Operator: Good day, and thank you for standing by. Welcome to the Gentex Reports Q3 2026 Financial results. At this time, all participants are on listen-only mode. After the speaker's presentation, we will open up for questions. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's call is being recorded. I would now like to hand it over to our first speaker, Josh O'Berski, Vice President of Investor Relations. Please go ahead.
Josh O'Berski: Thank you. Good morning, and thank you for joining us today for our Q3 2026 earnings conference call. I am 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 during today's 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.
Josh O'Berski: Actual results may differ materially from these 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 participating in both the SEMA Show from 3 November through 6 November and the 2027 Consumer Electronics Show from 6 January through 9 January, both in Las Vegas, before our next call. At both of these events, there will be booth tours, product demonstrations, and an opportunity to see the future of our technology on display. If you are interested in joining us at these events, please reach out to me after this call or talk to your favorite analyst to join their scheduled booth tour. I will now hand the call over to Steve Downing for our prepared remarks.
Steve Downing: Thank you, Josh. For Q3, net sales were $647.7 million, compared with $655.2 million in Q3 of last year. Automotive unit performance was generally in line with our expectations, but revenue came in approximately $35 million below our beginning of quarter forecast due to certain customer issues and delayed launches. In North America, automotive revenue increased approximately 3%, despite a 5% decline in regional light vehicle production. In Europe, revenue, excluding the Volkswagen program loss, increased approximately 13%. However, the Volkswagen headwind more than offset that underlying growth. Globally, automotive revenue, excluding the previously discussed headwinds in China and at Volkswagen, increased approximately 2%, despite global light vehicle production declining by more than 2%. That performance reflects the continued content growth we have been seeing across our primary automotive markets.
Steve Downing: Outside of automotive, premium audio revenue increased approximately 27% to $54.7 million, while aerospace, biometrics, fire protection, and automotive aftermarket revenue collectively increased about 5%. Overall, our Q3 results demonstrate the resilience of the business and the continued benefits of our strategy to grow through technology, product mix, and diversification. Despite the challenges in China and Europe, sales were relatively flat year-over-year. Strong performance in North America, driven by continued adoption of advanced feature content and growth across our non-automotive product lines, helped offset those headwinds. In Europe, the continued rollout of DMS and ICMS products helped mitigate lower vehicle production and mirror unit shipments, reinforcing the value of increasing content per vehicle. China remained a headwind, with the industry conditions we have discussed continuing to pressure unit shipments and revenue. On the positive side, our diversification strategy continued to gain momentum.
Steve Downing: Non-automotive revenue increased approximately 17% and represented 15% of total company revenue in the quarter, compared with 12% in Q3 of last year. Gross margin for Q3 was 33.4%, compared with 34.4% in Q3 of 2025. The year-over-year decline was primarily driven by higher precious metals costs, unfavorable product mix, and reduced operating leverage from lower than anticipated sales. While gross margin was below our expectations, the underlying drivers were relatively concentrated to just a couple of areas. Precious metal inflation has increased our bill of material costs over the last several quarters, and the sales shortfall relative to our forecast reduced our expected operating leverage. Our operations teams continue to perform well, and we remain focused on engineering solutions and other cost reduction opportunities to help offset inflation across several commodity areas.
Steve Downing: Consolidated operating expenses were $101.3 million in Q3, compared with $102.8 million last year. On an adjusted basis, operating expenses were $97.5 million compared with $101.8 million last year, excluding impairment, acquisition-related, and severance costs. The reduction in operating expenses on both a GAAP and adjusted basis reflects our continued focus on managing spending as sales growth has moderated during 2026. While we continue to focus on operating expenses, we are also supporting a significant number of launches and core R&D initiatives that are important to our long-term growth. As we shared at our Analyst and Investor Day in August, we are making meaningful progress on the Dimmable Visor program, which is scheduled to launch late next year, and we continue to move our Large Area Dimmable Device project closer to a qualified product with a scalable manufacturing footprint.
Steve Downing: Income from operations was $115.1 million for Q3, compared with $122.3 million last year. Adjusted income from operations was $118.8 million, compared with $123.4 million in Q3 of last year. Our effective tax rate for the quarter was 15.5%, compared with 16.3% in Q3 of last year. Net income attributable to Gentex was $90.6 million, compared with $101 million last year. Adjusted net income attributable to Gentex was $97.8 million, compared with $103.7 million in Q3 of 2025. Diluted earnings per share attributable to Gentex were $0.43, compared with $0.46 in Q3 of last year. On an adjusted basis, diluted earnings per share were $0.47 in both periods. I will now hand the call over to Kevin for some further financial details.
Kevin Nash: Thanks, Steve. Automotive net sales were $552.5 million in Q3 of 2026, compared to $573.7 million in Q3 of 2025. Automotive revenue performance during the quarter reflected expected unit trends and strong content growth across the company's primary markets. Reported results include discrete headwinds in China and from the VW program loss. Excluding these items, automotive revenue increased approximately 2% quarter-over-quarter, led by significant North American market outgrowth and a 13% growth in Europe, supported by favorable product mix and increased electronic content per vehicle. Net sales from the premium audio category were $54.7 million in Q3 of 2026, compared with $43 million in Q3 of 2025, an increase of approximately 27%. The increase was driven primarily by higher sales of home separates and systems products.
Kevin Nash: Home separates growth reflected increased sales of Reference Premiere speakers, while systems growth was led by Flexus, the second generation of the Fives, Sevens, and Nines, and ProMedia products. Net sales from the other products category were $40.5 million in Q3 of 2026, which was a 5% increase compared to Q3 of 2025. Growth was driven primarily by aerospace and fire protection revenues, which increased 135% and 36%, respectively, but were partially offset by lower aftermarket and accessory sales. During Q3 of 2026, the company repurchased 5.7 million shares of its common stock at an average price of $23.44 per share, for a total of $132.6 million. Year to date, the company has repurchased 11.6 million shares for a total of $270.2 million at an average price of $23.28 per share.
Kevin Nash: As of 30 September 2026, approximately 24.3 million shares remain available for repurchase under the previously announced share repurchase plan. Turning to the balance sheet, our comparisons today are based on 30 September 2026 versus 31 December 2025. Starting with liquidity, cash and cash equivalents were $134.4 million at quarter end, compared to $145.6 million at year-end. Short-term and long-term investments totaled $242.9 million, compared to $278.4 million at the end of 2025. Accounts receivable was $404.6 million at 30 September, compared to $368.5 million at year-end, reflecting the timing of sales and collections during the quarter. Inventories totaled $550.1 million at 30 September, compared to $516.3 million at year-end, primarily reflecting higher raw material balances associated with electronic components and precious metal-related materials.
Kevin Nash: Accounts payable was $263.6 million at 30 September, compared to $249 million at year-end, primarily driven by timing of payments and inventory purchases. Preliminary cash flow from operations was $83.5 million for the quarter, compared with $147 million in Q3 2025. The decline was primarily driven by working capital changes, higher inventories along with higher accounts receivable due to sales and collection timing, partially offset by higher payables levels. For the first 9 months of 2026, preliminary cash flow from operations totaled $405.2 million, compared to $461.6 million in the same period of 2025, also due to changes in working capital. Capital expenditures were $17.7 million for Q3, compared with $35.6 million in Q3 2025. For the first 9 months of 2026, capital expenditures totaled $53.9 million, compared with $103.4 million in the same period of 2025.
Kevin Nash: Depreciation and amortization expense was $25.7 million in Q3 2026, compared to $25.9 million last year. For the first 9 months of 2026, depreciation and amortization expense totaled approximately $77.1 million, compared with $78.8 million in the same period of 2025. I will now hand the call over to Neil for a product update.
Neil Boehm: Thank you, Kevin. I would like to begin by thanking all of the analysts and investors that traveled to our facilities in Zeeland, Michigan in August for our Analyst and Investor Day. It is not always easy to get here, but being at our facilities allows us to demonstrate the progress and latest direction for many of our products. Investors were able to see the latest Full Display Mirror, Driver Monitoring, and Large Area Device products. It was also a great opportunity for us to take people on tours of the facilities and see the capital and automation that has been put in place to support all of these technologies. Again, thank you for taking the time to check out what we do. Now for a quick review of launches and product updates. In Q3 2026, we continued to have strong feature launches of our automotive products.
Neil Boehm: Automotive features like Full Display Mirror, In-Cabin Monitoring, HomeLink, and advanced feature OEC mirrors accounted for over 80% of our launches in the quarter. It is clear that even with the headwinds facing our industry, the consumer demand for advanced features continues to grow. Full Display Mirror continues to perform well for Gentex, and the market acceptance has only increased for the product. At Cadillac, Gentex's FDM helped the Cadillac Escalade earn the Comfort and Convenience award in J.D. Power's 2026 U.S. Tech Experience Index study by enabling better visibility, eliminating blind spots, and requiring very little learning or adjustment from users. At our Analyst Day, we announced that we had launched as an accessory platform for Ford on the Super Duty. We believe there is further opportunity to continue rolling this out across their lineup and to drive increased volume on their high-end trim packages.
Neil Boehm: In Europe, FDM continues its steady progress, launching this quarter on the DS7 and gaining traction at other customers in the region. For 2026, we are still on target to achieve our 200,000 to 400,000 FDM unit increase over what we shipped in 2025. Driver Monitoring and In-Cabin Monitoring system launches continue to be strong. We are pleased to have launched on the Genesis GV90, along with a handful of additional platforms at Hyundai Kia and BMW. These programs continue to grow through this year and into 2027, and we expect continued launches at these OEMs to help drive our $80 million to $100 million revenue target from DMS and ICMS for 2027. Customer interest in our Dimmable Visor and Large Area Dimmable Device technology remains strong. Our first Dimmable Visor program remains on track with a start-of-production plan for the Q4 of 2027.
Neil Boehm: We are actively working with other OEMs on the product design and testing to secure additional awards later this year and into early 2027. The Large Area Dimmable Device product continues to improve in performance and durability. As we have been able to work through many of our biggest challenges, we are progressing well to move this to a production-ready product. in September, our teams at Premium Audio took place in New York Fashion Week in collaboration with LUAR. Our cinema speakers, normally behind theater screens, were front and center, blending cultural relevancy with premium audio performance. The party continues at KlipschFest, our homegrown celebration taking place on 6 and 7 November at our global Klipsch headquarters in Indianapolis.
Neil Boehm: We will be wrapping up the 80th anniversary celebrations for Klipsch and Onkyo with a two-day listening experience, artifacts and memorabilia from the last 80 years, facility tours, live listening demos, and a chance to experience a fleet of well-equipped automotive and adventure vehicles. The Premium Audio teams have also been busy gearing up for the launch of our flagship headphone system, the Stratus Series, which hits the market in November, along with the fan favorite Reference Premiere III Passive home theater loudspeakers. On the Bluetooth speaker front, our Music Series Gen 2 will be launching this holiday season alongside Onkyo's Japanese design-inspired Creator Series GX-AiO all-in-one powered tabletop speaker system. Go out and purchase these awesome products. The holidays will never sound so good.
Neil Boehm: These first nine months of 2026 have been busy and rapidly changing in many ways, but the teams at Gentex have continued to deliver on the things that help set us apart from our peers: quality, consistency, and innovation. I will now hand the call back over to Steve for guidance and closing remarks.
Steve Downing: Thanks, Neil. I think that's the first time I've ever heard you say cultural relevancy. The company's light vehicle production assumptions are based on the mid-October 2026 Mobility Global Outlook. Global light vehicle production is forecast to decline approximately 4% in Q4 2026 and approximately 2% for full year 2026, compared with last year. Global production is expected to increase approximately 1% in 2027. However, production in our primary automotive markets of North America, Europe, and Japan/Korea is forecast to decline approximately 1%, with the only growth in LVP coming from China and other markets. Based on actual results for the first nine months of 2026, the light vehicle production forecast, and our expectations for the automotive, premium audio, and other products categories, we are updating certain elements of our full year 2026 guidance. Consolidated revenue is now expected to be approximately $2.65 billion for the year.
Steve Downing: Gross margin is now expected to be between 34% and 34.5% for the year. This range includes an estimated $10 to $15 million of incremental cost increases expected in Q4, with related recoveries not anticipated until H1 2027. Operating expenses, excluding severance and impairments, are now expected to be between $395 million and $410 million. The tax rate is now expected to be between 16% and 16.5%. Capital expenditures are now expected to be between $100 and $115 million, and depreciation and amortization is now expected to be between $100 million and $105 million. Based on the mid-October 2026 Mobility Global Light Vehicle Production forecast, our current expectations for automotive, premium audio, and other products revenue, and despite the lower revenue for 2026, we are maintaining our 2027 revenue outlook of $2.8 billion to $2.9 billion.
Steve Downing: This outlook represents a 6% to 9% revenue growth compared with our updated 2026 guidance, despite light vehicle production in our primary markets being forecast to decline approximately 1%. We believe this represents a significant acceleration in outgrowth versus the underlying market and reflects the increasing contribution from new technology, higher content per vehicle, and our diversifying customer base. As we look ahead, we're increasingly confident in the growth opportunities in front of us. We're beginning to see the impact of our broader product and growth strategy reflected in our forward outlook. This acceleration in growth is being driven by new technology, higher content per vehicle, and a more diversified customer base. The progress we demonstrated at our Analyst and Investor Day in August also shows how far several of these programs have advanced towards commercialization. Our interior visor program and large area device portfolio continue to move forward.
Steve Downing: Launches of our fourth generation Full Display Mirror are now in full swing, and our engineering teams continue to improve product design and cost while delivering some of the most advanced technology and features we have ever offered. We are also pleased to have secured our first PCBA business award during the quarter, with production expected to begin in 2029. This is another opportunity to leverage Gentex's advanced manufacturing capabilities in new products and markets, and we are actively pursuing additional PCBA opportunities with similar production timing. While the new technology and launches are keeping us very busy, we are also actively managing the challenges developing across the supply chain. Strong demand for memory and other electronic components is creating supply constraints and cost pressure across the electronics industry. Precious metal pricing remains volatile after significant increases over the last year.
Steve Downing: We expect these pressures to continue into Q4, and our teams are working with customers on appropriate reimbursement, while our engineering teams pursue design changes and other cost reduction opportunities. Taken together, we believe that the higher content, new product launches, diversification, and expansion into new markets are changing the growth profile of Gentex. If we execute on these growth opportunities while continuing to offset the cost pressures facing the industry, we believe we can create meaningful long-term value for our shareholders. That completes our prepared comments for today. We can now proceed to questions.
Operator: Thank you. As a reminder, to ask a question, you will 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 stand by while we compile the Q&A roster. One moment for our first question. Our first question will come from the line of Joseph Spak from UBS. Your line is open.
Joseph Spak: Thanks. Good morning, everyone.
Steve Downing: Good morning.
Joseph Spak: I guess just to start, obviously, a little bit more cost pressure here at the end of the year, and you talked about the 10% to 15% in Q4, and you are expected to get that back in H1. But it seems like, as you allude to this, there is just sort of this more general pressure. While you are going to get back in H1 of next year some of these costs you are incurring now, can you get to, for lack of a better term, par in 2027 and sort of be more real time? Or you are always sort of playing catch up and to that extent, does that add some risk that the 2027 gross margin is below the midterm level you laid out at the Analyst and Investor Day?
Steve Downing: Yeah, I think if you look at the delay, it is pretty normal in this industry. Obviously, and we will get into some details probably about DRAM and the cost and what is happening with RAM pricing. But obviously that creates a bit of a headwind for us immediately because it takes a while for the customers to agree to what that new pricing is. And so hence the delay, in terms of reimbursement. So anytime there is escalating prices like this, in our industry in particular, you are always behind that curve a little bit. But you do catch up. Now, I would say that if you look at the precious metals and what is going on in the rest of the commodities, some of those are more difficult to recover. The electronics piece is pretty cut and dry. It is just about timing of getting that back.
Steve Downing: And so, yeah, there definitely is some headwinds heading into next year. The one thing we have in our favor, though, is despite the headwinds on the bill material side, if we hit the growth rates we are talking about, we have not had a tailwind of the operational efficiency side of a growth rate like that in a bit. And so those can help offset quite a bit of the margin headwinds created by bill material increases just through operational efficiency and the higher growth rate. And obviously the contribution margin on incremental sales always helps offset that as well.
Joseph Spak: Okay. Thanks for that. I noticed you did not give shipments in the release this quarter. If I was following your math, it sounded like the VW and China headwinds, which you have talked about for a while, was 6 percentage points, I think, to auto. But is there any sort of high level commentary you could give us for the auto business in terms of between mirror volume, price, and mix that sort of gets you to that reported 4% decline?
Steve Downing: Yeah. You are talking about the 4% in terms of automotive light vehicle production declines?
Joseph Spak: Yeah. Yeah
Steve Downing: Well, if we talk units for a minute. Units were down, I think, about 1 million units on a year-over-year basis, and it is almost all tied directly to those two causes that you mentioned, both the China reductions and the Volkswagen loss.
Joseph Spak: Okay. Price-
Steve Downing: The difference in that, right, is the growth in the other regions and in increased content.
Joseph Spak: Okay. I will pass it on. Thanks.
Neil Boehm: Thanks.
Operator: Thank you. One moment for our next question. Our next question will come from the line of Raj Gupta from JPM. Your line is open.
Raj Gupta: Great. Thanks for taking the questions. It looks like you feel comfortable reiterating the 2027 outlook, despite, I think it is two quarters in a row where revenue has come in weaker than expected. How should we get comfortable with that outlook? Have you figured out any offsets already to some of the challenges you are seeing right now, or is it just some delays from this year that are pushing it into next year?
Steve Downing: Yeah.
Raj Gupta: Maybe if you can give us any sense of how much of the 2027 revenue is contracted versus dependent on more wins. Thanks.
Steve Downing: Yeah. So that is a great question. If you look at it, you are absolutely right. The quarter came in this year lighter than anticipated. We kind of referenced it in a press release, but really it was driven by a couple OEM launches. One of them was also impacted by the Hyundai Kia strike, the union strike on the ground there. That, I think that took a good 60,000, 70,000 units out of production for us during Q3. Unfortunately for us, it was also where we were launching DMS and ICMS and FDM. You had a disproportionate impact due to those units because it is where we were launching some of our highest content.
Steve Downing: Not only did it delay those products, but the ramp-up was slower because as the strike was ending and they were getting back online, the volumes did not come in as high as we were expecting. The other one was, Neil mentioned the F-250, 350 launch. It was a little later than we anticipated, and the launch volumes were not quite what we expected. The big misses were there. If you take those out of it, we view those as one time in nature and so should not impact go forward in 2027. Like we mentioned before, the growth for 2027 is really driven by additional FDM growth, additional ICMS and Driver Monitoring awards.
Steve Downing: The other reason why we feel confident in keeping that guidance is VOXX team had announced that they have done a deal with Alpine to take over distribution for Alpine products. If you look at that is going to be another tailwind heading into next year that we were not anticipating initially when we gave our very first 2027 guidance.
Raj Gupta: Understood. That is helpful. Just to tie a bow to the previous question around just margin and recovery into next year. Any early prelim color you can give us on the margins for next year? What are the puts and takes we should keep in mind? Do you expect to improve gross margins on an annualized basis? Just how you are going to manage OpEx, just given some of the choppiness here. Thanks.
Steve Downing: No, if I was doing the way-too-early college football top 25, I would probably say next year is probably more in that 33% to 34% range. Obviously, we are shaking out a lot of deals right now with our supply base on what is going on with the electronic supply constraints. There are a lot of them right now. We are not talking about just RAM anymore. You are starting to talk about issues with raw PCBs. There is a lot of pressure on the industry right now, so we are still trying to fight through that. If I were given that way-too-early prediction, I would say that is probably the right range to think about it. The headwinds are actually probably would tend to drive that below that.
Steve Downing: We believe with the growth and some of the new launches, that will help offset some of those headwinds we are seeing on the bill of material side.
Raj Gupta: Got it. OpEx would be contained in that background.
Steve Downing: Yeah
Raj Gupta: I imagine. Yep.
Steve Downing: Yep.
Raj Gupta: Understood. Great. Thanks for all the color, and good luck.
Steve Downing: Yeah. Thank you.
Operator: Thank you. Our next question will come from the line of Davis Baker from Robert W. Baird. Your line is open.
Davis Baker: Good morning, guys. Thanks for taking the questions. Maybe to start, could you provide some additional color on what you are seeing in the electronic components market, just given the incremental tightening in supply? Then along those same lines, just advantages of your internal PCB capacity in this environment.
Neil Boehm: Sure. Yeah. A little bit of color just on the electronic components, and Steve will add some more on top of it. We are seeing the impact. Obviously, the DDR and the memory piece has been a significant challenge for several quarters and will continue into 2027 as well. So that, obviously everybody knows about that one. Circuit boards is another one that is really jumped up as a cost. It is not actually the circuit board itself, it is actually sub-components multiple tiers below that material is getting consumed and replaced for data center circuit boards. We are starting to see multiple tiers below the supply is getting tighter to be able to build automotive boards, which means prices are going to continue to move upward. Those are big ones.
Neil Boehm: There is a lot of activity around passive devices as well, but at this stage, those are all manageable and contained. As we look into 2027, there will be additional constraints put in some of those areas.
Steve Downing: To put this into just kind of rough ballparks, what we are seeing from our existing supply base is, and this is wild, anywhere from 8 to 10x price increases on a per unit basis. Literally, a component that costs $4 or $5 earlier this year is now $40. That is a lot of the headwinds that we are kind of working through right now, both how to manage that with our customer base, how to make sure we are getting appropriate reimbursement, and then also longer term realizing that type of cost structure will not support the business model for these products. We have got to engineer our way out of those solutions.
Neil Boehm: Yeah. Back to the component shortage days 5 years, 4 years ago, where we learned how to iterate designs and drive VAVE cost savings initiatives through. The teams have been doing a great job on that with precious metals this year, so we have been able to start driving some improvements in savings that we will see some good savings through, or lack of increases in 2027. Also with products like our Full Display Mirror Generation 4, as that starts, we are launching that actively at multiple customers. That rollout begins in 2028. That product does not use the DDR. We have designs that we are working on to get around these challenges. It is just going to take through 2027 to get them deployed.
Steve Downing: Davis, you also asked about PCB capacity, correct?
Davis Baker: Correct. Yeah. Just how that is an advantage in the environment.
Steve Downing: Yeah. We're sitting really good. Obviously, with some of the reductions in volumes we've seen, we do have capacity in our electronics manufacturing footprint. As we prepare for the PCBA award that we talked about in the prepared comments, we're actively working on what does that floor space need to look like. We feel like to get started, we have plenty as it is, but we're not opposed to adding additional capacity, depending on the size and profitability of the awards. It's something that we'll continue to monitor and we're excited about looking forward to, because it's a very unique footprint from a geography standpoint, where we manufacture. It definitely has a lot of appeal right now to many customers in terms of our location in the US and our ability to do high-end electronics in a very efficient manner.
Steve Downing: It's something that we keep looking at and pushing hard for, and quite frankly, we're really excited about this opportunity outside of automotive as well.
Davis Baker: All right. Thanks, guys. I will take the rest offline. Good luck with the rest of the day.
Neil Boehm: Thanks.
Steve Downing: Thanks, Davis.
Operator: Thank you. Our next question comes from the line of James Picariello from BNP Paribas. Your line is open.
James Picariello: Hey, good morning, everybody.
Neil Boehm: Good morning.
James Picariello: Just on the implied Q4 revenue guide, if we assume continued strong growth in the other segment, it would still imply a mid-single digit type growth rate for auto sales, maybe something around 4% on a year-over-year basis. Can you just share the visibility you have in terms of the bridge to see that inflection on a year-over-year basis for the fourth quarter? Because obviously the first three quarters, given the China challenges, the issues with the VW business, we haven't seen that type of growth rate thus far this year.
Neil Boehm: Yeah. All of our short-term forecasts are built based on customer orders, as they have been consistently, but they don't usually also predict strikes. The nice part about getting back to production is some of those launches that we said were delayed, DMS, ICMS, and FDM, the volume starts to pick back up in the fourth quarter, where they were kind of lacking in Q3. So that's where you start to get visibility. Our Q4 numbers are really based on primarily customer orders, and if you look at from the VOXX or the PAC side, this ends up being the strongest part of their season as well, and we're seeing good demand, as you've seen the sales growth on a year-over-year basis all year.
Steve Downing: That's really been driven by brand new product.
Neil Boehm: Right.
Steve Downing: The growth that we have seen earlier in the year, we would not expect to not produce similar outgrowth versus last year, given the demand for the newer products.
Neil Boehm: Yep.
James Picariello: Well, thank you. Then just back on the electronic sourcing for next year and the inflationary recoveries that will be a swing factor. Visteon yesterday almost doubled their expectation for DRAM and semis recoveries for next year relative to a high forecast that they already had in place. They tied it back to the 2022 timeframe when we saw all that significant inflationary pressure on semis. Just curious if you would relate it back to that time period as well in terms of how you are thinking about next year. If you could remind us what the level of recoveries were back in 2022, if that is a good context for you guys. Thank you.
Steve Downing: Yes. I would say, first of all, in our forecast right now for next year, we are really not modeling significant price increases due to the recovery. The reason why we are saying that is there is going to be a combination of a recovery period, but we are hopeful that we can get through that recovery period in fairly short order and move on to what Neil was describing, which is redesigns, that keeps the price point more attainable for our customer base and the consumer. But there is definitely a tailwind from a pure revenue basis, from the potential for price increases. The issue is obviously there is virtually no margin on those once you recover the actual cost change. So, we are looking at this on a pure baseline basis. We are not building in any of that growth tied to recoveries helping drive that price.
James Picariello: Understood. Thanks.
Steve Downing: James.
Operator: Thank you. Our next question comes from the line of Mark Delaney from Goldman Sachs. Your line is open.
Mark Delaney: Yes. Good morning, and thank you for taking the questions. Another one, if I could please, around the scope of the cost challenges. I think the electronics and semiconductor buy from Gentex has been running at least previously at about an $800 million annualized level. I know you spoke about some components seeing pretty substantial increases, but I imagine it is only certain pieces of the buy. So I do not know if you could help us with where that $800 million would be running at with current spot rates and help us sensitize the scope of the cost issues that the company is currently seeing.
Steve Downing: I am going off of a mixture of 2026 updates and 2027 forecasts, so probably would not quote me on this exact number, but I think the last thing I looked at was somewhere in the $900 million range. That might have included some of the price increases that we are talking about, but you are right. $800 kind of probably over the trailing 12 is probably about right. As we right now look forward, it is probably going to be closer to that $900 million range, maybe even more, depending on if we hit our sales growth levels. If you try to back it up to 2022, it is really hard to make a direct comparison to what we saw there. I would say it was different in that you really had a handful of micros that really drove the vast majority of cost increases.
Steve Downing: But there were other deflationary areas, too. LCDs were still deflationary.
Neil Boehm: Passives were pretty.
Steve Downing: Yeah, and the passives were still pretty stable. It would not say it is dissimilar from a strategic standpoint. It is just totally different areas of the electronics buy that are now inflationary.
Mark Delaney: Understood. Another question around supply chain. As you look at the growth you are expecting to drive in 2027, I know that the cost of driving that growth will be higher with where you are seeing these components come in at. Just in terms of the availability, maybe speak a bit more around actually getting enough volume of these parts for next year to support all of these different opportunities in front of Gentex.
Steve Downing: Yeah, no. That is a great question. That is probably the most challenging part. Once you even agree on pricing, you still have the potential for constraints. One of the things we always work hard on, and that is why Kevin talked a little bit about inventories being higher. We try to make sure we have plenty of inventory on-hand, and obviously the value of that inventory rises as the price goes up. But we are not shy about making sure we secure as much as we can and keep it on-hand. We are constantly working with the supply base. I would say the immediate risk right there is still at DDR. That is probably the most constrained commodity right now.
Steve Downing: As we move forward, though, as Neil mentioned, as a lot of the raw circuit board manufacturers have changed their manufacturing process over to what is needed for data centers, obviously that has removed some capacity from the automotive support side. So it is something that we are looking at very carefully now. We obviously have multiple suppliers we can rely on, but trying to make sure we secure that capacity for next year becomes really important, especially given the growth rate that we are seeing.
Mark Delaney: Yeah, just one last follow-up there and then I will pass it on. But just how far are you with that process? Are you kind of halfway there? I know maybe it is just kind of early in the planning phase, so maybe that is just typical not to be fully secured for next year's volumes. But just give a little bit more color around how far along you are with some of those supply discussions and how much more work is left to be done. Thank you.
Steve Downing: Yeah. No, thanks, Mark. I would say for most things, we are clear through the end of the year. Most things we are probably good all the way through midpoint next year. There is just a handful of commodities there that we are worried about, between now and midpoint next year. Beyond that, if you start looking at those levels, once we get through the H1 of the year, those run rates should be pretty close to what the end-of-the-year run rates are. So if we can get through the H1, we should be pretty good for the H2. But obviously, that is a lot of work that goes into the supply base, giving them longer-term leads, making sure we have out-year forecasts that give them the planning they need to be able to pull that off.
Steve Downing: So it is a lot of work. I would say we are probably about halfway through next year where we feel pretty good.
Mark Delaney: Thanks.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Matthew Maus from B. Riley Securities. Your line is open.
Matthew Maus: Hi. Congrats on the first PCBA award. I am just wondering, can you share the type of customer and roughly the annual revenue and whether it lines up with the $150 million to $200 million you framed in August?
Steve Downing: Yep. First of all, thanks. It was a lot of work going into that, so I appreciate that. It is one of our existing automotive customers, and that first award is annualized at about $180 million a year, roughly.
Matthew Maus: Got it. All right, great. That is helpful. In terms of Visors, I am wondering, is there any update on adding Visor customers ahead of the late 2027 launch?
Neil Boehm: Yeah. I mentioned it briefly that still a lot of work going on there. We got three additional customers that are pretty active and doing evaluations, but nothing to announce yet as far as a sale or a closure of a deal yet.
Matthew Maus: Got it. Last question from me, just a quick one. In terms of capital allocation, you roughly doubled the buyback this quarter. Just wondering how we should think about that pace going forward and the possible dividend increase, if any.
Steve Downing: Yeah, I think right now from a total return standpoint, we're probably going to tend to focus more on the share repurchase side. Obviously, the stock has not performed at all really well over the last year. So when we look at these prices versus what our growth rate and our cash generation is over the next couple of years, we struggle to understand the stock price. So when we see downturns like this, we tend to get more aggressive, like what you saw in Q2. So I think what you'll see out of us is probably very similar in what we did in Q2 as we move through the end of this year and into next.
Matthew Maus: Got it. Great. That was all for me. Thanks for taking my questions.
Neil Boehm: Thanks, Matthew.
Steve Downing: Thanks, Matthew.
Operator: Thank you. As a reminder, that is star 11 for questions, star 11. Our next question will come from the line of David Whiston from Morningstar. Your line is open.
David Whiston: Thanks. Good morning. On precious metal inflation, is there any kind of major obvious fix that would be out there beyond your control, such as the Iran war ending or anything like that? Or does this go well beyond any kind of geopolitical conflicts?
Steve Downing: Well beyond that. If you look at the ones that are hurting the most, it is silver, gold, and ruthenium. Those are the three biggest commodity areas that have hurt from a pricing standpoint. The silver and gold are interesting because they are industrial products. Obviously, there has been a big move towards investment grade as well, so you see this surge in demand. Data centers, custom electronics, these type of products all use silver and gold, so the demand has gone up on the industrial side. It has also gone up on the investment grade side, so it has just been a lot of pressure there. Ruthenium is a much more thinly traded commodity. Very difficult. I think, Kevin, that is probably up 500% in the last year and a half.
Steve Downing: That one has been kind of a runaway train. Our real approach there is less about getting help from. Supply is not going to increase dramatically in either of these cases to lower cost. One of the things that Neil's team has been working on very hard is how do we create VAVE opportunities that reduce the amount of material that needs to be used in each of our products? The teams have already launched and executed a handful of those. We have a bunch more that we will be rolling out over the next 18 months. The goal is just to minimize the headwind associated with those commodity prices.
David Whiston: Okay, thanks. On China, I know maybe it is a little early to ask this, but do you see any chance of real improvement there in 2027 versus 2026?
Steve Downing: No. Our plan right now is that we think we are basically at a kind of a stable level of what our China business will be. There will probably be likely a little bit of headwinds yet, but we are not expecting any tailwinds anytime soon.
David Whiston: Okay. Are there any other major supply chain constraints out there?
Steve Downing: No. I want to say, I think we hit most of them. If you look at DDR and raw PCBs, those would probably be the biggest.
David Whiston: Okay, thank you.
Steve Downing: Thanks, David.
Josh O'Berski: Thanks, David.
Operator: Thank you. I am not showing any further questions in the queue at this moment. I will now turn it back over to Josh for closing remarks.
Josh O'Berski: All right. Thank you everyone for your time and questions today. We look forward to seeing our customers and investors at SEMA and CES. Other than that, we hope everyone has a good weekend and good rest of your day.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.
