Gentex Corporation (GNTX) Q3 2026 Earnings Call Transcript

Operator: Good day, and thank you for standing by. Welcome to the Gentex report third quarter 26 financial results. At this time, all participants are in a listen only mode. After the speakers' presentation, we will open for questions. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising that 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: Thank you. Good morning, and thank you for joining us today for our third quarter 26 earnings conference call. I am Josh O'Berski, Gentex Vice President of Investor. And with me today are Steven R. Downing, President and CEO; Neil Boehm, COO and CTO Kevin C. 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 Investors 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 12/31/2025, 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 would like to remind the investment community that we will be participating in both the SEMA show from November 3rd through 6th, the 27 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 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. Now hand the call over to Steven R. Downing for our prepared remarks.

Steven R. Downing: Thank you, Josh. For the third quarter, net sales were $647.7 million compared with $655.2 million in the third 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 third 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 help 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 third quarter of last year. Gross margin for the third quarter was 33.4% compared with 34.4% in the third quarter of 2020 5. 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 $1.013 billion in the third 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 third quarter, compared with $122.3 million last year. Adjusted income from operations was $118.8 million compared with $123.4 million in the third quarter of last year. Our effective tax rate for the quarter was 15.5%, compared with 16.3% in the third 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 third quarter of 2020 5. Diluted earnings per share attributable to Gentex were $0.43 compared with $0.46 in the third quarter of last year. On an adjusted basis, diluted earnings per share of $0.47 in both periods. I will now hand the call over to Kevin for some further financial details.

Kevin C. Nash: Thanks, Steven. Automotive net sales were $552.5 million in the third quarter of 2020 6. Compared to $573.7 million in the third quarter of 2020 5. 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 third quarter of 2020 6 compared with $43 million in the third quarter of 2020 5. 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 Flexis, second generation of the 5s, 7s, and 9s, and ProMedia products. Net sales from the other products category were $40.5 million in the third quarter of 2020 6 which was a 5% increase compared to the third quarter of 2020 5. Growth was driven primarily by aerospace and fire protection revenues, which increased a 13%, 5%, 36%, respectively, but were partially offset by lower aftermarket and accessory sales. During the third quarter of 2020 6, the company repurchased 5.7 million shares of its common stock at an average price of $23.44 per share, 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. And as of September thirtieth of 20 sixth, 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 09/30/2026 versus 12/31/2025. 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 2025. Accounts receivable was $404.6 million at September 30, compared to $368.5 million at year end. Reflecting the timing of sales and collections during the quarter. Inventories totaled $550.1 million September 30 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 30 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 third quarter of 2020 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. And for the first 9 months of 26, preliminary cash flow from operations totaled $405.2 million compared to $461.6 million the same period of 2025, also due to changes in working capital. Capital expenditures were $17.7 million for the third quarter compared with $35.6 million in the third quarter of 2025. And for the first 9 months of 2026, capital expenditures totaled $53.9 million compared with $103.4 million in the same period of 2025. And depreciation and amortization expense was $25.7 million in the third quarter of 2020 compared to $25.9 million last year. And 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. So, again, you for taking the time to check out what we do. Now for a quick review of launches and product updates. In the third quarter of 2020 6, we continued to have strong feature launches of our automotive products. Automotive features like full display mirror, in cabin monitoring, HomeLink, and advanced feature auto-dimming 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 full display mirror 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, full display mirror continues its steady progress. Launching this quarter on the DS7 and gaining traction at other customers in the region. 2026, we are still on target to achieve our 200 thousand to 400 thousand full display mirror 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 GV 90 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 large area device technology remains strong. Our first dimmable visor program remains on track with a start of production plan for the fourth quarter of 2020 7. We are actively working with other OEMs on the product design and testing to secure additional awards later this year and into early 27. The large area 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 the theater screens or front and center, blending cultural relevancy with premium audio performance. The party continues at Klipsch Fest our homegrown celebration taking place on November 6th and 7th at our global Klipsch headquarters in Indianapolis. We will be wrapping up the 80th anniversary celebrations 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 Stratus series. Which hits the market in November along with the fan favorite Reference Premiere 3 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. GigaXtend-AIO all in 1 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, innovation. I will now hand the call back over to Steven for guidance and closing remarks.

Steven R. Downing: Thanks, Neil. I think that is the first time I have ever heard you say cultural relevance. 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 fourth quarter of 2020 6 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 26, 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 $2.5 billion for the year. Gross margin is now expected to be between 34%-34.5% for the year. This range includes an estimated $10 million to $15 million of incremental cost increases expected in the fourth 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 $101 million to $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 of the underlying market and reflects the increasing contribution from new technology higher content per vehicle, and our diversified customer base. As we look ahead, we are increasingly confident in the growth opportunities in front of us. We are beginning to see the impact of our broader product and growth are 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 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 and 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. And precious metal pricing remains volatile after significant increase over the last year. We expect these pressures to continue into the fourth 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.

Operator: Thank you. As a reminder, to ask a question, you will need to press *11 on your telephone and wait for a name to be announced. To withdraw your question, please press *11 again. Please stand by while we compile the Q&A roster. 1 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.

Steven R. Downing: Good morning.

Joseph Spak: I guess just to start, obviously, you know, a little bit more cost pressure here. At the end of the year, and, you know, you talked about the 10 to in the fourth quarter and you are expected to get that back in the first half. But like, it seems like, as you alluded to this, like, there is just sort of more general pressure. So, like, while you are gonna get back you know, in the first half next year, some of these costs are incurring now, Like, can you get to for lack of a better term, par in 2027 sort of be more real time, or you are always sort of playing catch up and you know, to that extent, does that add some risk that, you know, the 2027 gross margin is below the midterm level you laid out at the, Analyst Day?

Steven R. Downing: Yeah. I mean, I think if you look at the delay, I mean, it is pretty normal in this industry. I mean, obviously, and, you know, 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 that is. Hence the delay, and terms of reimbursement. So you are always. 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 the. You know, 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. And so, yeah, there definitely is some headwinds heading into next year. The 1 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 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: Okay. Thanks. Thanks for that. And then just, know, I noticed you did not 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, you know, you have you have talked about for a while was, like, 6 percentage points, I think, to auto. But is there any sort of, like, high level commentary you give us for the auto business in terms of you know, what you know, between mirror volume, price, and mix, that sort of gets you to that, you know, reported 4% decline?

Steven R. Downing: Yeah. If you look at you are talking about the 4% in terms of automotive, light vehicle production? Yeah. Yeah. Well, we will we will talk. If we talk units for a minute, you know, units were down, I think, about a million units on a year over year basis. And it is almost all tied directly to those 2 causes that you mentioned, both the China reductions and the Volkswagen loss. Okay. So then price. So then the rest. The difference the difference in that. Right. The difference in that is the growth in the other regions and in increased content. Okay. Okay. I will pass it on. Thanks.

Analyst: Thanks.

Operator: Thank you. 1 moment for our next question. Next question will come from the line of Rajat Gupta from JPM. Your line is open.

Rajat Gupta: Great. Thanks for taking the questions. I mean, it looks like you feel comfortable retrading the 27% outlook know, despite. I think, like, it is 2 quarters in a row where you know, you know, revenue has come in weaker. Than expected. Like, how should we get comfortable with that outlook Have you figured out any offsets? You know, already, you know, 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? Yeah. And then maybe, you know, if you could give us any sense of, like, how much it is, like, the 2027 revenue is kind of contracted versus, you know, dependent on more wins? Thanks.

Steven R. Downing: Yeah. So, that is a great question. If you look at it, there is. You are 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 1 of them. And 1 of them was also. It was also impacted by the Hyundai Kia strike. The union strike in. On the ground there. And so that, I think that took a good 60, 70 thousand units out of production for us during that during the third 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 is where we were launching some of our highest content. So not only did it delay those products, but then the ramp up was slower because as they were come. As the strike was ending and they are getting back online, the volumes come in as high as we were expecting. And then the other 1 was, Neil mentioned the, f 53 launch. It was a little late. Little later than we and the launch volumes were not quite what we expected. So the big misses were there. So if you take those out of it, we view those as onetime in nature. And so should not impact go forward in 2027. Like we mentioned before, the growth for 2027 is really driven by additional full display mirror growth, additional ICMS, and driver monitoring awards. And then the other reason why we feel confident in keeping in keeping that guidance is, we had. VOXX team had announced that they have done a deal with Alpine to take over distribution for Alpine products. And so if you look at that, that is gonna be another tailwind heading into next year that we were not anticipating initially when we very. When we gave our very first 2027 guidance.

Rajat Gupta: Understood. that is that is helpful. And then just to tie a bow to, like, the previous question around, like, just know, just margin and recovery into next year. You know, any early prelim color you can give us you know, on the margins for next year? You know, what are the puts and takes we should keep in mind? And do you expect to you know, improve gross margins on an annualized basis? You know, like, just how you are gonna manage OpEx, you know, just given some of the choppiness here? Thanks.

Steven R. Downing: No. I mean, if I was doing the way too early college football top 25, I would probably say, you know, next year is next year is probably more in that 33 to 34% range. And, 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 and there. there is there is a lot of them right now. I mean, we are not talking about just RAM anymore. You are starting to talk about issues with raw PCBs. there is a there is a lot of pressure on the industry right now. So we are still trying to fight through that. So if I were 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. But we believe with the growth and some of the new launches, we will that will help offset some of those headwinds we are seeing on the bill material side. Got it.

Rajat Gupta: And then OpEx would be would be contained? In that background.

Steven R. Downing: Yeah. I imagine. Yep. Yep. Understood. Thanks for the color, good luck.

Analyst: Yeah.

Operator: Thank you. Thank you. Our next question will come from the line of Davis Baker from Robert W. Baird. Your line is open.

Davis Baker: Hey. Good morning, guys. Thanks for taking the questions. Maybe to start, could you provide some additional color on what you are seeing in the components market? Just given the incremental tightening in supply? And then along the same lines, just advantages of your internal PCB capacity in this environment?

Neil Boehm: Sure. Yeah. I. A little bit color just on electronic components, and Steven will add some more on top of it. You know, 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 is obviously everybody knows about that 1. Circuit boards is another 1 that is really jumped up as a cost, and it is not actually the circuit board itself. it is actually subcomponents multiple tiers below that material is getting consumed and replaced for data center circuit boards. So we are starting to see multiple tiers below the supply is getting tighter to be able to build automotive boards. Which means prices are gonna continue to move upward. Those are big ones. there is a lot of activity around passive devices as well, but at this stage, those are all manageable and contained. But as we look into 2027, they will all. There will be additional constraints put in some of those areas.

Steven R. Downing: And to put this and to put this in the like, just kind of rough ballparks, I mean, what we are seeing from our existing supply base is wild. Anywhere from 8x to 10x price increases on a per unit basis. So I mean, literally, a component that cost $4 or $5 this. Earlier this year is now $40. And so that is a lot of the headwinds that we are kinda working through right now, both how to how to manage that with our customer base, how to make sure we are getting appropriate reimbursement, and then also longer term realizing that, you know, that type of cost structure will not support the business model for these products. So we have gotta engineer our way out of those.

Neil Boehm: Solutions. 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 and savings that we will see some good savings through or lack of increases in 2027. But 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. So we have designs that working on to get around these challenges. it is just gonna take through 2027 to get them get them deployed.

Davis Baker: Davis, so you also asked about PCB capacity. Correct? Yeah.

Neil Boehm: I just saw that. it is an advantage in the environment. Yeah.

Steven R. Downing: So we are we are sitting really good. I mean, obviously, with some of the reductions in volumes, we have 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 are 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 are, not opposed to adding additional capacity. Depending on the size and profitability of the awards. And so it is something that we will continue to monitor, and we are excited about looking forward to because it is 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 location in The US and our ability to do high end electronics. In a very efficient manner. So it is something that we keep looking at and pushing hard for, and quite frankly, I mean, we are really excited about this opportunity outside of automotive as well. Alright. Thanks, guys. I will take the rest offline. Good luck with the rest the day.

Analyst: Thanks, David. Thanks, Davis.

Operator: Thank you. Our next question will come from the line of James Picariello from BNP Paribas. Your line is open.

James Picariello: Hey. Good morning, everybody.

Steven R. Downing: Just Good morning.

James Picariello: On the implied for on the implied 2 revenue guide, right, 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 terms of the bridge to see that inflection on a year over year basis for the fourth quarter? Because obviously, the first 3 quarters, given the China challenges, issues with the VW business, we have not seen that type of growth rate thus far this year.

Steven R. Downing: Yeah. I mean, we are. All of our short term forecasts are built based customer orders. As they have been consistently, but they do not 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, I ICMS, and FDM, you know, the volume starts to pick back up in the fourth quarter. Where they were kinda lacking in Q3. So that is 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 box or the PAC side, this ends up being the strongest part of their season as well. And we are seeing good demand as you have seen the sales growth on a year over year basis all year. And that is and that is really been driven by brand new products. Right. So know, 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. Yep. Got it. Well, thank you.

James Picariello: 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 this year on 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 time frame. 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 are. How you. How you are thinking about next year? And if you could, remind us what the level of recoveries were for, you know, back in 2022, if that is a good context for you guys? Thank you.

Steven R. Downing: Yes. I. I would say, first of all, we are not in our forecast right now for next year. We are really not modeling significant price increases due to the recovery. So I mean, and the reason why we are saying that is there is gonna be a combination of a recovery period and. But we are hopeful that we can get through that recovery period in fairly short order. And move on to, like, what Neil was describing, which is redesigns It 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 pricing. The potential for price increases. The issue is obviously there is virtually no margin on those once you do recover once you recover the actual cost change. So, you know, 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. Understood.

Analyst: Thanks. James?

Operator: Thank you. Next question comes from the line of Mark Delaney from Goldman Sachs. Your line is open.

Mark Delaney: Yes. Good morning, thank you for taking the questions. Another 1, 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 seem pretty substantial increases, but I imagine it is 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.

Steven R. Downing: Wanna go. I am I am going off of a mixture of, like, 26 updates and 27 forecast. So it is probably. I would not 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 are talking about. But that is the. You are you are right. 800 kinda hits. Probably over the trailing 12 is probably about right. As we kind of right now and look forward, it is probably gonna be closer to that $900 million range, maybe even more depending on if we hit our sales growth levels.

Neil Boehm: If you try to back it up to 22, it is 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, like, you really had a handful of mic that really drove the vast majority of cost increases. Mhmm. But there were other deflationary areas too. I mean, like LCDs were still deflationary. Passes. Yeah. And the passes were still pretty stable. Yeah. it is I would not I would not say it is dissimilar from a from a strategic standpoint. it is just totally different areas of the electronics buy that are that are now inflationary.

Mark Delaney: Understood. And you have met a question around supply chain. As you look at the growth you are expecting to drive and 2027, I know that the cost of driving that growth will be higher with where you are seeing components come in at. But just in terms of the availability, maybe just speak a bit more around getting enough volume of these parts for next year to support all of these different opportunities in front of Gentex.

Steven R. Downing: Yeah. No. that is a great question. that is the. Probably the most challenging part. I mean, once you even agree on pricing, you still have the you still have the potential for constraints. Mhmm. 1 of the things we always work hard on that is why Kevin talked a little bit about inventories being higher, know, 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, you know, we are not shy about making sure we secure as much as we can and keep it in, on hand. So we are constantly working with the supply base. I would say the immediate risk right there is still a DDR. it is probably the most constrained commodity right now. 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. Their process, what is needed over for data centers. Obviously, that is removed some capacity from the automotive support side. 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. Yeah.

Mark Delaney: Just 1 last follow-up there, and then I will I will pass it on. But just you know, kinda how far are you with that process, Mark? You kinda halfway there? I know maybe it is just kinda early in the planning phase, so maybe that is just typical not to kinda be fully secured for an extra as long as I just get a little bit more color around how far along you are some of those supply discussions and how much more work is left to be done. Thank you.

Steven R. Downing: Yeah. Yeah. No. Thanks, Mark. I would say for most things, we are clear through the end of the year through most things we are probably good all the way through midpoint next year. Yep. there is just a handful of there that we are worried about, you know, between now and the and midpoint next year. Beyond that, you know, if you start looking at those levels, once we get through the first half of the year, as long. Those run rates should be pretty close to what they end 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 is a lot of work that goes into the supply base, giving them longer term leads, making sure we have above out year forecast that give them the planning they need to be able to pull that off. So it is, it is it is a lot of work. I would say we are probably about halfway through next year where we feel pretty good. Thank you.

Operator: 1 moment for our next question. Our next question will come from the line of Matthew Mayes from B. Riley Securities. Your line is open.

Analyst: 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 $1.50 to 200 million you framed and always Yep.

Steven R. Downing: No. Thank. First of all, thanks. it is. It was a lot of work going into that. So I appreciate that. It is an auto. 1 of our existing automotive customers. And that first award is annualized at about $180 million a year roughly. Got it.

Analyst: Alright. Great. that is helpful. And in terms of advisers, I am wondering, like, is there any update on adding adviser customers ahead of the late 27 launch?

Neil Boehm: Yeah. I mean, I mentioned it briefly that 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.

Analyst: Got it. Last question for me. Just a quick 1. 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.

Steven R. Downing: Yeah. I think I think right now from a total return standpoint, we are probably gonna tend to focus more on the share repurchase side. Obviously, you know, we have we have been. The stock has not performed at all really well over the last year and so I. When we look at these prices versus what our growth rate and our cash generation is over the next couple years, we struggle to understand the stock price. And so when we see downturns like this, we tend to get more aggressive like what you saw in Q2. So I think what you will see out of us is probably very similar in what we did in Q2 as we move through the end of this year and then the next. Got it. Great. That was all for me. Thanks for taking my questions.

Analyst: Thanks, Matthew. Thanks, Matthew.

Operator: Thank you. And as a reminder, that is 11 for questions. Star 1. 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?

Steven R. Downing: Is this go well beyond any kind of geopolitical conflicts? it is it is it is well beyond that. I mean, you look at if you look at our primary. If you look at ones that are hurting the most, right, 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 are industrial products. Obviously, there is been a big move to. Towards investment grade as well. And so you see this surge in demand, data centers, you know, electronic. Custom electronics, these type of products all use silver and gold. And so the demand has gone up on the industrial side. it is also gone up on the investment grade side. And so it is just been a lot of pressure there. Ruthenium is a much more thinly traded commodity.

Kevin C. Nash: Very difficult.

Steven R. Downing: I mean, I think Kevin, that is probably up 500% in the last year and a half. Mhmm. And so that 1's been kind of a runaway train. Our real approach there is less about, you know, getting help from supply is not gonna increase dramatically in either of these No. Case. James to lower cost. So 1 of the things that Neil 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 will be rolling out over the next 18 months. And so the goal is to just to minimize the headwind associated with those with those commodity prices. Okay.

David Whiston: Thanks. And then on China, I know maybe it is little early to ask this, but do you see any chance of real improvement there in 2027 versus 2026?

Steven R. Downing: No. I mean, our plan our plan right now is that you know, we think we are basically at 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. Okay. And are there any other major supply chain constraints out there?

David Whiston: No.

Steven R. Downing: I would say. I wanna say, I think we hit most of them. I mean, if you look at you know, DDR and raw PCBs, or those would probably be the biggest Okay. Thank you.

Analyst: Thanks, David. 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: Alright. Thank you everyone for your time and questions today. We look forward to seeing our customers and investors at CEMA 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.