Gentex Corporation (NASDAQ: GNTX) reported third quarter 2026 net sales of $647.7 million, with gross margin of 33.4% and adjusted diluted EPS of $0.47, as content growth in North America and a 17% rise in non-automotive revenue helped offset headwinds in China and the Volkswagen program loss. On the Q3 2026 earnings call, management updated full-year 2026 guidance to approximately $2.65 billion in revenue, reaffirmed its 2027 revenue outlook of $2.8 billion to $2.9 billion, announced its first PCBA business award, and discussed rising DRAM, circuit board and precious metal costs. Read the full transcript of the earnings call below:
Opening Remarks
OPERATOR: Good day and thank you for standing by. Welcome to the Gentex Reports 3rd quarter 2026 financial results. At this time, all participants are on a listen-only mode. After the speaker’s presentation, we’ll open up for questions.
To ask a question during the session, you will need to press *11 on your telephone. You’ll then hear an automated message advising your hand is raised. To withdraw your question, please press *11 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, Vice President of Investor Relations – Gentex: Thank you.
Good morning, and thank you for joining us today for our 3rd 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.
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 December 31st, 2025, as well as general economic conditions. 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’d like to remind the investment community that we will be participating in both the SEMA Show from November 3rd through 6th and the 2027 Consumer Electronics Show from January 6th through 9th, 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’re 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.
Third Quarter 2026 Financial Highlights
STEVE DOWNING, President and CEO – Gentex: Thank you, Josh. For the 3rd quarter, net sales were $647.7 million compared was $655.2 million in the 3rd quarter 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.
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 3rd quarter results demonstrate the resilience of the business and the continued benefits of our strategy to grow through technology, product mix, and diversification. So 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 nonautomotive 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.
Nonautomotive revenue increased approximately 17% and represented 15% of total company revenue in the quarter compared with 12% in the 3rd quarter of last year.
Gross margin for the 3rd quarter was 33.4% compared with 34.4% in the 3rd quarter 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.
Consolidated operating expenses were $101.3 million in the 3rd quarter 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 device project closer to a qualified product with a scalable manufacturing footprint.
Income from operations was $115.1 million for the 3rd quarter compared with $122.3 million last year.
Adjusted income from operations was $118.8 million compared with $123.4 million in the 3rd quarter of last year.
Our effective tax rate for the quarter was 15.5% compared with 16.3% in the 3rd quarter 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 the 3rd quarter of 2025.
Diluted earnings per share attributable to Gentex were $0.43 compared with $0.46 in the 3rd quarter 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.
Segment Results, Share Repurchases and Balance Sheet
KEVIN NASH, Vice President of Finance and CFO – Gentex: Thanks, Steve. Automotive net sales were $552.5 million in the 3rd quarter of ’26 compared to $573.7 million in the 3rd quarter of ’25.
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 the 3rd quarter of ’26 compared with $43 million in the 3rd quarter of ’25, an increase of approximately 27%. The increase was driven primarily by higher sales of home separates and systems products.
Home separates growth reflected increased sales of Reference Premiere speakers, while systems growth was led by Flexus, the 2nd generation of The Fives, The Sevens, and The Nines and ProMedia products.
Net sales from the other products category were $40.5 million in the 3rd quarter of ’26, which was a 5% increase compared to the 3rd quarter of ’25. 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 the 3rd quarter of ’26, 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. And 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.
And as of September 30th, ’26, 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 September 30th, ’26 versus December 31st, ’25. Starting with liquidity, cash and cash equivalents were $134.4 million at quarter end compared to $145.6 million at year end. And short-term and long-term investments totaled $242.9 million compared to $278.4 million at the end of ’25.
Accounts receivable was $404.6 million at September 30th compared to $368.5 million at year-end. Reflecting the timing of sales and collections during the quarter.
Inventories totaled $550.1 million at September 30th compared to $516.3 million at year-end, primarily reflecting higher raw material balances associated with electronic components and precious metal-related materials.
And accounts payable was $263.6 million at September 30th 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 the 3rd quarter of ’25. The decline was primarily driven by working capital changes. Higher inventory along with higher accounts receivable due to sales and collection timing, partially offset by higher payables levels.
And for the first 9 months of ’26, preliminary cash flow from operations totaled $405.2 million compared to $461.6 million in the same period of ’25, also due to changes in working capital.
Capital expenditures were $17.7 million for the 3rd quarter compared with $35.6 million in the 3rd quarter of ’25. And for the first 9 months of ’26, capital expenditures totaled $53.9 million compared with $103.4 million in the same period of ’25.
And depreciation and amortization expense was $25.7 million in the 3rd quarter of ’26 compared to $25.9 million last year. And for the first 9 months of ’26, depreciation and amortization expense totaled approximately $77.1 million compared with $78.8 million in the same period of ’25.
I’ll now hand the call over to Neil for a product update.
Product and Technology Update
NEIL BOEHM, COO and CTO – Gentex: Thank you, Kevin. I’d 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’s 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, see the capital and automation that has been put in place to support all of these technologies.
So again, thank you for taking the time to check out what we do.
Now for a quick review of launches and product updates.
In the 3rd quarter of 2026, we continued to have strong feature launches of our automotive products.
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’s 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.
In Europe, FDM continues its steady progress, launching this quarter on the DS 7 and gaining traction at other customers in the region.
For 2026, we’re 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’re 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 to $100 million revenue target from DMS and ICMS for 2027.
Customer interest in our dimmable visor and large area device technology remains strong. Our first dimmable visor program remains on track with a start of production plan for the 4th quarter of 2027. 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 device product continues to improve in performance and durability. As we’ve 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 Loire. Our cinema speakers normally behind the theater screens were front and center, blending cultural relevancy with premium audio performance.
The party continues at KlipschFest, our homegrown celebration taking place on November 6th and 7th at our global Klipsch headquarters in Indianapolis. We’ll be wrapping up the 80th anniversary celebration for Klipsch and Onkyo with a 2-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 Atlas 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 City 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.
So go out and purchase these awesome products. The holidays will never sound so good.
These first 9 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’ll now hand the call back over to Steve for guidance and closing remarks.
2026 Guidance and 2027 Outlook
STEVE DOWNING, President and CEO – Gentex: 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 S&P Global Mobility outlook. Global light vehicle production is forecast to decline approximately 4% in the 4th quarter of 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 9 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.
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 the 4th quarter, with related recoveries not anticipated until the first half of 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 S&P Global Mobility 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.
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. Launches of our 4th 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.
Supply Chain and Cost Pressures
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.
And precious metal pricing remains volatile after significant increases over the last year.
We expect these pressures to continue into the 4th quarter, 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.
Question-and-Answer Session
OPERATOR: Thank you. As a reminder, to ask a question, you’ll need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A 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, Analyst – UBS: Thanks. Good morning, everyone.
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 the 4th quarter and you’re expecting to get that back in the first half.
But it seems, as you alluded to this, there is just sort of more general pressure. So while you’re going to get back in the first half next year some of these costs you’re incurring now. Can you get to, for lack of a better term, par in ’27 and sort of be more real-time? Or are you always sort of playing catch-up? And to that extent, does that add some risk that the ’27 gross margin is below the midterm level you’ve laid out at the analyst day.
STEVE DOWNING, President and CEO – Gentex: Yeah, I mean, I think if you look at the delay, I mean, it’s pretty normal in this industry. I mean, obviously, and we’ll get into some details probably about DRAM and the cost and what’s 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 that’s hence the delay in terms of reimbursement. So you are always— anytime there’s escalating prices like this in our industry in particular, you’re 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’s 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’s just about timing of getting that back. 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’re talking about, we haven’t 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 of 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, Analyst – UBS: Okay. Thanks. Thanks for that. And then just, I noticed you didn’t give shipments in the release this quarter. It sounds— if I was following your math, it sounded like the VW and China headwinds, which you’ve talked about for a while, was 6 percentage points, I think, to auto.
But is there any sort of high-level comment you give us for the auto business in terms of what, between mirror volume, price, and mix that sort of gets you to that reported 4% decline?
STEVE DOWNING, President and CEO – Gentex: Yeah, if you look at— you’re talking about the 4% in terms of automotive light vehicle production declines?
JOSEPH SPAK, Analyst – UBS: Yeah.
STEVE DOWNING, President and CEO – Gentex: Yeah. Well, we’ll talk— if we talk units for a minute, units were down, I think, about 1 million units on a year-over-year basis. And it’s almost all tied directly to those 2 causes that you mentioned, both the China reductions and the Volkswagen loss.
JOSEPH SPAK, Analyst – UBS: Okay. So then price— so then the rest, the difference in that, right?
STEVE DOWNING, President and CEO – Gentex: The difference in that is the growth in the other regions and increased content.
JOSEPH SPAK, Analyst – UBS: Okay.
Okay. I’ll pass it on. Thanks.
STEVE DOWNING, President and CEO – Gentex: Thanks.
OPERATOR: Thank you. One moment for our next question.
Next question will come from the line of Rajat Gupta from JPM. Your line is open.
RAJAT GUPTA, Analyst – J.P. Morgan: Great. Thanks for taking the questions. I mean, it looks like you feel comfortable reiterating the ’27 outlook, despite, I think, 2 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’re seeing right now, or is it just some delays from this year that are pushing it into next year?
And then maybe, if you could give us any sense of how much of the ’27 revenue is kind of contracted versus dependent on more wins. Thanks.
STEVE DOWNING, President and CEO – Gentex: Yeah, so that’s a great question. If you look at it, there’s— you’re absolutely right. The quarter came in this year lighter than anticipated. We kind of referenced it in the press release, but really it was driven by a couple OEM launches.
And One of them, and one of them was also— it was also impacted by the Hyundai-Kia strike, the union strike on the ground there. And so that, I think that took a good 60,000, 70,000 units out of production for us during that— during the 3rd quarter.
Unfortunately for us, it was also where we were launching DMS and ICMS and FDM. And so you had a disproportionate impact due to those units because it’s where we were launching some of our highest content. And so not only did it delay those products, but then the ramp-up was slower because as they were coming— as the strike was ending and they were getting back online, the volumes didn’t come in as high as we were expecting.
And then the other one was Neil mentioned the F-250/350 launch. It was a little late, a little later than we anticipated, and the launch volumes weren’t quite what we expected. So the big misses were there. So if you take those out of it, we view those as one-time in nature and so should not impact go-forward in ’27.
As we mentioned before, the growth for ’27 is really driven by additional FDM growth, additional ICMS and driver monitoring. awards.
And then the other reason why we feel confident in keeping that guidance is VOXX team had announced that they’ve done a deal with Alpine to take over distribution for Alpine products. And so if you look at that, that’s going to be another tailwind heading into next year that we weren’t anticipating initially when we gave our very first 2027 guidance.
RAJAT GUPTA, Analyst – J.P. Morgan: Understood. That’s helpful. And then just to tie a bow to the previous question around just margins and recoveries 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? And just how you’re going to manage OpEx, just given some of the choppiness here. Thanks.
STEVE DOWNING, President and CEO – Gentex: No, I mean, if I was doing the way too early college football top 25, I’d probably say next year is— next year’s probably more in that 33% to 34% range.
And obviously, we’re shaking out a lot of deals right now with our supply base on what’s going on with the electronic supply constraints. And there’s a lot of them right now. I mean, we’re not talking about just RAM anymore. You’re starting to talk about issues with raw PCBs. There’s a lot of pressure on the industry right now. So we’re still trying to fight through that.
So if I were given that way too early prediction, I’d say that’s probably the right range to think about it. The headwinds are actually probably would tend to drive that below that, but we believe with the growth and some of the new launches, that will help offset some of those headwinds we’re seeing on the bill of materials side.
RAJAT GUPTA, Analyst – J.P. Morgan: And then OpEx would be contained. In that background, I imagine.
STEVE DOWNING, President and CEO – Gentex: Yeah.
RAJAT GUPTA, Analyst – J.P. Morgan: Yep. Understood. Great. Thanks for all the color and good luck.
STEVE DOWNING, President and CEO – Gentex: Yeah, thank you.
OPERATOR: Thank you. Our next question comes from the line of Davis Baker from Robert Baird. Your line is open.
DAVIS BAKER, Analyst – Robert W. Baird: Hey, morning, guys. Thanks for taking the questions. Maybe to start, could you provide some additional color on what you’re seeing in the electronic components market, just given the incremental tightening in supply? And then along those same lines, advantages of your internal PCB capacity in this environment?
NEIL BOEHM, COO and CTO – Gentex: Sure. Yeah, a little bit of color just on the electronic components, and Steve will add some more on top of it.
We’re seeing the impact. Obviously, the DDR and the memory piece has been a significant challenge for several quarters and will continue into ’27 as well. So that’s obviously everybody knows about that.
And circuit boards is another one that’s really jumped up as a cost. And it’s not actually the circuit board itself, it’s actually subcomponents multiple tiers below that material is getting consumed and replaced for data center circuit boards. So we’re 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. There’s a lot of activity around passive devices as well, but at this stage, those are all manageable and contained. But as we look into ’27, there’ll be additional constraints to in some of those areas.
STEVE DOWNING, President and CEO – Gentex: And to put this into just kind of rough ballparks, I mean, what we’re seeing from our existing supply base is— and this is wild— anywhere from 8 to 10x price increases on a per-unit basis. So I mean, literally a component that cost $4 or $5 earlier this year is now $40.
And so that’s a lot of the headwinds that we’re kind of working through right now, both how to manage that with our customer base, how to make sure we’re getting appropriate reimbursement, and then also longer term realizing that that type of cost structure won’t support the business model for these products. So we’ve got to engineer our way out of those solutions.
NEIL BOEHM, COO and CTO – Gentex: 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. The teams have been doing a great job on that with precious metals this year. So we’ve been able to start driving some improvements in savings that we’ll see some good savings through or lack of increases in ’27.
But also with products like our full display mirror generation 4, as that starts, we’re launching that actively at multiple customers. That rollout begins in ’28. That product does not use the DDR. So we have designs that we’re working on to get around these challenges. It’s just going to take through ’27 to get them deployed.
STEVE DOWNING, President and CEO – Gentex: David, so you also asked about PCB capacity, correct?
DAVIS BAKER, Analyst – Robert W. Baird: Correct.
Yeah, just how that is an advantage in the environment.
STEVE DOWNING, President and CEO – Gentex: Yeah, so we’re sitting really good. I mean, obviously with some of the reductions in volumes we’ve seen, we have— 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.
And so it’s something that we’ll continue to monitor and we’re excited about looking forward to because it is a, it’s a very unique footprint from a geography standpoint. where we manufacture, and it definitely has a lot of appeal right now to many customers in terms of our, our location in the U.S. and our ability to do high-end electronics in a very efficient manner.
So it’s something that we keep looking at and pushing hard for. And quite frankly, I mean, we’re really excited about this opportunity outside of automotive as well.
DAVIS BAKER, Analyst – Robert W. Baird: All right. Thanks, guys. I’ll take the rest offline. Good luck with the rest of the day.
STEVE DOWNING, President and CEO – Gentex: Thanks, David. Thanks, Davis.
OPERATOR: Thank you. Our next question comes from James Picariello from BNP Paribas.
Your line is open.
JAMES PICARIELLO, Analyst – BNP Paribas: Hey, good morning, everybody.
Just on the implied 4Q 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 4th quarter? Because obviously the first 3 quarters, given the China challenges, the issues with the VW business, we haven’t seen that type of growth rate thus far this year.
STEVE DOWNING, President and CEO – Gentex: Yeah, I mean, 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.
So I mean, the nice part about getting back to production is some of those launches that we said were delayed, DMS, ICMS, and FDM, the volumes start to pick back up in the 4th quarter where they were kind of lacking in Q3. So that’s where you start to get visibility. But yeah, our Q4 numbers are really based on primarily customer orders.
And if you look at the— 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. And that’s really been driven by brand-new products. So the growth that we’ve seen earlier in the year, we wouldn’t expect to not produce similar outgrowth versus last year given the demand for the newer products?
JAMES PICARIELLO, Analyst – BNP Paribas: Got it.
Thank you. And then just back on the electronic sourcing for next year and the inflationary recoveries that will be the swing— be a swing factor. So 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. And 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 what you’re— how you’re thinking about next year? And if you could remind us what the level of recoveries were for back in 2022, if that’s a good context for you guys. Thank you.
STEVE DOWNING, President and CEO – Gentex: Yes, I’d say first of all, we’re not in our forecast right now for next year. We’re really not modeling significant price increases due to the recovery. So, I mean, and the reason why we’re saying that is there’s going to be a combination of a recovery period.
And but we’re 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’s definitely a tailwind from a pure revenue basis from pricing, the potential for price increases. The issue is obviously there’s virtually no margin on those once you do recover— once you recover the actual cost change. So we’re looking at this on a pure baseline basis. We’re not building in any of that growth tied to recoveries helping drive that price.
JAMES PICARIELLO, Analyst – BNP Paribas: Understood. Thanks.
STEVE DOWNING, President and CEO – Gentex: James.
OPERATOR: Thank you.
Our next question comes from Mark Delaney from Goldman Sachs. Your line is open.
MARK DELANEY, Analyst – Goldman Sachs: 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’s only certain pieces of the buy.
So I don’t 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, President and CEO – Gentex: I want to go— I’m going off of a mixture of ’26 updates and ’27 forecasts. So probably I wouldn’t quote me on this exact number, but I think the last thing I looked at was somewhere in the $900 million range, and that might have included some of the price increases that we’re talking about.
But that’s— you’re right, $800 million kind of hits probably over the trailing 12 is probably about right as we kind of right now look forward, it’s 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 ’22, it’s really hard to make a direct comparison to what we saw there. I mean, I would say it was different. It was different in that you really had a handful of micros that really drove the vast majority of cost increases. But there were other deflationary areas too. I mean, LCDs were still deflationary.
NEIL BOEHM, COO and CTO – Gentex: Yeah, and the passives were still pretty stable.
STEVE DOWNING, President and CEO – Gentex: Yeah, it’s— I wouldn’t say it’s dissimilar from a strategic standpoint. It’s just totally different areas of the electronics buy that are now inflationary.
MARK DELANEY, Analyst – Goldman Sachs: Understood. And my other question around supply chain, as you look at the growth you’re expecting to drive in 2027, I know that the cost of driving that growth will be higher with where you’re seeing these components come in at, but just in terms of the availability, maybe you could 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, President and CEO – Gentex: Yeah, no, that’s a Great question. That’s probably the most challenging part. I mean, once you even agree on pricing, you still have the potential for constraints.
One of the things we always work hard on, and that’s 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’re not shy about making sure we secure as much as we can. and keep it on hand.
So we’re constantly working with the supply base. I would say the immediate risk right there is still DDR. It’s probably the most constrained commodity right now.
As we move forward though, I as Neil mentioned, as a lot of the raw circuit board manufacturers have changed their manufacturing process over to what’s needed for— their process, what’s needed over for data centers. obviously that’s removed some capacity from the automotive support side.
So it’s something that we’re 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’re seeing.
MARK DELANEY, Analyst – Goldman Sachs: Yeah, just one last follow-up there and then I’ll pass it on. But just kind of how far are you with that process? I mean, are you kind of halfway there? I know maybe it’s just kind of early in the planning phase. So maybe that’s just typical not to kind of 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, President and CEO – Gentex: Yeah. Yeah. No, thanks, Mark. I’d say for most things were clear through the end of the year. Most things were probably good all the way through midpoint next year. There’s just a handful of commodities there that we’re worried about between now and midpoint next year.
Beyond that, if you start looking at those levels, once we get through the first half of the year, as long as those run rates should be pretty close to what the end of the year run rates are. So if we can get through the first half, we should be pretty good for the second half.
But obviously, that’s 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. So it is a lot of work.
I’d say we’re probably about halfway through next year where we feel pretty good.
OPERATOR: Thank you. One moment for our next question.
Our next question will come from Matthew Myers from B. Riley Securities. Your line is open.
MATTHEW MYERS, Analyst – B. Riley Securities: Hi, congrats on the first PCBA award. I’m just wondering, can you share the type of customer and roughly the annual revenue and whether it lines up with $150 to $200 million You framed and all.
STEVE DOWNING, President and CEO – Gentex: Yep. No, thank— 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 MYERS, Analyst – B. Riley Securities: Got it. All right, great. That’s helpful. And in terms of visors, I’m wondering, is there any update on adding visor customers ahead of the late 2027 launch?
NEIL BOEHM, COO and CTO – Gentex: Yeah, I mentioned it briefly that still a lot of work going on there. We got 3 additional customers that are pretty active and doing evaluations, but nothing to announce yet as far as a sale or closure of a deal yet.
MATTHEW MYERS, Analyst – B. Riley Securities: Got it. Last question for 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 increases, if any.
STEVE DOWNING, President and CEO – Gentex: 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, we’ve been— the stock has not performed at all really well over the last year. And 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.
And so when we see downward 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 MYERS, Analyst – B. Riley Securities: Got it. Great. That was all for me. Thanks for taking my questions.
STEVE DOWNING, President and CEO – Gentex: Thanks, Matthew. Thanks, Matthew.
OPERATOR: Thank you. And as a reminder, that’s *11 for questions, *11. Our next question will come from the line of David Whiston from Morningstar. Your line is open.
DAVID WHISTON, Analyst – Morningstar: 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, President and CEO – Gentex: It’s well beyond that. I mean, if you look at our primary— if you look at the ones that are hurting the most, right, it’s silver, gold, and ruthenium. Those are the 3 biggest commodity areas that have hurt from a pricing standpoint.
The silver and gold are interesting because they’re industrial products. Obviously, there’s been a big move towards investment grade as well. And so you see this surge in demand. Data centers, electronic— custom electronics, these type of products all use silver and gold. And so the demand has gone up on the industrial side. It’s also gone up on the investment-grade side. And so it’s just been a lot of pressure there.
Ruthenium is a much more thinly traded commodity, very difficult. I mean, I think, Kevin, that’s probably up 500% in the last year and a half. And so that one’s 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 costs. So 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.
And the teams have already launched and executed a handful of those. We have a bunch more that we’ll be rolling out over the next 18 months. And so the goal is to just to minimize the headwind associated with those, those commodity prices.
DAVID WHISTON, Analyst – Morningstar: Okay, thanks. And then on China, I know maybe it’s a little early to ask this, but do you see any chance of real improvement there in ’27 versus ’26?
STEVE DOWNING, President and CEO – Gentex: No. I mean, our plan right now is that we think we’re basically at kind of a stable level of what our China business will be. There’ll probably be likely a little bit of headwinds yet, but we’re not expecting any tailwinds anytime soon.
DAVID WHISTON, Analyst – Morningstar: Okay.
And are there any other major supply chain constraints out there?
STEVE DOWNING, President and CEO – Gentex: No, I would say, I want to say I think we hit most of them. I mean, if you look at DDR and raw PCBs, those would probably be the biggest.
DAVID WHISTON, Analyst – Morningstar: Okay, thank you.
STEVE DOWNING, President and CEO – Gentex: Thanks, David. David.
Closing Remarks
OPERATOR: Thank you. I’m 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, Vice President of Investor Relations – Gentex: All right. Thank you, everyone, for your time and questions today. We look forward to seeing our customers and investors at SEMA and CES. And 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.
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