Q2 2026 Gentex Corp Earnings Call

July 24, 2026

Operator: Good day. Thank you for standing by. Welcome to the Gentex Corporation Q2 2026 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question-and-answer session. To ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. I would now like to hand the conference over to your speaker today, Josh O'Berski, Vice President of Investor Relations.

Speaker #1: Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a Q&A session. To ask a question, please press *11 on your telephone and wait for your name to be announced.

Speaker #1: To withdraw your question, please press *11 again. I would now like to hand the conference over to your speaker today, Josh O'Berski, Vice President of Investor Relations.

Speaker #2: Thank you. Good morning, and thank you for joining us today for our second quarter 2026 earnings conference call. I'm Josh O'Berski, Gentex Vice President of Investor Relations, and with me today are Steve Downing, President and CEO; Neil Boehm, COO and CTO; and Kevin Nash, Vice President of Finance and CFO.

Josh O'Berski: Thank you. Good morning. Thank you for joining us today for our Q2 2026 earnings conference call. I'm Josh O'Berski, Gentex Vice President of Investor Relations, and with me today are Steve Downing, President and CEO, Neil Boehm, COO and CTO, and Kevin Nash, Vice President of Finance and CFO. Please note that a replay of this conference call webcast, along with edited transcripts, will be available following the call in the investor section of our website at ir.gentex.com. Many of the statements made today during the call are forward-looking and reflect our current expectations. These statements involve a number of risks and uncertainties, both known and unknown, including those described in our press release issued this morning and in our annual report on Form 10-K for the year ended 31 December 2025, as well as general economic conditions.

Speaker #2: Please note that a replay of this conference call webcast, along with edited transcripts, will be available following the call in the Investors section of our website at ir.gentex.com.

Speaker #2: Many of the statements made today during the call are forward-looking and reflect our current expectations. These statements involve a number of risks and uncertainties, both known and unknown, including those described in our press release issued this morning and in our annual report on Form 10-K for the year ended December 31, 2025, as well as general economic conditions.

Speaker #2: Actual results may differ materially from those expressed or implied in these forward-looking statements. If risks or uncertainties materialize or if our assumptions prove to be incorrect, ahead of our prepared remarks, I would like to remind the investment community that we will be hosting our invite-only analysts and investor day on August 27 in Zeeland, Michigan.

Josh O'Berski: Actual results may differ materially from those expressed or implied in these forward-looking statements if risks or uncertainties materialize or if our assumptions prove to be incorrect. Ahead of our prepared remarks, I would like to remind the investment community that we will be hosting our invite-only Analyst and Investor Day on 27 August in Zeeland, Michigan. During the event, we will be doing facility tours, showcasing some of our new products and prototype vehicles, and showcasing the infrastructure that has been going into place to support the expected product line growth over the coming years. If you are interested in attending, please email me or apply to attend at joshoberski@gentex.com or sign up at ir.gentex.com. I will now hand the call over to Steve Downing for our prepared remarks.

Speaker #2: During the event, we will be doing facility tours, showcasing some of our new products and prototype vehicles, and highlighting the infrastructure that has been put in place to support the expected product line growth over the coming years.

Speaker #2: If you are interested in attending, please email me or apply to attend at joshoberski@gentex.com, or sign up at ir.gentex.com. I will now hand the call over to Steve Downing for our prepared remarks.

Speaker #3: Thank you, Josh. For the second quarter, GENTEX reported net sales of $651.3 million, down 1% from $657.9 million in the second quarter of last year.

Steve Downing: Thank you, Josh. For the Q2, Gentex reported net sales of $651.3 million, down 1% from $657.9 million in the Q2 of last year. Automotive revenue declined approximately 3% year-over-year, reflecting lower revenue in Europe, Japan, Korea, and China, which was largely offset by strength in North America. Our results continue to demonstrate the value of our strategy to grow through technology expansion, increasing content per vehicle, and diversification. While mirror unit shipments and automotive revenue came in below our beginning of quarter forecast, performance benefited from strong North American demand, higher vehicle content in Europe, and continued growth from our non-automotive product lines. In Europe, new driver monitoring and in-cabin monitoring system launches continued gaining traction and helped offset the impact of a significant decline in base interior mirror shipments for the international market.

Speaker #3: Automotive revenue declined approximately 3% year-over-year, reflecting lower revenue in Europe, Japan, Korea, and China, which was largely offset by strength in North America. Our results continue to demonstrate the value of our strategy to grow through technology expansion, increasing content per vehicle, and diversification.

Speaker #3: While mirror unit shipments and automotive revenue came in below our beginning-of-quarter forecast, performance benefited from strong North American demand, higher vehicle content in Europe, and continued growth from our non-automotive product lines.

Speaker #3: In Europe, new driver monitoring and in-cabin monitoring system launches continued gaining traction and helped offset the impact of a significant decline in base interior mirror shipments for the international market.

Speaker #3: In China, revenue remained under pressure as ongoing tariff-related market disruptions contributed to a 20% year-over-year decline. Outside of automotive, revenue from the company's Other Products category provided meaningful growth.

Steve Downing: In China, revenue remained under pressure as ongoing tariff-related market disruptions contributed to a 20% year-over-year decline. Outside of automotive, revenue from the company's other products category provided meaningful growth. Premium audio revenue increased 16% year-over-year to $51.7 million, while aerospace, biometrics, fire protection, and automotive aftermarket revenue collectively increased approximately 12%. Non-automotive revenue represented approximately 14% of total company revenue during the quarter, reinforcing the benefits of the company's diversification strategy and confidence in long-term opportunities to expand both our technology portfolio and revenue base. Gross margin for the Q2 was 37% compared to 34.2% in the Q2 of last year, representing an increase of 280 basis points. Gross margin benefited from approximately $18 million of IEEPA tariff reimbursements received during the quarter that reduced cost of goods sold, as well as favorable product mix.

Speaker #3: Premium audio revenue increased 16% year-over-year to $51.7 million, while aerospace biometrics, fire protection, and automotive aftermarket revenue collectively increased approximately 12%. Non-automotive revenue represented approximately 14% of total company revenue during the quarter, reinforcing the benefits of the company's diversification strategy and confidence in long-term opportunities to expand both our technology portfolio and revenue base.

Speaker #3: Gross margin for the second quarter was $37% compared to $34.2% in the second quarter of last year, representing an increase of 280 basis points.

Speaker #3: Gross margin benefited from approximately $18 million of IEPA tariff reimbursements received during the quarter that reduced cost of goods sold, as well as favorable product mix.

Speaker #3: These benefits were partially offset by higher commodity costs and lower overall sales levels compared to the prior year. In total, the company received approximately $38 million of IEPA tariff reimbursements during the quarter, of which roughly $18 million reduced cost of goods sold and favorably impacted gross margin.

Steve Downing: These benefits were partially offset by higher commodity costs and lower overall sales levels compared to the prior year. In total, the company received approximately $38 million of IEEPA tariff reimbursements during the quarter, of which roughly $18 million reduced cost of goods sold and favorably impacted gross margin. Excluding that benefit, gross margins still improved sequentially by approximately 50 basis points from the Q1 of 2026, despite lower automotive revenue and ongoing non-IEEPA tariff costs and significantly higher precious metals costs. The sequential improvement was driven by favorable product mix, disciplined operational execution, and improving profitability within the company's other products category. Consolidated operating expenses for the Q2 were $99.7 million, compared to $106.8 million in the Q2 of last year. The decrease was primarily driven by severance costs recorded in the prior year period.

Speaker #3: Excluding that benefit, gross margin still improved sequentially by approximately 50 basis points from the first quarter of 2026, despite lower automotive revenue, ongoing non-IEPA tariff costs, and significantly higher precious metals costs.

Speaker #3: The sequential improvement was driven by favorable product mix, disciplined operational execution, and improving profitability within the company's Other Products category. Consolidated operating expenses for the second quarter were $99.7 million, compared to $106.8 million in the second quarter of last year.

Speaker #3: The decrease was primarily driven by severance costs recorded in the prior-year period. On a non-GAAP basis, adjusted operating expenses were $99.3 million, compared to $97.5 million in the prior-year period.

Steve Downing: On a non-GAAP basis, adjusted operating expenses were $99.3 million, compared to $97.5 million in the prior year period. Income from operations for the Q2 was $141.3 million, up 19% from $118.5 million in the Q2 of last year. On a non-GAAP basis, adjusted income from operations was $141.7 million, compared to $130.3 million in the prior year period. The effective tax rate for the quarter was 16.5%, compared to 17.2% in the Q2 of last year. Net income attributable to Gentex was $114.7 million, up 19% from $96 million in the Q2 of last year. On a non-GAAP basis, net income attributable to Gentex was $122.9 million, compared to $110.9 million in the prior year period. Diluted earnings per share were $0.54, compared to $0.43 in the Q2 of last year.

Speaker #3: Income from operations for the second quarter was $141.3 million, up 19% from $118.5 million in the second quarter of last year. On a non-GAAP basis, adjusted income from operations was $141.7 million, compared to $130.3 million in the prior year period.

Speaker #3: The effective tax rate for the quarter was 16.5%, compared to 17.2% in the second quarter of last year. Net income attributable to Gentex was $114.7 million, up 19% from $96 million in the second quarter of last year. On a year-to-date basis, net income attributable to Gentex was $122.9 million, compared to $110.9 million in the prior year period.

Speaker #3: Diluted earnings per share were $0.54 compared to $0.43 in the second quarter of last year. On a non-GAAP basis, adjusted diluted earnings per share were $0.58 compared to $0.50 in the prior year period.

Steve Downing: On a non-GAAP basis, adjusted diluted earnings per share were $0.58, compared to $0.50 in the prior year period. While revenue came in below our forecasts, disciplined execution across the business enabled Gentex to deliver record Q2 earnings per share of $0.54, an increase of 26% over the Q2 of last year. The company's strategy remains focused on identifying new growth opportunities despite the challenging market conditions, expanding and stabilizing gross margins, tightly managing operating expenses, and deploying capital in a disciplined manner. Management believes this approach will continue to support earnings growth, strong cash generation, and long-term shareholder value creation, while also funding investments in the broadest portfolio of new products, technologies, and market opportunities in the company's history. I will now hand the call over to Kevin for further financial details.

Speaker #3: While revenue came in below our forecasts, disciplined execution across the business enabled Gentex to deliver record second-quarter earnings per share of $0.54, an increase of 26% over the second quarter of last year.

Speaker #3: The company's strategy remains focused on identifying new growth opportunities despite the challenging market conditions, expanding and stabilizing gross margins, tightly managing operating expenses, and deploying capital in a disciplined manner.

Speaker #3: Management believes this approach will continue to support earnings growth, strong cash generation, and long-term shareholder value creation, while also funding investments in the broadest portfolio of new products, technologies, and market opportunities in the company's history.

Speaker #3: I will now hand the call over to Kevin for further financial details.

Speaker #2: Thank you, Steve. Looking at the segment revenue, automotive net sales were $560.1 million in the second quarter, down from $578.1 million in the second quarter of '25.

Kevin Nash: Thank you, Steve. Looking at the segment revenue, Automotive net sales were $560.1 million in Q2, down from $578.1 million in Q2 2025. The quarter-over-quarter decrease primarily reflects lower light vehicle production and reduced base auto dimming mirror unit shipments. Despite these headwinds, favorable product mix, new technology launches, and continued content gains with customers were able to partially offset the decline. Premium Audio. Net sales from the Premium Audio category were $51.7 million in Q2, compared to $44.5 million in Q2 2025, an increase of approximately 16%. Growth was driven primarily by strong performance from the powered systems and Onkyo brands, supported by new product introductions and continued demand across Premium Audio categories. Other Products.

Speaker #2: The quarter-over-quarter decrease primarily reflects lower light vehicle production and reduced base auto-dimming mirror unit shipments. Despite these headwinds, favorable product mix, new technology launches, and continued content gains with customers were able to partially offset the decline.

Speaker #2: Premium audio net sales from the premium audio category were $51.7 million in the second quarter, compared to $44.5 million in the second quarter of '25, an increase of approximately 16%.

Speaker #2: Growth was driven primarily by strong performance from the Powered Systems and Onkyo brands, supported by new product introductions and continued demand across premium audio categories and other products.

Speaker #2: Net sales from the Other Products category—which includes aerospace products, fire protection devices, medical technologies, biometric solutions, and automotive aftermarket products—were $39.4 million, which was a 12% increase compared to the second quarter of ’25.

Kevin Nash: Net sales from the Other Products category, which includes aerospace products, fire protection devices, medical technologies, biometric solutions, and automotive aftermarket products, were $39.4 million, which was a 12% increase compared to Q2 2025. This growth was primarily driven by strong performance in aerospace products, as well as continued growth in biometric and accessory product revenues. Share repurchases. During Q2 2026, the company repurchased 2.7 million shares of its common stock at an average price of $24.48 per share, for a total of $66 million. In year-to-date, the company has repurchased 5.9 million shares for a total of $137.6 million at an average price of $23.13 per share. As of 30 June 2026, the company has approximately 29.9 million shares remaining available for repurchase pursuant to its previously announced share repurchase plan.

Speaker #2: This growth was primarily driven by strong performance in aerospace products as well as continued growth in biometric and accessory product revenues. During the second quarter of 2026, the company repurchased 2.7 million shares of its common stock at an average price of $24.48 per share, for a total of $66 million.

Speaker #2: And year-to-date, the company has repurchased 5.9 million shares for a total of $137.6 million at an average price of $23.13 per share. As of June 30, 2026, the company has approximately 29.9 million shares remaining available for repurchase pursuant to its previously announced share repurchase plan.

Speaker #2: Turning to the balance sheet, our comparisons today are based on June 30, 2026, versus December 31, 2025. Starting with liquidity, cash and cash equivalents were $233.4 million at quarter-end, up from $145.6 million at year-end.

Kevin Nash: Turning to the balance sheet, our comparisons today are based on 30 June 2026, versus 31 December 2025. Starting with liquidity, cash and cash equivalents were $233.4 million at quarter end, up from $145.6 million at year-end. Short-term and long-term investments totaled $247.9 million, compared to $278.4 million at the end of 2025. Accounts receivable was $386.3 million at 30 June, compared to $368.5 million at year-end, reflecting timing of sales and collections during the quarter. Inventories totaled $519 million at 30 June, up modestly from $516.3 million at year-end. Accounts payable was $266.6 million at 30 June, compared to $249 million at year-end, primarily driven by timing of payments and inventory purchases. Cash flow. For Q2, preliminary cash flow from operations was $180.9 million, compared to $166.1 million in Q2 2025.

Speaker #2: And short-term and long-term investments totaled $247.9 million, compared to $278.4 million at the end of 2025. Accounts receivable was $386.3 million at June 30, compared to $368.5 million at year-end, reflecting timing of sales and collections during the quarter.

Speaker #2: Inventories totaled $519 million at June 30, up modestly from $516.3 million at year-end. Accounts payable was $266.6 million at June 30, compared to $249 million at year-end, primarily driven by the timing of payments and inventory purchases.

Speaker #2: Cash flow for the second quarter—preliminary cash flow from operations was $180.9 million compared to $166.1 million in the second quarter of '25. Year-to-date, preliminary cash flow from operations totaled $318 million compared to $314.6 million in 2025.

Kevin Nash: Year to date, preliminary cash flow from operations totaled $318 million, compared to $314.6 million in 2025. Capital expenditures for Q2 were $19.2 million, compared to $31.1 million in Q2 of 2025. Year to date, capital expenditures were $36.2 million, compared to $67.8 million in 2025. Depreciation and amortization expense for the quarter was $25.8 million, compared to $27.4 million last year. Year to date, depreciation and amortization expense was $51.4 million, compared to $52.9 million in 2025. As a result, Q2

Speaker #2: Capital expenditures for the second quarter were $19.2 million compared to $31.1 million in the second quarter of '25. Year-to-date, capital expenditures were $36.2 million compared to $67.8 million in '25.

Speaker #2: And depreciation and amortization expense for the quarter was $25.8 million compared to $27.4 million last year. And year-to-date, depreciation and amortization expense was $51.4 million compared to $52.9 million in 2025.

Speaker #2: And as a result, second quarter free cash flow reached $161.7 million, an increase of approximately 20% from $135 million in the second quarter of ’25.

Steve Downing: Free cash flow reached $161.7 million, an increase of approximately 20% from $135 million in Q2 of 2025. Year to date, free cash flow totaled $281.8 million, up approximately 14% from $246.8 million in 2025. I'll now hand the call over to Neil for a product update.

Speaker #2: And year-to-date, free cash flow totaled $281.8 million, up approximately 14% from $246.8 million in 2025. I'll now hand the call over to Neil for a product update.

Speaker #4: Thank you, Kevin. In the second quarter of 2026, we continued to have strong feature launches of our automotive products. For the quarter, over 75% of the launches included advanced features in our interior and exterior auto-dimming mirrors and electronic modules.

Neil Boehm: Thank you, Kevin. In Q2 of 2026, we continued to have strong feature launches of our automotive products. For the quarter, over 75% of the launches included advanced features in our interior and exterior auto-dimming mirrors, and electronic modules. The launch strength in the quarter was driven by HomeLink, Full Display Mirror, In-Cabin Monitoring, and advanced featured exterior auto-dimming mirrors. In this past quarter, Full Display Mirror again performed well. We continue to see good growth and expansion of the product in markets around the world and across all types of vehicle architectures. In the quarter, we began shipping on the new Jeep Recon platform and the Infiniti QX65. Additionally, in the quarter, we began shipping Full Display Mirror to McLaren on its new W1, to Toyota on the Century SUV, and on the Subaru Trailseeker and Uncharted nameplates.

Speaker #4: The launch strength in the quarter was driven by HomeLink, Full Display Mirror, in-cabin monitoring, and advanced-featured exterior auto-dimming mirrors. In this past quarter, Full Display Mirror again performed well.

Speaker #4: We continue to see good growth and expansion of the product in markets around the world and across all types of vehicle architectures. In the quarter, we began shipping on the new Jeep Recon platform and the Infiniti QX65.

Speaker #4: Additionally, in the quarter, we began shipping Full Display Mirror to McLaren on its new W1, to Toyota on the Century SUV, and on the Subaru TrailSeeker and Uncharted nameplates.

Speaker #4: Shipments through the first half of 2026 have positioned us to deliver on our estimated growth rate of 200,000 to 400,000 units over prior year, as we projected at the beginning of the year.

Neil Boehm: Shipments through H1 of 2026 have positioned us to deliver on our estimated growth rate of 200,000 to 400,000 units over prior year that we projected at the beginning of the year. Our driver monitoring and In-Cabin Monitoring systems continue to track in line with our expectations for growth over the coming years, and we're pleased to announce we began shipping to BMW on the iX3 and to Kia on the EV2. These are some of the most complex programs our company has ever developed, and our engineering and manufacturing teams have done a great job in successfully launching these projects. Outside of automotive, the Premium Audio team has been extremely busy with new launches as well.

Speaker #4: Our driver monitoring and in-cabin monitoring systems continue to track in line with our expectations for growth over the coming years, and we're pleased to announce we began shipping to BMW on the iX3 and to Kia on the EV2.

Speaker #4: These are some of the most complex programs our company has ever developed, and our engineering and manufacturing teams have done a great job in successfully launching these projects.

Speaker #4: Outside of automotive, the premium audio team has been extremely busy with new launches as well. From the limited edition runs of the KO R2 and the Odyssey Edition of the Detroit Bluetooth Speaker to the Heritage Series' latest bookshelf speakers, the Rebellion, the team at Klipsch continues to move the market forward in blending style and performance.

Neil Boehm: From the limited edition runs of the kO-R2 and the Odyssey edition of the Detroit Bluetooth speaker to the Heritage Series latest bookshelf speakers, the Rebellion, the team at Klipsch continues to move the market forward in blending style and performance. At Onkyo, the Muse high-power amplifier and limited edition 80th anniversary Creator Series powered monitors offer premium design, smart features, and versatile connectivity. The audio community has shown substantial support and excitement around these new products. For a quick progress update on manufacturing products outside the United States. Many of our international customers are focused on de-risking their supply base by increasing the amount of localized production in each region where they operate. This has created headwinds for our international growth. Specifically, several of our European customers are requiring manufacturing locations in the region to support their vehicles that are built and sold in Europe.

Speaker #4: At Onkyo, the Muse high-power amplifier and limited edition 80th Anniversary Creator Series powered monitors offer premium design, smart features, and versatile connectivity. The audio community has shown substantial support and excitement around these new products.

Speaker #4: Now for a quick progress update on manufacturing products outside the United States. Many of our international customers are focused on de-risking their supply base by increasing the amount of localized production in each region where they operate.

Speaker #4: This has created headwinds for our international growth. Specifically, several of our European customers are requiring manufacturing locations in the region to support their vehicles that are built and sold in Europe.

Speaker #4: In support of these requests, Gentex is in the process of setting up a plant in Morocco to provide components to our customers in Europe. While discussions are still underway regarding the product output of this plant, initial requests from our customers would include base electrochromic mirrors and advanced electronic modules.

Neil Boehm: In support of these requests, Gentex is in process of setting up a plant in Morocco to provide components to our customers in Europe. While discussions are still underway regarding the product output of this plant, initial requests from our customers would include base electrochromic mirrors and advanced electronic modules. We have signed a letter of intent, selected the location for our plant, have received the Moroccan government's support in creating the entity, and are making progress in support of a targeted start of production in 2028. The Q2 highlighted the company's ability to execute across a broad range of strategic growth initiatives while maintaining cost discipline. Gentex continues to support an expanding number of advanced technology launches, including Full Display Mirror, driver and In-Cabin Monitoring systems, and dimmable device programs while remaining focused on operational efficiency.

Speaker #4: We have signed a letter of intent, selected the location for our plant, received the Moroccan government's support in creating the entity, and are making progress in support of a targeted start of production in 2028.

Speaker #4: The second quarter highlighted the company's ability to execute across a broad range of strategic growth initiatives while maintaining cost discipline. Gentex continues to support an expanding number of advanced technology launches, including Full Display Mirror, driver and in-cabin monitoring systems, and dimmable device programs, while remaining focused on operational efficiency.

Speaker #4: As these technologies gain further market adoption, investments in innovation, automation, and process improvement are expected to support future growth while effectively managing operating expense levels.

Neil Boehm: As these technologies gain further market adoption, investments in innovation, automation, and process improvement are expected to support future growth while effectively managing operating expense levels. This includes our effort to expand in Morocco. We believe with our operating discipline and the structure we are establishing Morocco, that the shift in manufacturing will not create a large increase in operating expenses. With core technologies still coming from our existing facilities, we don't see this transition creating excess capacity in our core facilities. Innovation is a core strength of Gentex, and we're driving launches to market today. We continue to innovate across the organization to position us for growth in the future. While automotive production environment for 2026 appears to be stagnant, the team at Gentex is setting the stage for a busy and exciting future.

Speaker #4: This includes our effort to expand in Morocco. We believe that with our operating discipline and the structure we are establishing in Morocco, this shift in manufacturing will not create a large increase in operating expenses. With core technologies still coming from our existing facilities, we don't see this transition creating excess capacity in our core facilities.

Speaker #4: Innovation is a core strength of GENTEX, and we're driving launches to market today we continue to innovate across the organization to position us for growth in the future.

Speaker #4: So while automotive production environment for 2026 appears to be stagnant, the team at GENTEX is setting the stage for a busy and exciting future.

Speaker #4: I'll now hand the call back over to Steve for guidance and closing remarks.

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

Speaker #2: Thanks, Neil. The company's light vehicle production assumptions for the third quarter of 2026 and calendar years 2026 and 2027 are based on the mid-July 2026 Mobility Global Outlook for North America, Europe, Japan, Korea, and China.

Steve Downing: Thanks, Neil. The company's light vehicle production assumptions for Q3 2026 and calendar years 2026 and 2027 are based on the mid-July 2026 Mobility global outlook for North America, Europe, Japan, Korea, and China. Based on this outlook, global light vehicle production is expected to decline approximately 2% in Q3 2026 compared to last year, and approximately 3% for the full year. While global light vehicle production is currently expected to be relatively flat in 2027, the company expects continued weakness in the company's primary automotive markets of North America, Europe, and Japan, Korea, with any forecasted growth in light vehicle production coming from emerging markets. Forecasted vehicle production volumes for Q3 2026 and calendar years 2026 and 2027 are shown in our press release from this morning.

Speaker #2: Based on this outlook, global light vehicle production is expected to decline approximately 2% in the third quarter of 2026 compared to last year, and approximately 3% for the full year.

Speaker #2: While global light vehicle production is currently expected to be relatively flat in 2027, the company expects continued weakness in the company's primary automotive markets of North America, Europe, and Japan/Korea, with any forecasted growth in light vehicle production coming from emerging markets.

Speaker #2: Forecasted vehicle production volumes for the third quarter of 2026, as well as calendar years 2026 and 2027, are shown in our press release from this morning.

Speaker #2: Based on actual results through the first six months of 2026, the updated Mobility global light vehicle production forecast, and the company’s expectations for its Automotive Premium Audio and Other Products category, the company is updating certain elements of its full-year 2026 guidance.

Steve Downing: Based on actual results through H1 2026, the updated Mobility global light vehicle production forecast and the company's expectations for its automotive, premium audio, and other products category, the company is updating certain elements of its full year 2026 guidance. The updated guidance reflects the anticipated impact of all known tariffs effective as of yesterday. Consolidated revenue is still expected to be between $2.65 and $2.75 billion. We are raising gross margin guidance and now estimate it to be between 34.5% and 35.5% for the year. We are lowering our operating expenses budget to be between $405 to $415 million for the year. We are lowering our tax rate estimate to be between 16% and 17%. We are also lowering our capital expenditures estimate to be between $115 and $125 million for the year.

Speaker #2: The updated guidance reflects the anticipated impact of all known tariffs effective as of yesterday. Consolidated revenue is still expected to be between $2.65 and $2.75 billion.

Speaker #2: We are raising gross margin guidance and now estimate it to be between 34.5% and 35.5% for the year. We are lowering our operating expenses budget to be between $405 million and $415 million for the year.

Speaker #2: We are lowering our tax rate estimate to be between 16 and 17 percent. We are also lowering our capital expenditures estimate to be between $115 and $125 million for the year.

Speaker #2: Depreciation and amortization is still expected to be between $100 and $110 million for the year. Based on the mid-July 2026 Mobility Global Light Vehicle Production forecast and the company's expectations for Automotive Premium Audio and Other Products revenue, the company continues to expect calendar year 2027 revenue to be in the range of $2.8 to $2.9 billion.

Steve Downing: Depreciation and amortization is still expected to be between $100 and $110 million for the year. Based on the mid-July 2026 Mobility Global Light Vehicle Production forecast and the company's expectations for automotive premium audio and other products revenue, the company continues to expect calendar year 2027 revenue to be in the range of $2.8 and $2.9 billion. As we entered 2026, we knew geopolitical challenges would continue to pressure our business in China, and we also expected ongoing headwinds within our base mirror business. As a result, we anticipated that revenue growth would be more subdued than what we've historically delivered. Despite those challenges, the execution of our team has been some of the best I have seen during my time leading this company.

Speaker #2: As we enter 2026, we knew geopolitical challenges would continue to pressure our business in China, and we also expected ongoing headwinds within our base mirror business.

Speaker #2: As a result, we anticipated that revenue growth would be more subdued than what we've historically delivered. Despite those challenges, the execution of our team has been some of the best I have seen during my time leading this company.

Speaker #2: Across the organization, we continue to launch, develop, invent, and commercialize new technologies at a pace unmatched in our history, while maintaining a relentless focus on profitability, operational efficiency, and capital discipline.

Steve Downing: Across the organization, we continue to launch, develop, invent, and commercialize new technologies at a pace unmatched in our history while maintaining a relentless focus on profitability, operational efficiency, and capital discipline. Concurrently, we have worked hard together with the VOXX team to improve VOXX's financial performance, and we are well on our way to achieve the profitability targets we established post-acquisition. Similar to the Gentex team, the VOXX and PAC teams have recently developed several new product categories and developed business relationships with attractive long-term growth potential to become meaningful contributors to our overall profitability only 15 months after the acquisition. Together, we are proving to be formidable competitors in our relevant industries. Our continued focus on quality, operational excellence, gross margin expansion, operating expense management, and capital allocation have enabled us to deliver strong earnings performance despite a challenging environment.

Speaker #2: Concurrently, we have worked hard together with the Vox team to improve Vox's financial performance, and we are well on our way to achieve the profitability targets we established post-acquisition.

Speaker #2: Similar to the GENTEX team, the VOX and PAC teams have recently developed several new product categories and developed business relationships with attractive long-term growth potential to become meaningful contributors to our overall profitability, only 15 months after the acquisition.

Speaker #2: Together, we are proving to be formidable competitors in our respective industries. Our continued focus on quality, operational excellence, gross margin expansion, operating expense management, and capital allocation has enabled us to deliver strong earnings performance despite a challenging environment.

Speaker #2: Looking ahead, we believe the company is well positioned to have a solid second half of 2026, with growth continuing into 2027 and 2028. Many of the investments we have made over the last several years in new products and technologies—including dimmable visors and sunroofs, fourth-generation FDM, DMS, and ICMS, advanced manufacturing capabilities, and other market expansion opportunities—are expected to begin contributing more meaningfully to revenue growth.

Steve Downing: Looking ahead, we believe the company is well positioned to have a solid H2 2026, with growth continuing into 2027 and 2028. Many of the investments we have made over the last several years in new products and technologies, including dimmable visors and sunroofs, our fourth generation FDM, DMS and ICMS and advanced manufacturing capabilities and other market expansion opportunities are expected to begin contributing more meaningfully to revenue growth. When combined with our focus on operational excellence and financial discipline, we believe these investments will drive future growth to create significant long-term shareholder value. Additionally, I would like to take just a few minutes to provide a quick update on the progress we have made since the last quarter on our electronics contract manufacturing initiative.

Speaker #2: When combined with our focus on operational excellence and financial discipline, we believe these investments will drive future growth and create significant long-term shareholder value.

Speaker #2: Additionally, I would like to take just a few minutes to provide a quick update on the progress we have made since last quarter on our electronics contract manufacturing initiative.

Speaker #2: As we discussed in the last quarter's conference call, increased interest in localized manufacturing has created new headwinds and opportunities within our markets. Neil provided some commentary earlier on the actions we are taking to address the headwinds associated with exports to our international customers.

Steve Downing: As we discussed in the last quarter conference call, increased interest in localized manufacturing has created new headwinds and opportunities within our markets. Neil provided some commentary earlier on the actions we are taking to address the headwinds associated with exports to our international customers. However, in the US, these geopolitical influences have helped Gentex gain attention for the exceptional manufacturing work our teams do, especially as it relates to electronics manufacturing. As a reminder, Gentex currently manufactures between 40 and 50 million electronic modules each year for the automotive market, fire protection industry, aerospace industry, and the medical device industry. We believe we are uniquely qualified to help grow this type of manufacturing in the US.

Speaker #2: However, in the United States, these geopolitical influences have helped Gentex gain attention for the exceptional manufacturing work our teams do, especially as it relates to electronics manufacturing.

Speaker #2: As a reminder, Gentex currently manufactures between 40 and 50 million electronic modules each year for the automotive market, fire protection industry, aerospace industry, and the medical device industry.

Speaker #2: We believe we are uniquely qualified to help grow this type of manufacturing in the U.S. We believe that by the end of the next quarter, we'll be able to announce that we have secured our first award for advanced electronics manufacturing, with starter production targeted for late 2028 to early 2029.

Steve Downing: We believe that by the end of next quarter, we'll be able to announce that we have secured our first award for advanced electronics manufacturing with start of production targeted for late 2028 to early 2029. We are still in active discussions for additional programs with various customers and believe we are well positioned to win additional business. That completes our prepared comments for today. We can now proceed to questions.

Speaker #2: We are still in active discussions for additional programs with various customers, and believe we are well positioned to win additional business. That completes our prepared comments for today.

Speaker #2: We can now proceed to questions.

Speaker #1: Thank you. As a reminder, to ask a question, please press star one-one on your telephone and wait for your name to be announced. To withdraw your question, please press star one-one again.

Operator: Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment for questions. Our first question comes from Joseph Spak with UBS. You may proceed.

Speaker #1: One moment for questions. And our first question comes from Joseph Speck with UBS. You may proceed.

Speaker #3: Thanks. Good morning, everyone. Just maybe a couple of questions here. To start, the $38 million IEPA benefit you mentioned—I know you took $18 million that helped gross margin this quarter.

Joseph Spak: Thanks. Good morning, everyone. Just maybe a couple of questions here to start. The $38 million IEEPA benefit you mentioned, I know you took 18 that helped gross margin this quarter. The 20 that went to the balance sheet, do you have that coming through gross margin in the H2 of the year in your updated gross margin guidance?

Speaker #3: So, the $20 million that went to the balance sheet—do you have that coming through gross margin in the back half of the year in your updated gross margin guidance?

Speaker #2: Not really. I mean, that goes against inventory, so it reduced what was still held in inventory as of the February 24th date. And we did stop expensing future tariffs as of that point, but everything else was held.

Steve Downing: Not really. That goes against inventory. It reduced what was still held in inventory as of the 24 February date. We did stop expensing future tariffs as of that point, everything else was held. It's really an effective reduction of inventory.

Speaker #2: So, it's really an effective reduction of inventory.

Speaker #3: Okay. So it was really just the 18 million in the quarter that sort of helped that's helping the gross margin guidance. Okay. I guess secondly, and you alluded to this, interior Europe mirrors really soft.

Joseph Spak: Okay. It was really just the $18 million in the quarter that's helping the gross margin guidance.

Steve Downing: Correct.

Joseph Spak: Okay. I guess secondly, you alluded to this, interior Europe mirrors, really soft. Probably the lowest in over a decade, ex the COVID quarter. It was over 1 million units lower year-over-year. I know you've talked about losing some business there, which probably ties into some of the Moroccan discussion, but is there anything else going on there? How should we think about a good level for that interior European mirrors business going forward?

Speaker #3: Probably the lowest in over a decade, except the COVID quarter. It was over a million units lower year over year. I know you've talked about losing some business there, which probably ties into some of the Moroccan discussion.

Speaker #3: But is there anything else going on there? And how should we think about a good level for that interior European mirrors business going forward?

Speaker #2: Well, you've got two distinct factors. I'd say the bigger of the two was really the China impact. That business has obviously, since the beginning of the geopolitical issues and the tariff wars, been on a very steady decline.

Steve Downing: Well, you got two distinct factors. I'd say the bigger of the two was really the China impact. That business has obviously, since the beginning of the geopolitical issues and the tariff wars, that business has been on a very steady decline. That is primarily base interior auto-dimming mirrors that are impacted in the China market. The second one was we did have some lost programs on the Volkswagen side of the business.

Speaker #2: And so that is primarily base interior auto-dimming mirrors that are impacted in the China market. And then the second one was, we did have some lost programs on the Volkswagen side of the business. And if you look at some of our European customers, they are also struggling with their volumes as well.

Steve Downing: If you look at some of our European customers are also struggling with their volumes as well. Really those three factors are the biggest drivers of that drop.

Speaker #2: And so, really, those three factors are the biggest drivers of that drop.

Speaker #3: Okay. And maybe if I could just sneak one in here—can you give us any sort of revenue opportunity associated with that win, or maybe talk a little bit more about what that product really is that you're making?

Joseph Spak: Okay. Maybe if I could just sneak one more in the EMS win.

Steve Downing: Yeah.

Joseph Spak: Good to hear. Can you give us any sort of revenue opportunity associated with that win? Maybe talk a little bit more about what that product really is that you're making?

Speaker #2: Yeah. The product itself—both the BMW and the Kia—are different implementations of it. The BMW has a module that's being placed on the bottom of the mirror.

Neil Boehm: Yeah. The product itself is both of the BMW and the Kia are different implementations of it. The BMW has a module that's being placed on the bottom of the mirror. It will have different mirror features that will be tied to it, some of which we haven't announced yet. Same for the Kia implementation. That one is a little different in that we're supplying the camera and the emitters as well. We have an opportunity to really expand on those features now that we have that core technology in there. From a revenue side, I think this year is still not significant. I think it's going to be roughly maybe $50 to 60 million, I think was this year's kind of target.

Speaker #2: It will have different mirror features that will be tied to it, some of which we haven't announced yet. The same goes for the Kia implementation.

Speaker #2: That one is a little different in that we're supplying the camera and the emitters as well. So we have an opportunity to really expand on those features now that we have that core technology in there.

Speaker #2: And from a revenue side, I think this year is still not significant. I think it's going to be roughly maybe $50 to $60 million, I think was this year's.

Speaker #3: Yeah, it starts ramping on the back half.

Steve Downing: Yeah, it starts ramping in the H2.

Neil Boehm: H2 of this year and into next year is when it starts becoming more meaningful.

Speaker #2: The back half of this year and into next year is when it starts becoming more meaningful.

Speaker #3: Sorry. You're talking about the DMS, right?

Joseph Spak: Sorry. You're talking about the DMS, right?

Speaker #2: DMS, sorry. I did talk about DMS. You were talking about the EMS manufacturing.

Neil Boehm: DMS. Sorry.

Joseph Spak: Yes.

Neil Boehm: I did talk about DMS. You were talking about the EMS in manufacturing.

Joseph Spak: Yeah.

Speaker #3: Yeah.

Speaker #2: We need better acronyms. Yeah, sorry about that—too many acronyms coming at me. Could you say your question again for me, just so I didn't miss it?

Steve Downing: We need better acronyms.

Neil Boehm: Yeah, sorry about that. Too many acronyms flowing. Could you say your question again for me just so I didn't?

Joseph Spak: Sorry. Yeah. Let's just say the electronics opportunity that you sort of have highlighted in the past.

Speaker #3: Sorry. Yeah. Let's just say the electronics opportunity that you have sort of highlighted in the past—clearing everything up—can you talk about any revenue opportunity associated with that?

Steve Downing: Yeah. There you go. Correct.

Joseph Spak: Clearing everything up. Can you talk about any revenue opportunity associated with that?

Speaker #2: Yeah. The first award, we believe, will be probably between $100 million and $200 million. That's the one that we're working on right now. And then from there, we expect the numbers to get larger.

Steve Downing: Yeah. The first award, we believe, will be probably between $100 and 200 million. That's the one that we're working on right now. From there, we expect the numbers to get larger as we go out beyond 2029 into 2030. Pretty significantly larger.

Speaker #2: As we go out beyond '29 into '30, it's pretty significantly larger.

Speaker #3: Thank you.

Joseph Spak: Thank you.

Speaker #2: Thanks, Joe.

Neil Boehm: Thanks, Joe.

Speaker #3: Thanks, Joe. You got a whole DMS conversation there you weren't expecting.

Steve Downing: Thanks, Joe. You got a whole DMS conversation there you weren't expecting.

Speaker #2: Yeah. Fourth question.

Neil Boehm: Fourth question.

Speaker #1: Thank you. Our next question comes from David Spaker with Baird. You may proceed.

Operator: Thank you. Our next question comes from David Baker with Baird. You may proceed.

Speaker #4: Hey, guys. Thanks for taking the questions. For starters, can you walk us through the customer conversations supporting your Morocco investment? Do you have any committed customer frameworks there? And then, how can you help us scale production at a higher level?

David Baker: Hey, guys. Thanks for taking the questions. For starters, can you walk us through the customer conversations supporting your Morocco investment? Just do you have any committed customer frameworks there? Then how can you help us kind of scale production at a higher level?

Davis Baker: Hey, guys. Thanks for taking the questions. For starters, can you walk us through the customer conversations supporting your Morocco investment? Just do you have any committed customer frameworks there? Then how can you help us kind of scale production at a higher level?

Speaker #2: Yeah. So yes, we have several customer commitments already, and that's really with us just securing the facility and not even able to show what it is.

Steve Downing: Yes, we have several customer commitments already. That's really with us just securing the facility and not even able to show what it is. The first step in that is going to be a transition of final assembly products from what we're doing here in the US to the Morocco facility. It'll be really just replacing what we're already doing in a different location for final. This was honestly being pushed really hard by our European customer base that we needed to find a solution to help support their business in Europe locally. After a pretty exhaustive study, what we arrived on was from a physical location, we felt pretty confident this is the right move for us. Right away, that was met very well with customer support.

Speaker #2: The first step in that is going to be a transition of final assembly products from what we're doing here in the U.S. to the Morocco facility.

Speaker #2: So, it'll really just be replacing what we're already doing, but in a different location for final. This was honestly being pushed really hard by our European customer base—they said we needed to find a solution to help support their business in Europe. What we arrived on was, from a physical location standpoint, we felt pretty confident this is the right move for us.

Speaker #2: Right away, that was met very well with customer support. So we're continuing to see not only focus on existing business that they want to move there, but also new programs that may have been in question for getting an award.

Steve Downing: We're continuing to see not only focus on existing business that they want to move there, but also new programs that may have been in question for getting an award. Now our customer base has a renewed interest and focus on making sure that we can continue that business growth going forward.

Speaker #2: Now, our customer base has a renewed interest and focus on making sure that we can continue that business growth going forward.

Speaker #4: Okay, that's helpful. And then, second, can you give us just a high-level update on the internal larger device efforts? Setting up production in Zealand, if I remember correctly?

David Baker: Okay. That's helpful. Second, can you give us just a high-level update on the internal large area device efforts setting up production in Zeeland, if I remember correctly?

Davis Baker: Okay. That's helpful. Second, can you give us just a high-level update on the internal large area device efforts setting up production in Zeeland, if I remember correctly?

Speaker #2: Yeah, exactly. We've made some really good progress over the last six months as we've been able to get our own different parts of the process.

Neil Boehm: Exactly. We've made some really good progress over the last 6 months as we've been able to get our own different parts of the process. We were doing some contract manufacturing or some outside companies were supporting us with some contract manufacturing to create the films. We've been able to bring a good portion of that internally and have been able to get the performance and quality of that to a pretty good spot right now. We've been building some parts, running through testing. At this stage, testing is still looking really good. I think we're getting over the big hill of problems and kind of on the downslope to be able to start really executing the product.

Speaker #2: We were doing some contract manufacturing, or some outside companies were supporting us with some contract manufacturing to create the films. We've been able to bring a good portion of that internally and have been able to get the performance and quality of that to a pretty good spot right now.

Speaker #2: We've been building some parts, running through testing. At this stage, testing is still looking really good, so we think we're getting over the big hill of problems and kind of on the downslope to be able to start really executing the product.

Speaker #4: Okay. And then last one for me—just any previews or teasers that you can give us just before that?

David Baker: Okay. Last one for me, just Investor Day coming up in August. Just any previews or teasers that you can give us just before that?

Davis Baker: Okay. Last one for me, just Investor Day coming up in August. Just any previews or teasers that you can give us just before that?

Speaker #2: Yeah, I think to your question—which is a good lead-in to your second—part of what we're going to do is spend some time actually walking you through the facilities that we put in place and the process that's in place for both visors and large-area devices.

Steve Downing: I think to your question, which is a good lead in to your second, part of what we're going to do is spend some time actually walking you through the facilities that we put in place and the process that's in place for both visors and large area devices. There's obviously been a huge tech push. This is incredibly challenging technology. To Neil's point, we feel like we've actually answered a vast majority of those questions and solved a lot of those technical challenges. We're happy to show what does that facility look like.

Speaker #2: There's obviously been a huge tech push. This is incredibly challenging technology. To Neil's point, we feel like we've actually answered a vast majority of those questions and solved a lot of those technical challenges.

Speaker #2: And we're happy to show what that facility looks like. It's a world-class facility, and we're excited to show that to you and let you see not only the ability to build one, but also, with the facilities that we're putting in place, the ability to start to scale this at higher volumes. We're further ahead on that than probably what we've implied on the calls.

Steve Downing: It's a world-class facility, and we're excited to show that to you and kind of let you see not only the ability to build one, but with the facilities that we're putting in place, the ability to start to scale this at higher volumes as we're further ahead and along that than probably what we've implied on the calls.

Speaker #4: Great. Thanks, guys. I'll leave it there.

David Baker: Great. Thanks, guys. I'll leave it there.

Davis Baker: Great. Thanks, guys. I'll leave it there.

Speaker #1: Thanks, David.

Steve Downing: Thanks, David.

Speaker #3: Thank you.

Operator: Thank you. Our next question comes from James Picariello with BNP Paribas. You may proceed.

Speaker #1: Our next question comes from James Picariello with BNB Perivas. You may proceed.

Speaker #5: Hi, guys. My first question is just on the China revenue, just to square that up. What is the expectation for the full year at this point?

James Picariello: Hi, guys. My first question is just on the China revenue, just to square that up. What is the expectation for the full year at this point? Last year was roughly $150 million, the year prior $200 million. We could see the H1 comp. Is there a point of stabilization here with maybe some improvement in the H2, or is it still in decline?

Speaker #5: Last year was roughly 150 million. The year prior, 200. We could see the first half comp. Is there a point of stabilization here with maybe some improvement in the second half, or is it still in decline?

Speaker #2: No, it's still in decline. I would say, if I had to spitball one right now, I'd say it's probably right around $100 million would be where we'll end the year.

Steve Downing: No, it's still in decline. I would say if I had to spitball one right now, I'd say it's probably right around $100 million would be where we'll end the year.

Speaker #5: Okay, got it. And then just thinking about your revenue targets for next year—right, around five and a half percent growth. Within that, is China still in decline?

James Picariello: Okay. Got it. Just thinking about your revenue targets to next year, 5.5% growth thereabout. Within that, is China still in decline?

Speaker #2: Yeah, we're expecting China to continue to decline.

Steve Downing: Yes, we're expecting China to continue to decline.

Speaker #5: Okay. Okay. Just on other products, you referenced some very encouraging sequential growth really across the portfolio. My question is, your total revenue for the all-in 'Other' was down by just $3 million, right?

James Picariello: Okay. Just on other products, you referenced some very encouraging sequential growth really across the portfolio. My question is, your total revenue for the all-in other was down by just USD 3 million, right? It's flattish. What within there did not grow sequentially low double digits?

Speaker #5: It's flat-ish. So, what within there did not grow sequentially? Low double digits?

Speaker #2: Primarily, within that, it would have been the automotive aftermarket within the box portfolio. That was down a bit, but that's really a seasonal thing.

Steve Downing: Primarily within that, it would have been the automotive aftermarket within the VOXX portfolio. That was down a bit, but that's really a seasonal thing. If you look at what it was last year versus now, we still expect decent growth out of that category, but that was the one area that didn't perform as well.

Speaker #2: If you look at what it was last year versus now, we still expect decent growth out of that category, but that was the one area that didn't perform as well.

Speaker #5: Okay. Thank you.

James Picariello: Okay. Thank you.

Speaker #2: Thanks, James.

Steve Downing: Thanks, James.

Speaker #3: Thank you.

Operator: Thank you. Our next question comes from Josh Nichols with B. Riley. You may proceed.

Speaker #1: Our next question comes from Josh Nichols with B. Riley. You may proceed.

Speaker #6: Yeah, thanks for taking my questions. One, just to dive a little bit deeper into the margin. I mean, pretty impressive margins. Even though the revenue was light and, stripping out the $18 million, you were still up 50 bps. I guess is 35% type gross margin going to be a floor, you think, going forward? And how do you think about how that margin is likely to be exiting this year as we move into '27 later?

Josh Nichols: Yeah, thanks for taking my questions. One, just to dive a little bit deeper into the margin. I mean, pretty impressive margins. Even though the revenue was light and stripping out the $18 million, you were still up 50 basis points. I guess, is 35% type gross margin going to be a floor, you think, going forward? And how you think about how that margin is likely to be exiting this year as we move into 2027 later?

Speaker #2: I wouldn't say it's a floor. I would say that probably that 34% to 35% is kind of the sweet spot. I mean, if you look at the weighted average, the growth in some of these new emerging technologies, they're not—they're going to be slightly below the corporate average.

Steve Downing: I wouldn't say it's a floor. I would say that probably that 34% to 35% is kind of the sweet spot. If you look at the weighted average, the growth in some of these new emerging technologies, they're going to be slightly below corporate average, some of them, just because it is a more competitive set. If you look at the growth opportunities as we start talking about visors and some of the other new technologies, those do have a slightly better margin profile. It's really about that weighted average of how those products kind of come in. Obviously, with some of the pressure on the emerging markets, China, for instance, the lack of revenue there obviously helped degrade margins as well.

Speaker #2: Some of them are just because it is a more competitive set. But if you look at the growth opportunities, as we start talking about visors and some of the other new technologies, those do have a slightly better margin profile.

Speaker #2: So it's really about that weighted average of how those products kind of come in. Obviously, with the with some of the pressure on the emerging markets, China, for instance, those obviously the lack of revenue there obviously helped degrade margins as well.

Speaker #2: So what we're trying to do is offset those losses and find new products to replace them with that are at or around our corporate average margin.

Steve Downing: What we're trying to do is offset those losses and find new products to replace them with that are at or around our corporate average margin. We feel very confident. If you look at that growth trajectory, it's not that we're not offsetting the losses and problems in the business with wins. It's just how quickly can you do those and how quickly can you ramp them at high volume, and more importantly, with good yields.

Speaker #2: And so we feel very confident. If you look at that growth trajectory, it's not just about what is—it's not that we're not offsetting the losses and problems in the business with wins.

Speaker #2: It's just how quickly can you do those, and how quickly can you ramp them at high volume, and, more importantly, with good yields.

Josh Nichols: Thanks. Last question from me. Looking at the out year, targeting about 7% growth, you are not really getting much from light vehicle production and China's expected to be down. Maybe you could articulate a little bit your thoughts about the building blocks, how much of that growth is driven by FDM, but also presumably you have some significant DMS ramp as well, and maybe tiny bit of contribution from dimmable glass in H2 of next year. How you kind of get to that out year target for growth?

Speaker #6: Thanks. And then, last question for me. Looking at the out year—I mean, targeting about 7% growth, you're not really getting much light vehicle production, and China is expected to be down.

Speaker #6: Could you maybe articulate a little bit your thoughts about the building blocks—how much of that growth is driven by FDM, and also, presumably, you have some significant DMS ramp as well? And maybe a tiny bit of contribution from dimmable glass in the second half of next year. How do you kind of get to that out-year target for growth?

Speaker #2: Yeah. Well, Josh, first of all, thank you for asking that question that way. We didn't go into it too much in our prepared comments, but if you look at next year, what we're anticipating from an LVP standpoint, in our primary markets and at the midpoint of our guidance, we're talking about a high single-digit outperformance to the underlying market again.

Steve Downing: Well, I think, Josh, first of all, thanks for asking that question that way. We didn't go into it too much in our prepared comments, but if you look at next year, what we're anticipating from an LVP standpoint in our primary markets and our midpoint of our guidance, we're talking about a high single digit outperformance to the underlying market again, which is where we've been there for quite a few years. I think at times, that kind of gets washed out a little bit just because the quarter was a hair lighter than we anticipated. By that we mean sales actually came in about $30 million light of what we were anticipating for the quarter. When you look at out year, we continue to see that strength.

Speaker #2: Which is where we've been for quite a few years. And so, I think at times that kind of gets washed out a little bit, just because the quarter was a hair lighter than we anticipated.

Speaker #2: And by that, we mean—I mean, sales actually came in about $30 million light of what we were anticipating for the quarter. And so, when you look at out year, we're continuing to see that strength.

Speaker #2: That outperformance is really going to be driven by a couple of factors you just called out. So: FDM growth, DMS and ICMS growth. A little bit, in the back half, will start to be driven by some visor sales.

Steve Downing: That outperformance is really going to be driven by a couple factors you just called out. FDM growth, DMS, and ICMS growth. A little bit in H2 will start to be driven by some visor sales. Really it's going to be a whole portfolio of products. Also including what we're expecting out of the PAC team and the audio side. Both Klipsch and Onkyo have some strong product potentials, we're looking at these as all growth drivers of the business. Quite frankly, like we mentioned, it's growth that if we didn't have the losses in China and part of what's happening in Europe, we'd be talking about double digit growth rates over market conditions.

Speaker #2: But really, it's going to be a whole portfolio of products, and not—and also including what we're expecting out of the PAC team and the audio side. Both Klipsch and Onkyo have some strong product potentials.

Speaker #2: And so we're looking at these as all growth drivers of the business. And quite frankly, like we mentioned, it's growth that, if we didn't have the losses in China and part of what's happening in Europe, we'd be talking about double-digit growth rates over market conditions.

Josh Nichols: Yeah. Thanks for laying that out for me. Appreciate it.

Speaker #6: Yep, thanks for laying that out for me. I appreciate it.

Speaker #2: Yeah. Thanks, Josh.

Steve Downing: Yeah. Thanks, Josh.

Speaker #1: Thank you. Our next question comes from Mark Delaney with Goldman Sachs. You may proceed.

Operator: Thank you. Our next question comes from Mark Delaney with Goldman Sachs. You may proceed.

Speaker #3: Yes, good morning. Thank you very much for taking the questions. I wanted to ask another one on the European market dynamic and what your expectations are between now and 2028, when you're able to begin shipping out of Morocco. You mentioned some challenges you're already seeing in the European market today, but as you think about design wins and share between now and that 2028 time frame, are you expecting additional pressure in terms of your participation within the European market because you don't have the Moroccan site yet? Or is this more something you just need to get done and that's sufficient visibility and you would not anticipate share loss before 2028?

Mark Delaney: Yes. Good morning. Thank you very much for taking the questions. I wanted to ask another one on the European market dynamic and what your expectations are between now and 2028 when you're able to begin shipping out of Morocco. You mentioned some challenges you're already seeing in the European market today, but as you think about design wins and share between now and that 2028 timeframe, are you expecting additional pressure in terms of your participation within the European market because you don't have the Moroccan site yet? Or is this more something you just got to get done and that's sufficient visibility, and you would not anticipate share loss before 2028?

Speaker #2: You're exactly right. The conversations we've been having with our customer base there, and the plans we've put in place, basically kind of fended off those risk factors.

Steve Downing: You're exactly right. The conversations we've been having with our customer base there and the plans we put in place basically fended off those risk factors. If we hadn't made that plan and put that plan in place, then there would've been risk of continual losses there. With our plan, we feel very comfortable and our customers do that we have an active plan that we'll execute well on, and definitely it's not slowing down or creating more headwinds right now. The only real headwinds we're really going to experience in Europe is what we just started to see now, which is, A, our European customer base, there's difficult market conditions for them.

Speaker #2: If we hadn't if we hadn't made that plan and that and put that plan in place, then there would have been risk of continual losses there.

Speaker #2: But with our plan, we feel very comfortable, and our customers do as well, that we have an active plan that we'll execute well on. And definitely, it's not slowing down or creating more headwinds right now.

Speaker #2: The only real headwinds we're really going to experience in Europe is what we just started to see now, which is, A, our European customer base are having a—there's difficult market conditions for them.

Speaker #2: And so, obviously, that flows down to us. And then, secondly, if you look at the continual, there is a little bit more on the Volkswagen side.

Steve Downing: Obviously that flows down to us. Secondly, you look at the continual, there is a little bit more on the Volkswagen side that we'll continue to see a little bit of volume challenges just from that lost program.

Speaker #2: It will continue to see a little bit of program.

Mark Delaney: Understood. Maybe give us an update on your ability to better sell to the Chinese OEMs as they're going into Europe. I know your business in China has been challenged, as the Chinese OEMs are setting up European-based operations, where are you in those discussions to begin selling to the European OEMs and then maybe helping to mitigate that dynamic of them taking some share from the European customers in Europe?

Speaker #3: Understood. And maybe give us an update on your ability to better sell to the Chinese OEMs as they're going into Europe. I know your business in China has been challenged, but as the Chinese OEMs are setting up European-based operations, where are you in those discussions to begin selling to the European OEMs, and then maybe helping to mitigate that dynamic of them taking some share from the European customers in Europe?

Speaker #2: Yeah. Well, two factors there. Number one is, obviously, once we're in a Western environment, the playing field is much more level, and so we feel very comfortable in our ability to compete there.

Steve Downing: Well, two factors there. Number one is obviously once we're in a Western environment, the playing field is much more level, we feel very comfortable in our ability to compete there. Secondly, a plant in Morocco gives us another operating advantage, one that we did not have before, and the ability to get products into Europe, in a more tariff-friendly manner. Also, just from an overall logistics standpoint, shorter supply chain and the ability to be closer to the customer base geographically, really starts to put us in a better position than what we have been historically.

Speaker #2: And then secondly, the plant in Morocco gives us another operating advantage—one that we did not have before. The ability to get products into Europe in a more tariff-friendly manner, and also, from an overall logistics standpoint, having a shorter supply chain and being closer to the customer base geographically, really starts to put us in a better position than what we had been historically.

Speaker #3: And are those discussions with the Chinese companies—I mean, are those already underway?

Mark Delaney: Are those discussions with the Chinese companies already underway?

Speaker #2: Yeah, it was existing customers. So, if you look at most of what we've been dealing with on the Chinese OEM side, these are customers that we are supplying to domestically in China already.

Steve Downing: Yeah. It was existing customers. If you look at most of what we've been dealing with on the Chinese OEM side, these are customers that we are supplying to domestically in China already. Our teams on the ground in China still have those relationships with those OEMs and continue to share with them what our plans are for how we are going to be better geographically suited to support the European market.

Speaker #2: And so, our teams on the ground in China still have those relationships with those OEMs and continue to share with them what our plans are for how we're going to be better geographically suited to support the European market.

Speaker #3: Thanks so much. I'll pass it on.

Mark Delaney: Thanks so much. I will pass it on.

Speaker #1: Thank you. Our next question comes from David Wiston with Morningstar. You may proceed.

Operator: Thank you. Our next question comes from David Whiston with Morningstar. You may proceed.

David Whiston: Yes, good morning. Just on the IEEPA refunds, I am just curious, is there more of those coming throughout 2026 and maybe even 2027, or is substantially all of it already refunded?

Speaker #5: Morning. Just on the IEPA refunds, I'm just curious—is there more of those coming throughout '26 and maybe even '27, or is substantially all of it already refunded?

Speaker #2: We're working on kind of a phase two approach, where we were paying it through the supplier. That's probably a little bit lower probability. So our teams are working on some incremental refund, but this is the lion's share of it that you should realize.

Kevin Nash: We're working on kind of a phase II approach where we were paying it through the supplier. That's probably a little bit lower probability, our teams are working on some incremental refund. This is the lion's share of it that you should realize. Anything else is going to be incremental.

Speaker #2: So, anything else is going to be incremental, but yeah, they're—

Speaker #5: It's fairly small.

David Whiston: Fairly small

Speaker #2: Yeah, fairly small.

Kevin Nash: They're fairly small. Yeah.

Speaker #5: Yeah. And on the capex guidance change, with it going down, I was just curious if that difference got pushed to '27, or is it just not happening?

David Whiston: Yeah, fairly small. On the CapEx guidance change, with it going down, I was just curious if that difference got pushed to 2027 or is it just not happening?

Speaker #2: No, a little bit of it will slide, but we feel pretty comfortable with where we're at. I mean, the good news of slightly lower volumes is that we don't need as much capital in order to maintain our capacity.

Steve Downing: No, a little bit of it will slide, but we feel pretty comfortable with where we're at. The good news of slightly lower volumes is that we don't need as much capital in order to maintain our capacity, that was an advantage. Not a whole lot's going to slide into 2027.

Speaker #2: And so that was an advantage. Not a whole lot is going to slide into '27.

David Whiston: Okay. Just lastly on the Morocco facility, just can you talk a bit about what were the key variables in choosing there versus perhaps a low-cost European nation in Eastern Europe?

Speaker #5: Okay. And just lastly, on the Morocco facility, can you talk a bit about what were the key variables in choosing there versus perhaps a low-cost European nation in Eastern Europe?

Speaker #2: Yeah. You go through the whole list of factors that you consider—geopolitical risk factors from where they're at, cost increases, long-term estimates on what inflation is expected to be in each of those regions.

Steve Downing: Yeah. You go through the whole list of factors that you consider: geopolitical risk factors from where they're at, cost increases, long-term estimates on what inflation is expected to be in each of those regions. You look at duty and trade agreements that are in place, not only between Morocco or Eastern Europe and the rest of the EU, but also between these countries and the US. How do you get parts flowing, potentially both ways, at the lowest duty and tariff rate possible? Obviously, you look at power and reliability of energy. You start looking through not only the geopolitics, but you look through which countries have their own power source, their own ability to replicate that power and give you stable power supply. You look at incentive programs and what each of the countries offer and from an incentive standpoint.

Speaker #2: Then you look at duty and trade agreements that are in place, not only between Morocco or Eastern Europe and the rest of the EU, but also between these countries and the U.S.

Speaker #2: And so, how do you get parts flowing potentially both ways at the lowest duty and tariff rate possible? Obviously, you look at the power and reliability of energy.

Speaker #2: And so you start looking through not only the geopolitics, but you look at which countries have their own power source, their own ability to replicate that power, and give you stable power supply.

Speaker #2: You look at incentive programs and what each of the countries offer. And from an incentive standpoint, and then you look at social costs and what do we expect the role of social costs to be in each of the regions?

Steve Downing: You look at social costs and what do we expect the role of social costs to be in each of the regions. Based on all those factors, when we looked through everything, we looked at Morocco, it was a clear winner for us. May not be for everyone, but it's something that we looked at and thought it was going to be a good fit for us longer term.

Speaker #2: And so, based on all those factors, when we kind of looked through everything, we looked at Morocco, and it was a clear winner for us.

Speaker #2: It may not be for everyone, but it’s something that we looked at and thought was going to be a good fit for us longer term.

Speaker #5: Yeah. Thanks, guys.

David Whiston: Yeah. Thanks, guys.

Speaker #4: Thanks, David.

Kevin Nash: Thanks, David.

Speaker #1: Thank you. And as a reminder, to ask a question, please press *11 on your telephone. Our next question comes from Rajat Gupta with JPMorgan.

Operator: Thank you. As a reminder, to ask a question, please press *11 on your telephone. Our next question comes from Rajat Gupta with J.P. Morgan. You may proceed.

Speaker #1: You may proceed.

Rajat Gupta: Great. Thanks for taking the question. Just wanted to follow up on the revenue guidance in the H2. Given some of the challenges in international

Speaker #6: Great, thanks for taking the question. I just wanted to follow up on the revenue guidance in the second half. Given some of the challenges internationally, I just wanted to get a sense of what's giving you confidence in the second half reacceleration.

Rajat Gupta: Just wanted to get a take of what's giving the confidence in the H2 re-acceleration. Anything you can point to regionally, program-wise, that's helping that? I have a quick follow-up. Thanks.

Speaker #6: Anything you can point to regionally, program-wise that's helping that and have a quick follow-up. Thanks.

Speaker #2: Yeah, thanks, Rajat. That's a great question. Really, what we're looking at—and why we feel confident in the second half—is that we believe most of the headwinds that we experienced in the first half are already well-known and documented for the second half of the year.

Steve Downing: Yeah. Thanks, Rajat. That's a great question. Really what we're looking at and why we feel confident in the H2 is, we believe most of the headwinds that we experienced in the H1 are already well-known and documented for the H2 of the year. On the flip side of that, though, there are some pretty strong product launches that Neil mentioned during his presentation that we expect to help drive additional revenue in the H2. We're talking about additional FDM, additional OEMs, additional nameplates on FDM, but then also really, we're starting to ramp pretty strong in the H2 of the year on some of those DMS and ICMS launches. Those factors right there are really going to be the key drivers of what we believe will drive growth in the H2.

Speaker #2: On the flip side of that, though, there are some pretty strong product launches that Neil mentioned during his presentation that we expect to help drive additional revenue in the back half.

Speaker #2: So, we're talking about additional FDM, additional OEMs, additional nameplates and FDM, but then also, really, we're starting to ramp pretty strong in the back half of the year on some of those DMS and ICMS launches.

Speaker #2: And so those factors right there are really going to be the key drivers of what we believe will drive growth in the back half.

Speaker #6: Understood. And just maybe following up on some of the Europe commentary and the China export commentary, and share loss and stuff like that—obviously, you're still contemplating good revenue growth in 2027.

Rajat Gupta: Understood. Just maybe following up on the Europe commentary and the China export commentary and share loss and stuff like that. Obviously you're still contemplating good revenue growth in 2027. Is the assumption embedded in the H2 and next year that Europe as a market gets worse before it gets better? Or this is kind of like a new baseline assumption that you're taking into account in the guidance?

Speaker #6: Is the assumption embedded in the second half and next year that Europe as a market gets worse before it gets better, or is this kind of like a new baseline assumption that you're taking into account in the guidance?

Speaker #2: Yeah, no. So we're not assuming much help on LVP in Europe, and we're expecting that there will be some continued base EC issues.

Steve Downing: Yeah, no. We're not assuming much help on LVP in Europe. We're expecting that there'll be some continued base EC issues. What we are counting on is some additional content in the European market, both through DMS, ICMS, and FDM growth with our European customers. Sorry.

Speaker #2: What we are counting on is some additional content in the European market, both through DMS, ICMS, and FDM growth with our European customers. Sorry.

Speaker #6: Got it. Just—sorry, did I interrupt you?

Rajat Gupta: Got it. Sorry, did I interrupt you?

Speaker #2: No, no, sorry. I'm coughing. I've got a little cold I'm dealing with right now.

Steve Downing: No. Sorry, I'm coughing. I've got a little cold I'm dealing with right now.

Speaker #6: Sorry about that. Just one last clarification on gross margins. If we adjust for the $18 million benefit, it does look like the overall gross margin guidance for the year, or at least gross profit dollars guidance for the year, is slightly lower than before.

Rajat Gupta: Sorry about that. Just last clarification on gross margin. If we adjust for the $18 million benefit, it does look like the overall gross margin guidance for the year is, or at least gross profit dollars guidance for the year is slightly lower than before. Curious, am I just splitting hairs there? Is there anything to read into that? Anything to call out on that front? Thanks.

Speaker #6: Curious if I am just splitting hairs there? Is there anything to read into that? Anything to call out on that front? Thanks.

Speaker #2: Yeah, I mean, I think it's splitting hairs, to your point. We tend to guide in a range, but if you're looking at just the midpoint, there may be some variation or slight reduction.

Kevin Nash: Yeah, I think it's splitting hairs to your point. We tend to guide in a range, but if you're looking at just the midpoint, there may be some variation or slight reduction. I think there's opportunity on both the upside and downside. With the launches, the cadence, mix strength, those are the things that tend to drive margins up, we leverage our overhead costs. I think the higher end of the range is still in play.

Speaker #2: But I think there's opportunity on both the upside and downside. With the launches, the cadence, and mix strength, those are the things that tend to drive margins up.

Speaker #2: And then we leverage our overhead costs. So I think the higher end of the range is still in play. Well, and I think you look at it and obviously, as we were preparing for this, we knew midnight last night was going to bring some type of a change as it related to tariffs.

Steve Downing: Well, I think you look at it, obviously as we were preparing for this, we knew midnight last night was going to bring some type of a change as it related to tariffs. We tend to be a little conservative because this merry-go-round has gone round and round and up and down a bunch of times. It's hard to predict. We know there's some headwinds coming in the back half of the year, too. If you look at shortages on the electronic side, look at raw material costs. These are all things that, they are headwinds in the back half. To Kevin's point, we think our revenue growth and our operational efficiency will help us offset most of those. There's just a lot of unknowns as we head into the back half, we're probably a little conservative on that guide as well.

Speaker #2: And so, we tend to be a little conservative because this merry-go-round has gone round and round, and up and down, a bunch of times.

Speaker #2: So, it's hard to predict. We also know there are some headwinds coming in the back half of the year, too. If you look at shortages on the electronic side and look at raw material costs…

Speaker #2: I mean, these are all things that are headwinds in the back half. We think, to Kevin's point, that our revenue growth and our operational efficiency will help us offset most of those.

Speaker #2: But there's just a lot of unknowns as we head into the back half, and so we're probably a little conservative on that guide as well.

Speaker #6: Understood. Fair enough. And thanks for all the candid color, and good luck.

Rajat Gupta: Understood. No, fair enough. Thanks for all the candid color and good luck.

Speaker #4: Thanks, Rajat.

Kevin Nash: Thanks, Rajat.

Speaker #2: Thanks, Rajat.

Steve Downing: Thanks, Rajat.

Speaker #1: Thank you. I would now like to turn the call back over to Josh O'Berski for any closing remarks.

Operator: Thank you. I would now like to turn the call back over to Josh O'Berski for any closing remarks.

Speaker #4: Thank you, everyone, for your time and questions today. This concludes our conference call.

Josh O'Berski: Thank you everyone for your time and questions today. This concludes our conference call.

Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

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