Q1 2025 Gentex Corp Earnings Call
[inaudible]
Speaker Change: Good day and thank you for standing by. Welcome to the Gentex Report's first quarter
At this time, all participants are in the listen only mode.
Speaker Change: After this biggest presentation, there will be a question and answer session. To ask a question during a session, you will need to press star 101 on your telephone. You will then hear an automated message advising your hand is raised.
Speaker Change: To withdraw your questions, please press star 1-1 again. Please be advised that today's conference is being recorded. I would like to hand the conference over to your speaker today. Josh Oberski, Director of Invest Relations. Please go ahead. Please be advised that today's conference is being recorded.
Thank you.
Speaker Change: Good morning, and thank you for joining us today for our first quarter 2025 earnings conference call. I'm Joshua Burzki, Gentex Director of Investor Relations, and with me today are Steve Downing, President and CEO , Neil Baim, COO, and CTO, and Kevin Nash, Vice President of Finance and CFO . [inaudible]
Speaker Change: Please note that a replay of this conference call, webcast, and edited transcripts will be available after the call in the investor's section of our website located at ir.gentex.com As a reminder, many of our comments today contain forward-looking statements based on current expectations.
Speaker Change: Shouldn't one or more of these risks or uncertainties materialize, or should underlying assumptions or estimates proving correct, actual results may vary materially from those that we expressed today.
Speaker Change: Before we jump into our prepared remarks, I wanted to take a moment to address our upcoming annual shareholder meeting in the proxy vote.
Speaker Change: As in prior years, Glass-Lewis has recommended the shareholders vote against our nominating and corporate governance committee chair Ms. Leslie Brom due to a lack of female representation on our board.
And so once again, we encourage shareholders to ignore Glass-Lewis.
Speaker Change: In their explanatory documents, Glass Lewis claims to provide a comply or explain approach in their recommendations.
Speaker Change: In prior years, we have attempted to explain our stance by reiterating our support from Miss Brown, who is an exemplary member of our community and our board. We have also pointed to this continuing progress Gentex has made in increasing the diversity of our board's demographic backgrounds since 2016 when Miss Brown first joined our board.
Speaker Change: This form of explanation does not seem to have hit home with glass loose, so this year I will attempt a more direct approach
Speaker Change: Recommending Shareholders vote against a female board member is an illogical approach to increasing female representation on boards.
Speaker Change: If Glass-Lewis is in fact seeking increase in diversity on boards, Glass-Lewis needs to update their policy to take into consideration the nominating and corporate governance chairs gender and demographic background before recommending a vote against [inaudible]
Speaker Change: Glacelus also noted difficulty in identifying our board's reported demographic breakout, while Maddenk no longer requires this breakout, we continue to follow Maddenk's prior guidelines for disclosure.
Speaker Change: As such, this information is easily found on our website and the board of director section at ir.jentx.com and also included each year at the back of our annual report.
Speaker Change: Our hope is that shareholders who use Glass-Lusus services would reach out to them to express support for this logical approach, and at the same time continue to support Miss Brown's role on our board. I would welcome any calls with investors who use Glass-Lusus for their proxy voting recommendations, and I'm happy to clarify Gentex's position on items contained within these reports.
Speaker Change: I will now hand the call over to Steve Downing for our prepared remarks. Steve?
Thanks, Josh. Deep breath.
Steve Downing: For the first quarter of 2025, the company reported net sales of $576.8 million compared to net sales of $590.2 million in the first quarter of last year.
Thank you.
Steve Downing: In the first quarter, global light vehicle production increased by approximately 1% compared to the first quarter of last year, but decreased 3% quarter over quarter in the company's primary markets of North America, Europe , Japan and Korea.
Steve Downing: Also during the first quarter, trim mix within the light vehicle production build weekend versus forecast across all major regions, but especially in our primary markets.
Steve Downing: The trim mix impacted take rates for several features, but especially our exterior mirror unit shipments, which were down 15% quarter over quarter in North America and 8% internationally.
Steve Downing: Overall, the weakness resulted in a sales shortfall of approximately $25 to $30 million for the quarter.
Steve Downing: For the first quarter, the gross margin was 33.2% compared to a gross margin of 34.3% for the first quarter of last year.
Steve Downing: Compared to the first quarter of 2024, the gross margin declined as a result of lower revenue, unfavorable product mix, and new tariff costs that began in the first quarter of this year.
Steve Downing: Sequentially the gross margin improved by 70 basis points as a result of purchasing cost reductions and higher sales levels versus the fourth quarter of 2024.
Steve Downing: Overall, despite the lower than forecasted revenue and the weaker than anticipated mix, our sequential margin improvement in the first quarter resulted in a solid start to this calendar year.
Steve Downing: In addition to the revenue headwinds, the gross margin was also impacted by new tariff expenses of approximately $650,000 in the quarter that were not reimbursed during the quarter.
Steve Downing: We remain committed to the cost improvement initiatives already underway, and we are actively expanding this program to help identify additional efficiencies to help offset the margin pressures that are likely to be created due to the pending tariff impacts.
Steve Downing: Operating expenses during the first quarter increased by 8% to 78.7 million dollars compared to operating expenses of 72.9 million dollars in the first quarter of last year.
Steve Downing: Total operating expenses for the first quarter of 2025 were impacted by severance-related expenses of $2.9 million versus zero severance charges in the first quarter of last year.
Steve Downing: Operating expenses are moderating in 2025, which is in line with our expectations.
Steve Downing: During the first quarter, the severance-related expenses of $2.9 million was primarily related to early retirement incentives offered to long-tenured employees.
Steve Downing: Additionally, the company incurred one-time expenses during the first quarter related to the vox merger of approximately $900,000
Steve Downing: In total, the severance and merger related expenses accounted for nearly two-thirds of the quarter-over-quarter operating expense growth, which means the core expense growth was less than 3 percent for the quarter. [inaudible]
Steve Downing: Income from operations for the first quarter of $113 million compared to income from operations of $129.3 million for the first quarter of last year.
Steve Downing: Other income was $600,000 during the first quarter compared to other loss of $1.7 million in the first quarter of last year.
Steve Downing: The quarter-over-quarter change was driven by increased investment income as well as reduced losses on other investments, versus the first quarter of last year.
Steve Downing: During the first quarter, the company had an effective tax rate of 16.5%, compared to an effective tax rate of 15.2% during the first quarter of last year.
Steve Downing: The quarter-over-quarter change in the effective tax rate was driven by lower tax benefits on stock-based compensation compared to the first quarter of 2024 to the first quarter of 2024.
Steve Downing: Net income for the first quarter was $94.9 million compared to net income of $108.2 million for the first quarter of last year.
the change in net income for the first quarter. [inaudible]
Steve Downing: was primarily driven by the changes in net sales and income from operations compared to the first quarter of last year.
Steve Downing: Earnings per diluted share for the first quarter were 42 cents, compared to earnings per diluted share of 47 cents for the first quarter of last year. Earnings per diluted share for the first quarter were impacted by the decrease in net sales and operating income, partially offset by an increase in other income on a quarter over quarter basis. Earnings per diluted share for the first quarter
Steve Downing: Thank you, and I'll hand the call over to Kevin for some further financial details. Thank you, Steve.
Kevin Nash: for the quarter. Automotive net sales in the first quarter were $563.9 million compared to $577.6 million in the first quarter of last year.
Speaker Change: Auditing Mirror Unit, shipments decreased by 7% during the first quarter, compared to the first quarter of last year.
Speaker Change: Other net sales on the first quarter, which includes similar aircraft windows, fire protection products, and medical devices were 12.9 million compared to other net sales of 12.6 million in the first quarter of last year.
Speaker Change: Fire Protection product sales were $6.7 million in the first quarter compared to $6.8 million for the first quarter of last year. Demo aircraft window sales were $4.9 million compared to $5.8 million for the first quarter of last year.
Speaker Change: In other net sales for the first quarter, also included biometric product sales of 0.9 million, as well as 0.4 million in sales of the East Side Go medical device, which is in comparison to no sales for either of those products last year.
Sherry Purchases [inaudible]
Speaker Change: During the first quarter of 2025, the company re-purchased 3.1 million shares of its common
at an average price of $24.52 per share. [inaudible]
Speaker Change: As of March 31 of 25, the company has approximately 6.3 million shares remaining available for repurchase pursuant to its previously announced share repurchase plan.
Speaker Change: The company intends to continue to repurchase additional shares of its common stock in the future and support of the previously disclosed capital allocation strategy, but shared purchases will vary from time to time, and will take into account macroeconomic issues, market trends and other factors the company gains appropriately. The company intends to continue to repurchase additional shares of its common stock in the future and will take into account
Shifting over to the balance sheet [inaudible]
Speaker Change: Abbalancing comparisons mentioned to the air as of March 31 on 25 and compared to December 31 on 24. Cash and cash equivalents were 286.6 million compared to 233.3 million.
Speaker Change: Short-term and long-term investments combined were $321.2 million down from $361.9 million, which includes 16-income investments as well as the company's equity and cost-method investments.
Speaker Change: Inventories were $408.9 million, down from $436.5 million. Accounts payable decreased to $162.9 million, a decrease from $168.3 million.
Speaker Change: Looking at preliminary cash flow items for the quarter, first quarter 2025 cash flow from operations was 148.5 million compared to 129.9 million for the first quarter of last year.
Speaker Change: The Capitol expenditures were $36.7 million compared with $31.9 million for the first quarter of last year and depreciation and amortization for the first quarter was $25.5 million compared with $24 million for the first quarter of 2024. I'm now having a call over to Neil for a product update.
Neil Boehm: Thank you, Kevin. In the first quarter of 2025, there were 21 new-name plate launches of our interior and exterior auditing mirrors and electronic features. It was, again, a busy launch quarter with approximately 60% of these net launches being advanced feature launches.
Neil Boehm: for the advanced features in the quarter, full display mirror, home link, and outside auto zooming mirrors led the way.
Neil Boehm: We're pleased to announce that we are shipping a full display mirror in cameras to execute a forward and rearward digital video recorder to forward on the transit and ponio vehicles.
Neil Boehm: This was a great and challenging launch for the Gentex team since it was the first launch of the Gentex review app.
Neil Boehm: The review app allows you to connect them to the mirror and download the images or recordings from the DVR to the app on your phone, a great convenience to the consumer.
Speaker Change: The remains great interest in full display in your family of products but as the vehicle production dates and volumes are changing we're now forecasting 2025 increases in FDM shipments over 2024 to be approximately 100,000 units.
Speaker Change: We continue to remain focused on how to add greater value to the full displaying your product through the addition of new featured content, new display technology, and diving deeper into the user experience.
Speaker Change: This product has been a great growth driver for us these past few years and we continue to invest in its evolution to stay ahead of the competition.
Speaker Change: Additionally, we're excited to announce that our first driver monitoring system launch is now available and has been shipping on the Rivian R1T and R1S vehicles.
Speaker Change: For this program, Gentex packages the camera, infrared illuminators, and some local processing in the mirror, while the overall driver monitoring algorithms are contained in a different module outside the mirror.
Speaker Change: This is the first of four different launches of dribble monitoring we've been discussing. The other launches are still unplanned to go into production later in 2025 and into early 2026.
Speaker Change: Gentex is an excellent innovation in technology company with a strong launch pipeline of automotive and non-automotive products.
Speaker Change: Even with the Mark conditions we're facing today, we are still seeing strong demand for full display mirror, home link and several other view and exciting products we displayed at CES earlier this year, like large area devices.
Speaker Change: So even though there are challenges, all of the R&D we've been investing in over the past few years will help us recover and drive growth into the future.
Speaker Change: I'll now hand the call back over to Steve from guidance and closing remarks.
Thanks, Neil.
Speaker Change: The company's current forecast for light vehicle production for the second quarter of 2025 and four years 2025 and 2026 are based on the mid-April 2025 S&P Global Mobility forecast for light vehicle production in North America, Europe , Japan, Korea and China.
Speaker Change: As a result of the current and expected pair of escalation in the China market, the company has proactively halted production of interior and exterior mirrors destined for customers in the China market.
Speaker Change: Subsequently, many of our customers, based in China, have canceled or paused orders at this time, while we work with these customers to better understand their ability and willingness to pay the elevated prices, resulting from the new tariff rates. [inaudible]
Speaker Change: Currently, global light vehicle production is expected to be down 2% for the second quarter of 2025.
Speaker Change: compared to the second quarter of last year, while light vehicle production in our primary markets of North America, Europe , Japan, and Korea is expected to be down approximately 6% in the second quarter of 2025 compared to the second quarter of last year.
Speaker Change: Light Vehicle Production Estimates for 2025 in North America, Europe , Japan, and Korea have weakened significantly since the beginning of the year and is currently forecasted to decline approximately 5% compared to light vehicle production in calendar year 2024.
Speaker Change: The latest forecast for light vehicle production in North America estimates that the last three quarters of 2025 will be down approximately 11% versus the same period last year.
Speaker Change: Lastly, light vehicle production for Calendar 2026 is now forecasted to be flat in our primary markets compared to Calendar 2025.
Speaker Change: based on the current light vehicle production forecast and actual results for the first three months of 2025 as well as the proactive decision of the company to halt production and sales of product intended for the China market until customer agreements can be reached. The company is making certain changes to its previously provided guidance for calendar year 2025 as follows. [inaudible]
Speaker Change: Revenue for the year in our primary markets is expected to be between $2.1 and $2.2 billion.
Speaker Change: Revenue for 2025 in China is expected to be between 50 and $120 million, of which $43 million was shipped to the China market during the first quarter of this year.
Speaker Change: Gross margins for the year are expected to be between 33 and 34% and
Speaker Change: Operating expenses are expected to be between $300 and $310 million.
Speaker Change: Our estimated annual tax rate is forecasted to be between 15% and 17%, capital expenditures are expected to be between $100 and $125 million, and depreciation and amortization is forecasted to be between $85 and $90 million.
Speaker Change: The company's revenue guidance has been updated based on the current tariff environment and provides additional detail regarding revenue from the company's primary markets while separately identifying revenue from the China market. [inaudible]
Speaker Change: This additional detail regarding the company's revenue is included for the time being to allow investors to better understand the company's exposure in the China market due to the impact that tariffs are expected to have on this market. [inaudible]
Speaker Change: Additionally, the revenue estimates above do not include any revenue from the recently completely completed merger with Fox.
Speaker Change: At this time, the company is withdrawing revenue guidance for calendar year 2026 due to the significant uncertainties surrounding the China market as a result of the impact of incremental tariffs on company exports to China.
Speaker Change: The economic impact of import and export tariffs on the company's primary markets and work being done to finalize the more complete financial picture of the recently completed merger with Vox.
Speaker Change: The company anticipates providing updated revenue guidance for calendar 2026 once there is further clarity in the overall tariff landscape
Speaker Change: On April 1st, 2025, the company closed on the Strategic Merger of Vox, a global supplier of automotive and consumer electronics, as well as premium audio equipment.
Speaker Change: As of April 1, the company expected to add between $325 and $375 million in revenue from the merger on an annualized basis and an expected revenue contribution to calendar your 2025 of approximately $240 to $280 million before any impact from tariffs.
Speaker Change: As a result of recent tariff increases, the company has notified its new customers from the box merger of future price increases that will take effect throughout the balance of calendar year 2025. These price increases may create uncertainty and consumer demand for this year, which could affect the expected revenue contribution from the box merger.
Speaker Change: The company is also undertaking strategic sourcing decisions that will take place throughout the next six to twelve months, which are designed to significantly reduce tariff expenses on incoming products from the China market.
Thank you.
Speaker Change: The last few months have been undeniably chaotic as we work to understand the impact that terrorists will have on our supply chain and sales channels.
Speaker Change: The extent of the impact to revenue for the year depends on how much our sales into the China market will be limited by the counter tariffs that are in place for our exports as well as how much additional cost our OEM customers and consumers will be willing to pay for the additional import tariffs.
Speaker Change: While the tariffs will create some headwinds for the company, we still believe that the product portfolio and the new technologies in development will provide a strong revenue trajectory over the next five years.
Speaker Change: In terms of profitability we have made good strides in our gross margin recovery efforts and will continue to execute the plan as well as additional opportunities that the team has identified to improve the long-term profitability of the business.
Speaker Change: In the short term, however, as we secure reimbursement for tariffs on imports, the gross margin percentage will be impacted as we add costs and reimbursements that don't include margin
Speaker Change: As we move through the year, we will be monitoring revenue closely and adjusting expenses to align to the market conditions.
Speaker Change: Lastly, the strength of the company's balance sheet puts us in a favorable position to capitalize on the pull back in our share price as we consider higher levels of share repurchases.
Speaker Change: That completes our prepared comments for today and we can now proceed to questions.
David Whiston, David Whiston, David Whiston, David Whiston
Speaker Change: Thank you. That's a question you need to press star 1-1 on your telephone and wait for a name to be announced. To withdraw your question, please press star 1-1 again. Please
[inaudible]
Dr. Smith, Dr. Smith.
Speaker Change: Our first question will confline of Luke Junk from Baird, Ilan is open.
Speaker Change: Thank you. Good morning, everyone. I want to start with a topic of the day, Steve, tariffs, and maybe if you could just walk us through what is contemplated in the current guidance in terms of.
Speaker Change: Topline Impact, specifically, I would assume those are mostly production in nature, and then for May Margin and the Costs standpoint, what's...
Speaker Change: In guidance right now, and clearly there's some things out there right now in terms of tear sun, electronics and semiconductors, have you contemplated any of those things at, or maybe if you could just comment on what the exposure might look like there as well, thank you.
Speaker Change: Yeah, so if you look at the, I will start with a revenue, if you look at the China revenue that we provided in the press release so that 50 to 120 million range for the China market, you know, that's down about a hundred million dollars versus what our beginning of the year forecast was for the China market before the tariff. So that one kind of encapsulates, I mean, really we are somewhere in the 220 to 240 million dollar range is what we had estimated for China at the beginning of the year. And so pretty significant impact there. Like we mentioned of that low end up 50 million, 43 million of its
Speaker Change: What we already shipped in Q1, so we're basically kind of taking an almost a worst-case scenario saying on the low end it would be as if we really didn't ship anything else the rest of the year and but on the high end saying it's definitely not going to be what we expected the year to be. [inaudible]
Speaker Change: On the flip side of that, you look at our primary markets, that overall revenue came down roughly about 150 million versus our beginning of the year forecast is kind of that range that you're looking at. And that's really driven by the deterioration in the North American market. I mean, really Europe and Japan career are struggling to, but the North American market down 11% through the remainder of the year is where most of that impact is happening. Thank you very much.
Speaker Change: A lot of it on the OEC side, definitely some on the DM side, versus our beginning of the year forecast.
Speaker Change: on the Mars inside, really what we're looking at, and the reason why we lowered the margin range for the year by 50 basis points is if you look, if you run the numbers on what anticipated tariffs could look like for the year and you add that cost in and you add in the reimbursement for it [inaudible]
Speaker Change: But then you back calculate your margin profile it drops at 50 to 100 basis points if we're only getting if we're only getting reimbursement no margin dollars which is obviously what we expect after going through this you know few the last few years. [inaudible]
Speaker Change: We kind of know how these are going to be handled with our OEM customers and that was kind of our expectation is that they all don't go away and that they do put about a 50 basis point at least headwind on our overall margin profile.
Speaker Change: Hopefully that helped Luke. Okay. And then in terms of the Vox specific impacts, understand there's a lot of unknowns there right now that maybe if you could just help us understand the footprint and what you're going to need to navigate is that mostly China related.
Speaker Change: Yeah, correct. So most of it is imports from China on the supply side.
Speaker Change: and so what we're working through right now and the Vox team's done a really good job of this is proactively looking for alternative suppliers globally to help replace the supply chain that is in China market. Obviously when you look at Vox the interesting part is you know part of their business is just like ours you know automotive requirements and so that takes a little longer on the consumer audio side that's where they have some advantages they can move quicker because of the ability to be self-sufficient and really your own quality
Speaker Change: and Improvement Performance Standards are what drives your ability to change locations. And so they have a little more flexibility to move faster on the audio side than what we have on the on the audio side.
Got it. And then lastly, just the...
Speaker Change: The updated FDM Outlook, the Borneo, if you could just walk us through the permutations there, how much of this is trimics-related, versus just the underlying volumes in North America. Thank you.
Awesome.
Speaker Change: Yeah, I think at this point, the majority of that Luke is attributed to the volume impact that we're seeing, especially in the North America, as Steve mentioned, as that's significantly reducing in this last three quarters, from what we saw at the beginning of the year, into where we are today looking forward. [inaudible]
Speaker Change: that volume reduction has a correlating impact to what we're seeing on the actual FDM potential.
Speaker Change: We're still seeing growth. I think that's a really important part, right? Even with all the chaos and with the reductions we're still seeing some some decent growth of up to up to about say a hundred thousand units, but we're do see some pullback a little bit just due to that reduction. [inaudible]
But I'll leave it there for now. Thank you.
Thanks, Luke.
Speaker Change: A moment for our next question. Our next question will confline a Ryan Brinkman from JP Morgan,
Ryan Brinkman: Right. Thanks for the comments on China. That was my first question, you know, how you think your export focus business model may be holding up or how you expected to hold up in the
Ryan Brinkman: the current environment on one hand you import relatively little, but as we see, you're subject to these retaliatory tariffs. So is China the only region where you've experienced that so far? I think maybe there were some tariffs from Canada on parts that were suspended. And I recall in 2017, you would maybe, you know, during the section 301 tariffs, you'd repurposed and existing warehouse in China for merely distribution to also include some final assembly. Do you have any flexibility to do anything similar or the
Ryan Brinkman: Terrap rates may be just prohibitively high in comparison to in 2017 for that help.
Ryan Brinkman: Yeah, so you're exactly right. Back then, what we had done is worked on a localization plan, meaning that what we were buying locally were plastics metals, more of the commodity based products. We were shipping board and element, especially elements, so the auto dimming element itself to China, and then our team in Shanghai was actually doing the final assembly to help lower the tariff rates and stay competitive in that market. Unfortunately, given the extreme level of these tariffs are at now, that's not going to be enough.
Ryan Brinkman: to be competitive, or at least temporarily there may be OEMs who are willing to pay that higher price temporarily, but if these stay in place longer term it will have a very severe negative impact on our ability to export out of the US into the China market.
Speaker Change: That's another question I had was the comment about ceasing all production for the China market. Did I hear that right? Because I think it's that because there's like inventory in the market that is interchangeable between OEMs and as some are canceling, you can repurpose that because I would have thought that for like some of the high end German luxury brands, there would be that elasticity of demand there for to pay that for that product or some of the customers maybe willing to pay or what do you say? [inaudible]
Speaker Change: Yeah, I mean, what we're seeing is some of them are starting to, but at the beginning, or we're working through those agreements right now, all we're saying at that point with our customers is saying, hey, given this new, very high level of tariffs, you know, we're not going to put, we're not going to put blood sweat and tears in the turning raw material into finished products, and then have you tell us in a month that you're not going to pay the higher tariff rate. So before we continue to expend resources into producing those parts, we want a confirmation from OEMs before we'll spend that money.
Thank you.
Speaker Change: on the flip side of that. We do have, we went once the terrified started, we have parts already in transit and we have parts in our warehouse there and so we do, we did have several weeks of goods already available to them and give us enough time to reach and hopefully reach an agreement. And then if we do get those agreements, we're ready to start back production right away.
Speaker Change: Okay, and then just lastly, I'm curious what you might be hearing or think might happen on May three. I think we're gonna, you know, recought some of the section 232 tariffs and you know, there's been some discussion of being able to net, you know, exports against imports and I don't know how that works. It's [inaudible]
Speaker Change: You're, you know, importing, you know, different components, other than auto components, I'm not sure, but do you think that these tariffs might get better near term? Are you cautiously optimistic? I'm not for on terms?
Speaker Change: Well, I think I think given the extreme levels, especially if you, I mean if you talk about the vast majority of this, I mean the
Speaker Change: The other terrorists, you know, you could work your way through, really what we're talking about on the severe impact side is the US China trade war [inaudible]
Speaker Change: and so, if you look at those, I think we're cautiously optimistic that it'll be better than what the rates are right now that are being discussed. But one of the challenges it's been is, like you mentioned, there's verbal communication, there's...
Speaker Change: rumors and new windows and so one of the things we're very focused on is we can't you can't fight against an aberration
Speaker Change: and so we're trying to make sure before we make any permanent decisions what is actually gone into law, what's what's happening.
Speaker Change: and then we'll move based on the finality of those positions. I would say it seems unlikely to me that this continues to be at the rates that they're technically at right now for a long period of time. But, you know, months...
Speaker Change: are possible. And so that's why we're just treading carefully and trying to be in constant communication with our customers about what they want us to do. So it's not a very threatening position by any stretch. It's just saying, hey, we don't want to put you as a customer in a position where we're spending your money unwisely.
Speaker Change: and we're definitely not going to do that with our own resources.
very helpful. Thank you.
Thanks, Ron. Thank you. We'll meet for our next question.
Ron: Our next question comes from the line of Ron Yebsikow from Guggenheim. The line is open.
Yeah, good morning and thanks for taking my question.
Ron: Yeah, just a point of clarification on the section 232 tariffs on electronics, I think the 50 to 100 basis points of margin pressure, is that in the guide or incremental to the guide just as a point of clarification?
Ron: That's in the guide. Okay. It was that impact on the full year or annualized to 50 to 100.
That was, that was the 20, that was the impact of 2025.
Ron: Okay, down to the top. Well, just as we think about the lap over. Um, and I guess just stepping back on kind of the China Electro Chromix market more broadly, I know there is some local competition, but any sense of what your market share is in China specifically, and I guess
Ron: Is there enough local supply in China to offset whatever mere shipment volumes?
Ron: You may lose, or will those products just have to go without ECs?
Ron: There's a lot of knockoff competition in the China market domestically. There's not enough supply right now inside the China market to make up the volumes that we're producing, especially on the OEC side.
Ron: And so more than likely, if this continues, you'll probably see a lot of decontenting in the China market for those domestic Chinese OEMs because the supply base there wouldn't be able to pick up, you know, I mean, we're talking, I forget what it is, three and a half million mirrors or so that's...
Ron: You know, going into the outside mirrors that are going into the China market from Gentex today. So that's where that's where, you know, unfortunately I think
Ron: You know, if this continues the way it's going without any relief on certain components, it's probably a deep contenting that will have to happen inside the China market on our technology.
Yeah, and I imagine exports of-
Ron: would prefer Gentex as the mere supplier, not to put working him off, but given me.
Ron: Yeah, yeah, we've always done, we've always done better with JVs or global OEMs that are doing business in the China market. Definitely a higher take rates and better product mix, but we're also selling to domestic Chinese OEMs as well. And the knockoff guys will absolutely be able to pick up some of that volume but nowhere near these, I mean this is a tremendous amount of capacity you have to have in place to produce that volume of mirrors and so they won't be able to pick that up in the short run very easily.
Speaker Change: Okay, and then on just Vox, any kind of guardrails for delusion for this year and for 2026, or should we still just kind of refer back to the potential cost savings from the initial announcement?
Speaker Change: I mean, if you look at their margin expectations, I think their post acquisition, high 20s, gross margin, and probably close to break even from that profitability, pretty tariff.
Speaker Change: You know, before the conclusion or the consideration of what tariffs they have to consider. [inaudible]
Speaker Change: Not from a net profitability or EPS perspective, not really a dilutive impact? Well, I think the plan is in the July call to have better guidance in terms of, you know, side by side, what was Gentex as a standalone, what is box as a standalone, and then you'll get to see a little more clarity on the impact of box on overall and what that roll up. So, you know, the plan is to be, you know, pretty full disclosure in terms of the two different operating companies and what each of them mean. [inaudible]
Speaker Change: Okay, now that I really appreciate the color, and thanks for taking my questions.
Thanks for watching.
One moment for the next question.
Speaker Change: Our next question, confline of Joseph Spak from UBS, Joanna's Open.
Thanks. Good morning, gentlemen.
Speaker Change: Sorry to do this, but can we just be a little bit clearer on what tariffs are actually assumed for, like, are you assuming?
Speaker Change: The 232 Electronic and Semi's tariff go in or not, like what about, you know, I know there was some sort of counter-tariff from Europe and maybe you could just help us, you know, understand. And...
Speaker Change: on a cogs dollar or percentage basis, like what figure we're talking about here on the potential electronics or semi-tires. I know you're saying you're going to pass it through, but I just want to sort of better.
Speaker Change: Get a better framework around what you really are thinking about here.
Speaker Change: Yeah, so to be clear, yes, we're assuming that, yes, the tariff expenses are in there
on a four-year basis.
Speaker Change: Okay, and that's on the electronics, is that includes a potential? That's our input of what, yep.
Speaker Change: That's on our direct imports there's a little bit of there's some nuance there that's much more difficult saying hey if someone's a tier three or tier four supplier out of the China market to one of our sub suppliers. Okay.
Speaker Change: You know, it takes a little more time to calculate exactly what your exposure is to that as well, but that's kind of what our thumb in the wind is right now for our estimate that we built these financials off of.
Speaker Change: In the European tariff primarily impacts the customers as well, but that's been also delayed. Right, and that wouldn't hit that won't hit cogs That's going to be that's going to be in selling selling expense because it would be either the customer having to pay it or a little bit of our exports into the European market were responsible, but the vast majority of those are are the OEM would be on the hook to pay those.
Okay.
Speaker Change: And then just on on Vox and it sounds like, you know, in response to the prior question, like we'll get a lot more details in the future, but
Speaker Change: Like, if you look, it was, it seems like Vox was running about 35 million a quarter up X, is that, is that about right? And then, you know, how proliminarily are you thinking about, you know, elasticity? [inaudible]
Speaker Change: for some of that Vox product to potentially having to raise prices. I know you're probably still working through it, but I think on our side we have very little familiar familiarity with that business, so any commentary would be helpful.
Speaker Change: Yeah, I mean, if you look at operating expenses, a lot of that has to do with being a public company things like insurance and so you have a bunch of synergies that happen right away in the operating side and we're going through a lot of those things right now not to mention. We're going through a lot of things right now.
Speaker Change: D&A from previous acquisitions and so some of that stuff will get cleaned up which is why we're not comfortable to give you a straight up op-x number and then on the on the revenue side you're absolutely right the elasticity of.
Speaker Change: of what is a price increase to a consumer product look like? The fortunate part that we have is that many of the competition of the box entity, especially the premium auto group.
Speaker Change: You know, they're in the same boat. They're supply chain is exactly the same. So, you know, it's not like one pricing crease of a product is not going to be met by a competitive price increase somebody else. So, yeah, I mean, that's the thing that is a million dollar question of what is what is the price increase due to your ultimate forecast and demand. [inaudible]
Speaker Change: So you may have increased revenue from the price but reduced to units so the team the box team to their credit has been going through that already really pretty much in advance so that's why we look forward to give you that in July .
Speaker Change: Okay, maybe I could have sneak one more and I know you always provided the S&P.
Speaker Change: Outlook, but I think you sort of do that as as a guide you historically I think have.
Speaker Change: sort of made some of your own internal assumptions, especially for sort of the quarter head, is that?
Speaker Change: Still the case or given an unusually higher level of uncertainty, are you sort of more relying on what they're saying and I guess, you know, the follow up to that would be is like
Speaker Change: Is your assumption that like the assumptions they are making on what happens from a tire perspective in line with your company's thinking? [inaudible]
Speaker Change: Yes, I'd start with your exactly right, historically we've taken that as a kind of starting point. We would have told you that coming into Q1 that we were a little more pessimistic than the S&P beginning of the year forecast was not because of tariffs at the time just in general economically. [inaudible]
Speaker Change: Since that time, this one's really wild, right? I mean, it is incredibly difficult. We're kind of using it more as like a guidepost right now than anything else, just because it's impossible to predict what are these economic. [inaudible]
Speaker Change: Moves due to overall consumer demand and pricing. And so there's not a whole lot of choice. We are probably a hair negative as it relates to as it relates to the impact that this will have on trim packaging going forward. In other words, if these if these tariffs stick, you know,
Speaker Change: A lot of vehicles are going to see 20, 30 percent price increases, and what does that mean for our type of products, right? Which in essence are consumer discretionary products inside of the automotive market. And so we're probably a little, even a little more negative than what S&P is.
Speaker Change: on their new forecast. Fortunately, they did take a pretty strong position on their adjustment into the North American market, which we would have absolutely agreed with. The question is, is it slightly worse than that even?
Speaker Change: Yeah, fair enough. Obviously a lot of a lot of uncertainty so I just wanted to understand your point of view but thank you
[inaudible]
Thank you.
One moment for next question.
Speaker Change: Our next question on Coff line of Josh Nichols from Be Riley, Euliner's Open.
Josh Nichols: Yeah, thanks for taking my question. Obviously, it's tumultuous times in the automotive space, but good to see the company.
Josh Nichols: Taking advantage of it on some very significant share by Beck's Just to put a little bit of clarity like piecing it all together if you kind of take what you have for the core markets plus a little bit of China and then box like [inaudible]
Josh Nichols: It works out, it looks like 2.4 billion to 2.6 billion of revenue for the year and once you layer in Vox on the gross margin front, maybe a 50 basis point.
Josh Nichols: Edwin, relative to what you guided to, excluding boxes, is that fair?
Speaker Change: I think I the revenue, I think you have it pretty much nailed in on the top line. I think the gross margins would probably be a little more of a headwind once we roll off theirs on top of ours, probably more than the 50, probably more than 100 to 150, but I'm just I'm shooting from the hip right now as we're talking.
[inaudible]
Yes, I appreciate that. I guess.
We've talked about this before, but...
I guess you're taking a pretty conservative stance.
Speaker Change: right on China at the low end effectively assumes that what you've already shipped right and there's nothing else really being done in in China I guess like we have seen some rollbacks of some of these tariffs or pauses at the very least and there's it's hard to say because there's no definitive agreement as you mentioned.
Speaker Change: But if there is, you know, a significant alleviation in the terror rate between the U.S.
Speaker Change: In China, I would assume that that's not really built into the forecast today that you have and that that would be kind of an upside optionality. How should we think about that? Seems like what you have out there right now is kind of more a pretty bear case scenario. Is that accurate? Yeah.
Speaker Change: Very accurate. I would say we felt like we needed to rip the bandaid off because this is technically what the rates are as we stand so we're trying to do our best to represent what we think the financials are under that scenario. And so if you like you said if these push out and continue to push out or come down significantly that should provide some upside to this forecast.
[inaudible]
Perfect. And then...
Speaker Change: Just we haven't touched on there's been so much focus on barracks, but you didn't mention so you're still growing at the despite all the headwinds there, but also
for the driver monitoring solution, that's initially being...
Speaker Change: Rolldown. Could you talk about the expectations? I know probably not much revenue this year giving everything that's going on, but next year at longer term, you've talked about that being a multi-hundred million dollar your business over multi-year climb frame. Is it still the expectation of what are you seeing in the market in terms of interest for that thought? [inaudible]
Speaker Change: Yeah, that's still the expectation is driving that growth with the launch. This year we've got two Steven coming up late this year into the beginning of 26 another one launching in early 26 so that'll be the four that we've been working on and talking about.
Speaker Change: The launches will take a couple of years as they go across multiple platforms, so when you get through 26 and into 27 and 28, that's where you're starting to hit something that's more material into the numbers that we've talked about before.
Thank you.
Speaker Change: Appreciate the clarification there, and we are confirming that. I'll hop back in the queue. Thanks.
Thanks, Josh.
Thank you. One moment for our next question.
Speaker Change: for the next question on Confluent, Mark Delaney from Goldman Sachs. Your line is open.
Okay.
Yes, good morning. Thanks very much for taking my questions.
Speaker Change: You mentioned that you expect to offset the higher costs of tariffs for imports into the U.S. with pricing. Maybe you can up a spend or understand your confidence in being able to fully offset those higher tariff costs and how far along are you in your negotiations toward that with your auto OEM customers.
Speaker Change: Yeah, we're making really good progress. In fact, several OEMs were very, and we've been through this before, right? So over the last few years
Speaker Change: Right, right, wrong, we've developed a little bit of muscle memory as it relates to how to handle these, so...
Speaker Change: Now this isn't the first time, a couple years ago it was more difficult because we hadn't really dealt with this problem before. And so several of the OEMs are being very proactive, asking, reaching out, talking about monthly updates on what we're seeing. Others are going to be a little more challenging, but our position is that this is a cost of doing business, and this is something that the supply base can afford to eat on its own. This is pretty much a standard response from most of the almost every supplier to OEMs as well. So we feel like the models there, the messaging is loud and clear. Here it is.
Speaker Change: There won't be, I'm not saying it's going to be easier, perfect obviously, but I don't think it's going to be as challenging as it was last time because our customers understand the fragile nature of the supply base and the fact that you know with these rates no one can afford to absorb any of this type of like level of cost.
[inaudible]
It's helpful, Steve.
Speaker Change: I did want to follow up as well on what you're seeing with industry production and thanks for all the detail you provided and how you're trying to forecast the core business.
Speaker Change: Can you talk about what you're seeing with customer schedules at this point? Are you seeing OEMs adjust their build plans? And is that part of your thought process? I know you referred to the S&P forecast as the guidepost and there's a lot of uncertainty but do not understand what you've seen so far with customer schedules.
Speaker Change: Yeah, I would say, you know, it's interesting. If you look at most of Europe and North America, the schedules have actually been, you know, pretty stable. There's not been a ton of, you know, movement there. Really most of what we're seeing has been with the China market. [inaudible]
Speaker Change: And so it's like we've mentioned, we kind of proactively stopped and then within a week or two of that is when we started to see, you know, order cancellations or at least pauses and order sliding out a few weeks as the as our Chinese customers.
Speaker Change: to address what is happening and what their demand is to us. So fortunately, that was good. I mean, we were able to proactively get in front of it. I mean, what I was most worried about is we built all these products and then we haven't sitting on the dock and there's never a delivery date for those, right? Which would be a worst-case scenario for us. So right now the customer communication has been really good. I mean, not always the message is good, but at least the dialogue is happening.
Speaker Change: And so we feel like we're not wasting money right now building products that will never sell.
Speaker Change: Well, almost one for me if I could please. You mentioned you saw some deterioration of trim mix in the first quarter and I you imagine that wasn't from tarot because they generally hadn't taken effect yet.
Speaker Change: Why do you think Trimix was offending in the quarter? Is that something with broader macroeconomic trends? Just the state of the continuum we're even before tariffs? It's a new market share or what might be behind that in your opinion. Thank you.
Speaker Change: Yeah, that's a great question. I think for us, one of the things we always watch are things like incentives and what's happening with our OEM customers.
Speaker Change: And obviously, if you look in the North American market right now, most OEMs are often some type of incentive package, rebates, you name it, free financing. And so for us, that's usually one of the early indicators that OEMs are also going to move into a cost-cutting mode.
Speaker Change: and so, unfortunately, for a lot of our products, especially outside mirrors, a lot of OEMs will look for a way to, you know, cut the cost of a vehicle by removing some content and hopefully consumers not noticing it, passenger side, auto dimming mirrors are one of those classic parts that OEMs will look to remove if they think they can get away with it without the customers getting upset. So we saw a lot of that in Q1, which was obviously disappointing because we put a lot of capital in place to support OEC production levels.
Speaker Change: and so it's not an efficient operating environment to say the least.
Thank you.
Thank you, one moment for our excursion.
Speaker Change: Our ex-questional cuffline of Charlie Sloan from Oak Family Advisors, your line is open.
Charlie Sloan: Good morning, guys, and I need to not talk about tariffs, but I'm going to try to avoid that conversation. Josh, are you saying them to get the chairperson nominee as a woman?
Speaker Change: Can you believe it? Yes, I am. Thank you for clarifying, Charlie. Okay. Okay, I just wasn't sure of the definition, but okay, that's helpful. And then secondly, you know in the release, I noticed that there was a change in tone regarding [inaudible]
Speaker Change: You know, I would have thought that you guys would have talked about, you know, in the past about maybe increasing your line of credit to make sure that you have availability and but this time it's more about
Speaker Change: You guys feel pretty secure in your financial position to actually use some of the capital that you've created because of your excellent operating manufacturing capability and buy things that are really cheap like your own stock. And is that a change in tone that you've sent yourself or is that just...
Uh, a changing board direction or something?
Speaker Change: No, I think it's really, the change in tone is really, we feel like I'm understanding the market we're in.
Speaker Change: and a position. We're definitely in a position to be ready to become more aggressive if the stock continues to linger that kind of in this range.
Speaker Change: Excellent. And then secondly, then on the box acquisition, that closes when? Is it closed now? It closed on April 1st.
Okay, Professor, okay, and then, um...
Speaker Change: What product are you most excited about as you look forward in terms of material contribution to the revenues in two years' hands?
from the Vax or from in total.
Speaker Change: actually each from Gentex, I'll call it the old fashioned Gentex to the box.
Speaker Change: Yep, so I'll start with the kind of the core Gentex. So our primary things that we look at and say are very exciting from a long-term growth standpoint are the driver monitoring systems that Neil was talking about.
Speaker Change: and then we move into large-area devices, visors, sunroof, side windows, you know, core electro-chromic technology, basically replacing a lot of the glass surfaces and substrates that you see in a vehicle today.
Speaker Change: All very exciting. I would say our new place products, our new line of fire protection devices that are designed to go direct to consumer. It's kind of our first time going direct to consumer within an all new feature set that no one's seen in the fire protection or security space before. We're just launch that now.
Speaker Change: And longer term, you know, you look at some of the, are, are, are work in the medical space so the east side go, the wearables for people with centralized vision loss.
Speaker Change: and then some of the other partnerships that we put in place starting to expand our capability and like you mentioned our manufacturing expertise in the medical and med tech are very exciting.
Speaker Change: on the Voxide. One of the things that we're excited about in there is they're biometric.
Speaker Change: Technology that they had that we've been working on for a while and so getting a deeper, a deeper tech base into the biometric space that we think will be very interesting for us.
Speaker Change: Some of the automotive electronics are also very interesting. One of them in particular is Vox with the supplier for the USPS Postal Trucks for Vision Systems. We believe there's a lot of opportunity to come up with a Gentex version of that product which is US genealogy.
Speaker Change: Guaranteeing Security and Electronics Made in the US for that vehicle, and then also the premium audio space. As we talk about our play in home automation with our place product, home audio, we think is a big part of that that we can help expand kind of the home link brand.
Speaker Change: and what we call our homelink smart home solutions brand into the home.
Thank you.
Speaker Change: Okay, well, that's great. I hate to not talk about chorus, but the business is wonderful. I appreciate the break. Yeah, right. Well, we've found out about
Yeah, there's no way to forecast any of this [inaudible]
Speaker Change: I mean, you guys have laid out pretty much a barricade [inaudible]
Speaker Change: in our mind. And incorrect terms. You guys can't forecast what the next week is going to be. You have to rely on the law, right? That's correct.
Speaker Change: Yeah, so anyway, great quarter. Keep up the good work. Thank you. Thank you, Charlie. Thank you, Charlie.
One moment for next question.
Speaker Change: For next question, come for a line by James Picariello from BNP Parabas. The line is open.
Hey, good morning, everybody.
Speaker Change: Good morning. I've got I'm heading back to the China question real quick, I apologize. You're guiding to the 85 million sales for the full year.
Speaker Change: You recorded 43 million in the first quarter, so I just I assume what's baked in is another 42 million in the second quarter before you
Fault production.
Speaker Change: My ultimate question is, has Gentex shipped any units to China since the April 11th trigger date of the 100% plus tariff? Do you have tariff costs that you already need to fight for recoveries?
Speaker Change: Yeah, there there might have been one shipment that was already kind of in process that happened technically after that date, but we haven't actively shipped anything since then. But remember, we have we have a warehouse in China. And so it has usually anywhere from seven to 10, 12 days of inventory on site. And then usually there's another week or so of inventory in transit. It's on the surface or in the air. By the time these things go into effect. So that's where we look at and say, Hey, we, you know, we know there's some amount of that. That stuff. And so that's what we're going to do.
Speaker Change: should be able to sell easily because it was already in before the day and then we know there will be some demand despite the tariffs even if they stick around at this level where OEMs will need some parts just to get through a few week period until they can have a work around and so that's where we come up with that estimate. It's kind of like we mentioned before, I would say it's probably a worst case scenario.
Speaker Change: Yeah, okay. No, that makes sense. That's very clear. And then based on last year's 28 million or so in revenue in China, is there any way to size up just what constituted interior versus exterior mirrors mix? And if there were any FDM shipments to the region.
Yeah, that should have been roughly 50-50, I think. I'm- I'm-
Definitely taking a...
Speaker Change: Taking a hip shot with that one, but if you look at it, it should have been somewhere in probably a million and a half IECs and probably three million or so OECs I think would be my estimate there. Kevin's I'm gonna look in further detail to prove I'm wrong, but that's that's just kind of a rough breakout and we can follow up with you too if you would like that detail.
FSTM.
[inaudible]
Virtually non-deaf.
Yeah, yeah, all right. Thank you guys
Thank you.
Speaker Change: Thank you. And this concludes our question and answer session. I will now turn it back over to George for any closing remarks.
Josh: Thank you everyone for your time and attention today and good questions. I hope everyone has a good weekend.
Josh: Thank you for your participation in today's conference. This does conclude the program you may now disconnect. Everyone have a great day.