But yes, there is definitely some risk factors there. The good news is if you look at our exposure into the European market, it's pretty well diversified. So we're not overweight really any one OEM and so as long as there is as long as there's good geographical mix and as long as the market itself isn't down huge we should be able to weather that storm and fairly well.
Speaker Change: <unk>.
Speaker Change: Okay perfect. Thanks for taking my questions.
Speaker Change: Thanks, Rob.
Speaker Change: Thank you. Our next question comes from the line of Josh Nichols with B Riley. Your line is now open.
Speaker Change: Yes, thanks for taking my question.
Speaker Change: Touch on.
Speaker Change: The R&D initiatives.
Speaker Change: <unk> driver monitoring in cabin monitoring.
Local points you guys talked about.
Speaker Change: On the company's Investor Day, you were talking about having at least one commercial launch.
Speaker Change: I'm just curious like the expectations in terms of.
Speaker Change: Timing and revenue generation, whether I presume, starting but driver monitoring, but maybe moving to cabin monitoring for next year I would assume that could be somewhere in the tens of millions of dollars that really built into the model today or is that just.
Speaker Change: Kind of an upside optionality at this point.
Speaker Change: Yes. So if you look at I would say in terms of magnitude you're right.
Speaker Change: If for 25% that's about the right dollar amount to be thinking about 425 remember, though at the end of 'twenty five will really be our kind of second launch into 'twenty five beginning of 'twenty six.
Speaker Change: And then throughout 'twenty six and beyond we expect to have at least one more OEM launch and so we're probably talking late 'twenty six early 2007 before it's a material amount of revenue, but the work is right now.
Speaker Change: And then just based on your comments earlier right I mean.
Speaker Change: Building, a little bit of additional sounds like but for conservatism.
Speaker Change: In regards to the forecast for for next year, but that's just kind of implies where we've had some really phenomenal FTM outperformance. This year, that's kind of been driving most of the.
Speaker Change: Light vehicle production.
Speaker Change: Upside outperformance you guys have achieved do you expect that to be.
Secondly continue at the same type of pace that you are seeing.
Speaker Change: This year is that really just driven by an increasing adoption rate across the higher volume production nickels are you starting to see more of them whenever this offering first came out some years ago.
Speaker Change: Yes, if you look at if you look at this first really three to four years of FTM production. It was really overweight luxury vehicles and.
Speaker Change: And full size Suvs.
Now as we move into more pickup trucks and also higher volume vehicles really what's great about the FTM story is it's a little more transcendent of a product and what we've had in the past.
Speaker Change: If you look at all of our company's entire history most of our products. It takes seven to 10 years to matriculate out of just luxury and the volume brands.
Speaker Change: This technology is a little different I mean, it fits so many use cases and the desire from consumers and so it's been it's been a definitely a faster growth rate than we would have anticipated. If you go back seven eight years ago I don't think we probably could have.
Speaker Change: Optimistically thought of something like this but I don't think we probably could've capacities around that optimism.
Speaker Change: OEM interest is definitely there and so we continue to just be really grateful for the success of that product that's out in the market.
Speaker Change: I appreciate it thanks.
Speaker Change: Thank you.
Speaker Change: Thank you as a reminder to ask a question at this time. Please press star one one intestinal telephone. Our next question comes from the line of Joseph Spak with UBS. Your line is now open.
Thank you good morning, everyone.
Joseph Spak: I just want to.
Joseph Spak: Just to sort of go back to that.
Joseph Spak: You mentioned, the conservatism baked into to 'twenty, five and it sounds like you're you're baking in something similar for <unk>.
Joseph Spak: For the fourth quarter as I, just want to make sure I understand that so it's not necessarily like the IHS S&P numbers, you sort of put in the press release here, you've made some adjustments to the fourth quarter as well.
Speaker Change: Yes, that's correct. If you look at really we kind of see Q4 looking at a lot a lot more like Q3.
Speaker Change: And so we're basically taking what happened in Q3, plus that forecast in Q4, and saying okay somewhere between these two sets of numbers and then <unk>.
Speaker Change: Little bit of an adjustment manual adjustment to those because we do think there is a little more risk, especially in the second half of Q4 versus what the data would show.
Speaker Change: Okay. So that sort of leads me to the second question, which is.
Speaker Change: You're just doing the math I mean, your guidance does sort of imply right fourth quarter sales.
Speaker Change: <unk> or maybe down a little bit of a midpoint for third quarter, but it seems like the gross margin of 80 basis points higher and I'm just.
Speaker Change: I know I think you typically do have some sort of seasonal uplift, but like you mentioned in her prepared remarks, some of the mixed headwinds that.
Speaker Change: You've seen this quarter. So is there anything else sort of really driving that margin higher quarter over quarter that we should call out like any any help in understanding some of the puts and takes would be would be appreciated.
Speaker Change: Well I think we had we definitely had some mix issues in Q3 and beyond just overall volumes and so we think some of those mix issues will probably lighten up in Q4 versus Q3, which would help us get a little bit of a tailwind if youre comparing to Q4 of last year margin. However, I would say, it's not going to get there last year was helped we had a lot of pricing and onetime recoveries in other <unk>.
Speaker Change: It's happening last year calendar year that we're not having the same benefit from this year and so if you look at our recurring.
Speaker Change: Our maintenance margin level in essence, I would say a little bit fairly similar to what we just posted in Q3 or slightly better would probably be like our optimistic version of what margin profile will look like in Q4.
Speaker Change: Okay. Thanks, that's very helpful. I appreciate it.
Speaker Change: Thank you.
Speaker Change: Thank you I'd now like to hand, the conference back over to Josh <unk> for closing remarks.
Joshua Persky: Thank you as a reminder, we will be attending sema in November in CES in January and we welcome investors and our booth, if you're interested in joining us at either of these events. Please reach out to me with that this concludes our call. Thank you everyone and have a great weekend.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Okay.
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