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DATE
Friday, July 25, 2025 at 1:30 p.m. ET
CALL PARTICIPANTS
President and CEO — Steve Downing
Chief Operating Officer and Chief Technology Officer — Neil Boehm
Vice President of Finance and Chief Financial Officer — Kevin Nash
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RISKS
Sales into China were approximately $33 million for Q2 2025, substantially below the prior forecasted range of $50 million to $60 million, attributed to counter-tariffs and OEM decontenting.
CoreGentex(GNTX -0.51%) revenue growth was only 1% in Q2 2025, while light vehicle production in core markets declined by 2%.
Operating expenses rose to $106.8 million from $73.7 million last year, primarily due to theVOXX(NASDAQ:VOXX) acquisition. Operating expenses included $1.5 million in acquisition-related costs and $600,000 in severance expenses for VOXX, $1 million in acquisition-related costs for Gentex, and $6.2 million in early retirement incentives for core Gentex.
Core Gentex lost original equipment content (OEC) volumes on a year-over-year basis, adversely affecting both operational and margin profiles.
TAKEAWAYS
Consolidated Net Sales-- $657.9 million, representing 15% growth in consolidated net sales for Q2 2025, with $579 million from core Gentex (up 1%) and $78.8 million from VOXX.
Gross Margin-- Consolidated gross margin rose to 34.2% (from 32.9%) for Q2 2025, with core Gentex at 35.3%, an improvement of 240 basis points year over year and 210 basis points sequentially in core Gentex gross margin.
Operating Income-- Core Gentex operating income reached $123.8 million, up 8% in Q2 2025; when adjusted for one-time expenses, core Gentex operating income was $130.9 million, a 14% increase year-over-year.
Net Income and EPS-- Consolidated net income was $96 million, up 12% for Q2 2025; Adjusted net income was $105.8 million, up 23%. EPS rose to $0.43 (up 16%) (GAAP), and adjusted EPS reached $0.47 (up 27%).
Share Repurchase Activity-- 5.7 million shares were repurchased at an average price of $22.13, totaling $126.2 million in Q2 2025; Year-to-date buybacks reached 8.8 million shares ($202.2 million at $22.97 average) as of June 30, 2025.
New Share Repurchase Authorization-- The board approved an additional 40 million shares for buyback, more than 18% of outstanding shares as of June 30, bringing total authorized to approximately 40.6 million shares.
Cash and Investments-- Cash and cash equivalents were $119.8 million as of June 30, 2025, down from $233.3 million as of December 31, 2024; investments totaled $290.1 million as of June 30, 2025 versus $361.9 million at year-end 2024, both impacted by the acquisition and share repurchases.
Inventory and Working Capital-- Total inventories were $473.3 million as of June 30, 2025, with $380.9 million in core Gentex inventory (down from $436.5 million as of December 31, 2024) and $92.4 million from VOXX.
Capital Expenditures-- Capex (GAAP) for Q2 2025 was $31.1 million ($67.8 million year-to-date), compared to $31.8 million in Q2 2024 and $63.6 million in the first half of 2024.
Full Display Mirror (FDM) Update-- 18 new automotive nameplate launches occurred, over half with advanced features; full-year 2025 FDM unit shipment guidance was raised by 150,000 to 300,000 units.
PLACE Product Launch-- The company began shipments of its new PLACE home safety product line through a major retailer, featuring advanced smoke and carbon alarms with smart capabilities.
Guidance Update-- 2025 consolidated revenue is now expected at $2.44 billion to $2.61 billion, core gross margin (ex-VOXX) forecast increased to 34%-34.5% for the full year, and consolidated gross margin is expected to be 33%-34% for the full year.
VOXX Outlook-- VOXX revenue is expected between $240 million and $280 million for the full year, with gross margin guidance of 27%-29% for VOXX and operating expenses projected at $70 million to $80 million (excluding severance) for the full year.
China Market Outlook-- Company projects 2025 China revenue at $100 million to $125 million, down sharply from previous levels.
SUMMARY
TheVOXX(NASDAQ:VOXX) acquisition added significant revenue and operating expense, with management emphasizing ongoing efforts to realize cost synergies and system integrations over the next 12-18 months. Advanced feature product mix, margin improvement initiatives, and supply chain actions drove material expansion in gross margin despite tariff-related headwinds and decreased China sales. Shareholder returns through aggressive buybacks and a substantial new share repurchase authorization underscored an active capital allocation strategy and confidence in future cash flows. Product innovation continued, highlighted by stronger full display mirror launches, new smart home offerings, and initial traction with large area dimmable devices, all supporting management's long-term profitability and portfolio goals.
Guidance reflects flat third-quarter light vehicle production, but Q4 2025 primary market volumes are expected to decline approximately 6%, impacting second-half revenue expectations.
Management clarified inventory reductions were primarily due to decreases in raw materials, supporting working capital discipline post-acquisition.
The integration of VOXX platforms, such as iris-based biometrics and premium audio, is expected to create future cross-selling opportunities in the automotive and smart home segments.
OEM decontenting in China is the largest factor suppressing regional sales, further diminishing expectations for a rapid revenue rebound even if tariffs moderate.
Gross margin improvement is sustainable, as discussed, with management confident that operational efficiencies and commodity pricing are "locked in" for the remainder of the year.
INDUSTRY GLOSSARY
Full Display Mirror (FDM): Rearview mirror system using a video feed to provide an unobstructed, wide-angle rear view, replacing or supplementing traditional glass mirrors in vehicles.
HomeLink: Gentex's integrated vehicle-to-home automation platform allowing remote device activation such as garage doors, lighting, and security systems from inside the vehicle.
PLACE: A Gentex-branded suite of multifunctional home smoke and carbon monoxide alarms using smart technology for monitoring and remote management.
Original Equipment Content (OEC): The specific volume or value of content (e.g., hardware or software modules) Gentex supplies to automotive OEM customers on each vehicle produced.
Full Conference Call Transcript
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 Investors section of our website at ir.gentex.com. As a reminder, many of the statements made during today's call are forward-looking statements that reflect our current expectations. These statements are subject to a number of risks and uncertainties, both known and unknown, including those detailed in our second quarter 2025 earnings press release and our annual report on Form 10-Ks for the year ended 12/31/2024, as well as general economic conditions.
If one or more of these risks or uncertainties materialize, or if our underlying assumptions or estimates prove to be incorrect, actual results could differ materially from those expressed or implied in our forward-looking statements. I will now hand the call over to Steve Downing for our prepared remarks. Steve?
Steve Downing: Thanks, Josh. Gentex completed its acquisition of VOXX on April 1, and we did our best in the press release from this morning to provide information for both what we call core Gentex, meaning without VOXX, and consolidated Gentex, which includes financial performance for both Gentex and VOXX. Additionally, in an effort to not repeat this caveat throughout the call, it is important to remember that for any year-over-year or quarter-over-quarter comparisons, the second quarter of last year did not include VOXX. In the second quarter of 2025, consolidated net sales were $657.9 million, which represents a 15% increase over the second quarter of last year.
Core Gentex revenue for the quarter was $579 million, which represents a 1% growth rate versus last year, on a decline of 2% in light vehicle production in our primary markets. VOXX revenue for the second quarter was $78.8 million. Given the overall weak light vehicle production in our primary regions, we are very pleased with our sales levels this quarter. This is particularly notable given the impact that tariffs and counter-tariffs have had on demand for our products, especially in the China market. Overall, sales into China for Gentex during the quarter were approximately $33 million compared to our beginning of year forecast of $50 million to $60 million for second quarter sales.
Despite revenue headwinds related to tariffs and reduced sales into the China market, the company more than offset these challenges through strong growth in full display mirror and other advanced features along with incremental revenue from the VOXX acquisition. Our consolidated gross margin for the quarter was 34.2%, up from 32.9% in the second quarter of last year. Core Gentex gross margin was 35.3%, a 240 basis point improvement versus last year. Sequentially, we saw a 210 basis point improvement in core gross margin reflecting the continued success of our margin improvement initiatives.
The improvements were driven by purchasing cost reductions, favorable product mix, and operational efficiencies, although they were partially offset by tariffs that were not reimbursed during the quarter. Additionally, on an adjusted basis, consolidated gross margin was 34.6%, excluding a $2.5 million purchase accounting adjustment related to the VOXX acquisition. During an incredibly difficult operating environment, this quarter's gross margin performance is a testament to the hard work and discipline the entire team has put into our margin improvement effort. Operating expenses for the quarter were $106.8 million, up from $73.7 million last year, primarily due to the VOXX acquisition.
VOXX accounted for $23.9 million of that increase plus $1.5 million in acquisition-related costs on the VOXX side and $600,000 in costs relating to severance expenses for VOXX. Core Gentex operating expenses were $80.7 million, up from $73.7 million, but this included expenses of $1 million in acquisition-related costs for Gentex and $6.2 million in early retirement incentives for core Gentex. When we adjust for these one-time items, core Gentex operating expenses were down slightly versus last year, which is in line with our expectation, strategy, and execution of the work we have been doing on our cost reduction program. Consolidated income from operations was $118.5 million compared to $114.9 million last year.
However, core Gentex operating income was $123.8 million, up 8% year over year. Additionally, when adjusted for the one-time expenses mentioned previously, core Gentex operating income was $130.9 million, a 14% increase over last year. Our effective tax rate for the quarter was 17.2%, up from 15.1% last year, primarily due to lower stock-based compensation tax benefits and a reduced foreign-derived intangible income deduction. Consolidated net income for the quarter was $96 million, up 12% from $86 million last year. On an adjusted basis, net income was $105.8 million, a 23% increase versus last year. Consolidated earnings per share were $0.43, up 16% versus last year.
When we adjust earnings per share for the one-time expenses mentioned previously, EPS was $0.47, a 27% increase over last year. I will now hand the call over to Kevin for some further financial details.
Kevin Nash: Thank you, Steve. Gentex automotive net sales were $566.5 million in the second quarter of 2025, which were negatively affected by the company's lower than expected sales into the China market, due to the impact of counter-tariffs, but were more than offset by increased advanced feature mirror sales. Net sales from Gentex's other product lines, which includes dimmable aircraft windows, fire protection products, medical devices, and biometrics, were $12.5 million in the second quarter of 2025, compared to $13.6 million in the second quarter of 2024. And as previously mentioned, VOXX net sales contributed $78.8 million during the second quarter of 2025.
The company continues to work through post-acquisition transition, with a focus on aligning product strategies, optimizing customer relationships, and identifying operational synergies across both businesses. During the second quarter of 2025, the company repurchased 5.7 million shares of its common stock at an average price of $22.13 per share for a total of $126.2 million. And year to date, the company has repurchased 8.8 million shares for a total of $202.2 million at an average price of $22.97 per share. And on July 16, the company announced a new share repurchase authorization from the board of directors of an additional 40 million shares, representing more than 18% of the company's outstanding shares as of June 30.
This new authorization is in addition to the company's existing repurchase authorization. And with this new authorization, as of today, the company now has approximately 40.6 million shares authorized for repurchase under the plan. The company intends to continue to repurchase additional shares of its common stock in the future in support of the previously disclosed capital allocation strategy, but share repurchases will vary from time to time and will take into account macroeconomic issues, market trends, and other factors the company deems appropriate. Shifting over to the balance sheet, today's comparisons are figures as of June 30 versus December 31.
These numbers include the initial purchase accounting estimates from the VOXX acquisition as of April 1, and while they reflect our best estimates, they may be subject to change throughout the measurement period. Starting with liquidity, cash and cash equivalents were $119.8 million, down from $233.3 million at year-end, primarily as a result of the VOXX acquisition and share repurchases during the quarter. Short-term and long-term investments totaled $290.1 million compared to $361.9 million at the end of 2024. These investments include both fixed income securities and our equity and cost method holdings. Total accounts receivable stood at $372.9 million, of that, $317.5 million was attributable to Gentex and $55.4 million came from the VOXX acquisition.
The increase in core Gentex receivables was primarily driven by higher sequential sales and the timing of sales within the quarter. Total inventories were $473.3 million with $380.9 million representing core Gentex inventory. That's down from $436.5 million at year-end, largely due to reductions in raw material inventory. The remaining $92.4 million inventory is tied to the VOXX acquisition. And consolidated accounts payable was $212.6 million, and within that, core Gentex accounts payable was $156.3 million, down from $168.3 million at the end of 2024, primarily due to lower inventory purchases during the quarter. And the remaining $56.3 million reflects payables associated with VOXX.
As it relates to cash flow, the company is still in the process of finalizing operating cash flow metrics for the quarter, and we'll provide those details in its upcoming Form 10-Q filing. Capital expenditures for 2025 were approximately $31.1 million compared to $31.8 million in the same period last year. And year to date, capital expenditures totaled $67.8 million, up from $63.6 million in the first half of 2024. And depreciation and amortization expense for the second quarter was approximately $27.4 million, including $800,000 attributable to VOXX and $26.6 million related to Gentex. This compares to $23.9 million in the second quarter of 2024.
And on a year-to-date basis, depreciation and amortization totaled $52.9 million compared to $47.9 million in the prior year period. I'll now hand the call over to Neil for a product update.
Neil Boehm: Thank you, Kevin. In the second quarter of 2025, we had 18 net new nameplate launches of our interior and exterior auto-dimming mirrors and electronic features. Over half of these launches in the quarter included advanced feature content, with full display mirror and HomeLink being the primary technologies introduced. The launch cadence has been strong over the past several quarters, and the teams have been doing an outstanding job to make them successful. Now for an update on full display mirror. In the second quarter, full display mirror launched on the Cadillac Vistiq, Ferrari 296 GTB, Genesis GV60, Hyundai Ioniq 9, and the Mitsubishi Outlander. These new launches bring our total number of nameplates launched to 139.
With six months of actual performance and improved visibility around program launches, we now expect full display mirror unit shipments for the full year of 2025 to increase by approximately 150,000 to 300,000 units compared to 2024. Interest in the full display mirror product family remains strong, even in the challenging production environment, particularly in North America. In addition to the growth in units in 2025, we continue to anticipate announcing an additional OEM customer for full display mirror later this year. Full display mirror has been one of Gentex's primary growth drivers, and we remain fully committed to its continued advancement.
We're actively investing in next-generation camera and display technologies, new feature content, and a deeper focus on user experience to ensure the platform remains at the forefront of the market. Another product focus area for us has been large area devices. In the second quarter, our teams made strong progress in optimizing initial production lines for large area applications like sunroofs and visors, and advanced key technical aspects such as dimming speed and film durability. Our customers remain highly engaged, and we are working closely with them to align product capabilities with their evolving expectations. Large area devices are targeted to bring this technology to production within the next 24 months.
Turning to VOXX, now that we've completed our first full quarter working alongside their teams, we're focused on gaining a deeper understanding of their product lines, cost structures, and operational opportunities. The various technology and product platforms the acquisition brings, like iris-based biometrics and the Premium Audio Group, will create some new and unique product opportunities, and we're excited to engage in these areas going forward. We've taken a deliberate approach to not rush the integration so that we can ensure alignment across departments. As with our core Gentex technologies, we're focused on balancing quality, cost, performance, and design, and I remain optimistic about our ability to enhance each of these metrics across our expanded portfolio.
Finally, we're excited to announce that we began shipments of our new PLACE product line through a major big-box retail partner during the quarter. PLACE is a suite of advanced multifunctional smoke and carbon alarms designed to elevate home safety, comfort, and security through room-specific intelligence. The system is managed via an intuitive mobile app and features an industry-first low-frequency sounder, engineered to improve alarm effectiveness for deep sleepers, children, and individuals with hearing impairments. It also aligns with emerging safety standards, including updated residential codes recently adopted in states like California.
As a long-standing leader in commercial fire protection and sensing technologies, the launch of PLACE marks a significant milestone in our strategy to bring cutting-edge, accessible home safety solutions directly to consumers and further expand Gentex's presence in the rapidly growing smart home market. Gentex is an innovation-driven technology company. Our focus on R&D over the past several years has enabled us to generate a strong pipeline of both automotive and non-automotive products and technologies, and we're excited about the potential they have to help drive our growth into the future. I'll now hand the call back over to Steve for guidance and closing remarks.
Steve Downing: Thanks, Neil. Our light vehicle production forecast for the third quarter and the remainder of the year is based on the mid-July 2025 S&P Global Mobility Outlook for North America, Europe, Japan, Korea, and China. For the third quarter of 2025, global light vehicle production is expected to be relatively flat compared to the third quarter of last year, while light vehicle production in our primary markets is projected to be down approximately 1% for the quarter. In the fourth quarter, global production is expected to decline by approximately 6%, with similar declines anticipated for our primary markets.
For the full year 2025, light vehicle production in our primary markets is now expected to be down 3% year over year, with North American production projected to fall by 4% compared to last year. Based on this updated production outlook, our first-half performance, reduced demand in China due to the recently implemented counter-tariffs, and the expected contribution from the VOXX acquisition, we are revising our full-year 2025 guidance. This updated guidance reflects the anticipated impact of all known tariffs effective as of today. We now expect consolidated revenue, including VOXX, to be in the range of $2.44 billion and $2.61 billion, which is higher than our previous estimate of $2.15 billion to $2.32 billion without VOXX.
Revenue from Gentex's primary markets is expected to be in the range of $2.1 billion and $2.2 billion. Revenue from the China market is projected at $100 million to $125 million, and VOXX revenue is estimated to contribute between $240 million to $280 million. Consolidated gross margin, including VOXX, is expected to be between 33% and 34%. Core Gentex without VOXX is now expected to be between 34% and 34.5%, which is a significant improvement from our prior range of 33% to 34%. VOXX gross margin is anticipated to be in the range of 27% to 29%. Consolidated operating expenses, excluding severance, are expected to be between $370 million to $390 million.
Core Gentex operating expenses are expected to remain unchanged at $300 million to $310 million. VOXX operating expenses are projected to be $70 million to $80 million, excluding severance. Our effective tax rate is now expected to be in the range of 16% to 17% versus our previous estimate of 15% to 17%. Capital expenditures remain unchanged at $100 million to $125 million for the year. And lastly, consolidated depreciation and amortization is expected to be between $91 million and $98 million. This includes $90 million to $95 million for Gentex and $1 million to $3 million for VOXX. The second quarter began with a flurry of activity that has not slowed down.
We closed the VOXX acquisition on April 1, and then moved very quickly into a chaotic period of global trade uncertainty that lasted for the entire quarter and remains unresolved. It was nevertheless a very productive quarter as we continue to make progress on our path toward improved profitability. Our teams are performing at a very high level, and our operational efficiency is improving significantly versus the same time last year. These improvements played a key role in driving strong revenue and profitability improvements despite revenue reductions in the domestic China market and the lower than expected light vehicle production in our primary markets.
Over the next several quarters, the company will continue executing the margin improvement initiatives that are targeted to get core margin profile in line with our long-term target of 35% to 36%. We are working on those targets while we're working on those targets, we are also working with the VOXX team to ensure the combined organization is appropriately structured to support long-term profitability and shareholder value. That completes our prepared comments for today. We can now proceed with questions.
Operator: Thank you. Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from the line of Luke Junk with Baird. Your line is now open.
Luke Junk: Good morning. Thanks for taking the questions. Steve, maybe if we could start with the underpinnings of gross margin. Certainly, think one of the big stories this quarter. And just curious to get your thoughts on the factors that are now within your controls. We're starting to see the gross margin improvement efforts internally really showing up in the P&L now and continuing to work on that versus some of the uncertainty that's still out there, be it industry production volume, trim mix, I mean, my gut says it feels kinda like you've turned the corner on getting your arms around the margin trend. Is that how you feel as well?
Steve Downing: Yeah. I'd say I mean, honestly, if you go back over this, it's been a little over two years that we've been working on margin improvement. Really, since the forced electronics cost increases that we incurred post-COVID. But since that time, there was a lot of other factors. Obviously, the labor crisis and other factors on the industry that caused some problems. So it felt like over the last two years, every time we made progress, there was some type of headwind that kinda reset the bar lower.
This quarter really starts to show the work that's been going on, and it read through all the way through the income statement, which I think is a really positive sign to your point. And just kinda walk through that a little bit. The way we kind of categorize this, we'd say there was a negative in the quarter. Between pricing and tariffs of 50 to 100 basis points were kind of the negatives on margin. But then, there were several positives, but the biggest ones were PPV. So our savings from our supply base, that was 100 to 150 basis points. And then labor and overhead savings were 150 to 200 basis points positive.
So when you start looking at those trends, we don't see those reversing in the second half of the year. If you look at the pricing from the commodities that we buy, those should be locked in for the rest of the year. And then if you look at the labor and overhead, as long as revenues stay in this range, we should have a very efficient and our operational efficiencies are definitely showing signs of improving. The steps that we look at in terms of predicting how are we gonna do in the second half of the year. And then just switching gears, to China. Certainly, that's coming up in guidance relative to now less bad tariff situation.
But just curious how you're thinking about China strategically, incrementally, I mean, clearly, the market is open again to some extent, but, you know, a challenging market with respect to competitiveness, payment terms, etcetera.
Steve Downing: Yeah. I mean, for us, the biggest challenge in the China market because almost all of those sales are exports out of the US into the China market. The threat of those counter-tariffs when they got over 100% basically had all of our customers in China reconsidering what to do with our product. And a large it's either, some of it got resourced to local suppliers but the vast majority of it just they punted on the technology itself and just removed it from the vehicle. And that's also in keeping two things. It's not just the tariffs. It's also the decreasing profitability for OEMs in the domestic China market.
A lot of a lot of them and you is well documented, obviously, in that industry, but there's been a lot of challenge with their profitability. And so some of the content features are starting to get squeezed out from a product planning standpoint. And so, you know, we're relooking at that China market trying to determine, you know, how do we find a way to grow there. In this market, the way and the current uncertainty as it relates to tariffs and counter-tariffs, we haven't found that winning formula yet. But, like we've always said, that market does tend to be a little lower than average margin profile.
And so there is definitely some help there as that business shrunk. It's not obviously helpful on the revenue side, but it does help on the margin side.
Luke Junk: Got it. And then, lastly, Neil, just hoping to get a little more commentary on larger devices. Midyear. So I guess what, you know, what you're sharing today sounds like good news in terms of engineering unlocks and aligning to what customers are expecting. But for that, view to bring production within the next 24 months, could there be some conservatism in there potentially?
Neil Boehm: There could be a little bit. You know, there's team's done an amazing job these last, I'll say, last six months at this first part of the year. Getting processes, improved to get the know, visual characteristics performance all the above on the product and technology to customer level that can really help us accelerate bringing it to market. So there could be I mean, 24 months, I think, is a pretty safe window. I think we'll we should be able to achieve something sooner than that, but there's a lot of variables that are still in line in achieving, the product that the end customer is looking for. So still working really hard. Team's doing a phenomenal job.
But feel pretty comfortable that within those 24 months, we should be able to get there.
Luke Junk: Okay. Well, stay tuned. I'll leave it there. Thank you.
Josh O'Berski: Thanks. Thanks, Luke.
Operator: Our next question comes from the line of Joseph Spak with UBS. Your line is now open.
Joseph Spak: Hey, team. Good morning, everyone. Morning. Hey, Joe. Couple of questions, I guess. On VOXX, now that you've, you know, had another sort of quarter to digest it and that's that's in the guide. Now, obviously, the EBIT is breakeven this year. It looks like it's $100 million annualized OpEx run rate. How should we think about that level on a go-forward basis in terms of either synergies or cost savings that could come out, you know, as we as we think about the next couple of years?
Steve Downing: Yeah. If you look at if you look at the overall, you OpEx, on the VOXX side, we know there's some synergies in combining the two organizations. You know, part of that is you have two separately publicly traded companies going down to one. We know there that'll bring about a lot of those. We also know as Neil's team engages with their engineering teams, there's definitely some overlap and some synergies that we think we can accomplish there. The same thing with the back office side. Of the house. We definitely know that, that working together, we can we can definitely find ways to be more efficient.
Of one of them will take a little longer, but that's also ERP integrations. Our system we believe, is a more efficient system that will help with the workload that's manually required today inside of the VOXX system that we believe we can help with. So this is a 12 to 18 month process, but definitely wanna get that OpEx on a percentage basis. You know? Probably won't get all the way to the Gentex level, but definitely closer to that.
Joseph Spak: Percent sales. On a percentage sales basis. Yep.
Steve Downing: It's percent sales. Okay. So over a couple years, you think that's sort of a reasonable
Steve Downing: Yeah. Very much so.
Operator: Yeah.
Joseph Spak: Okay. And then and then just sticking on VOXX. Like, I know with the audio side of the business, you know, when you sort of talked when you first bought it at the height of sort of uncertainty, there was maybe some decisions that had to be made about sourcing from China versus sort of other alternatives. And, you know, without that seems more clear when tariffs were, know, 145% or higher. Maybe less clear at current levels. I know it's not like we have full tariff certainty yet, but do you have any sort of harder views of what you what you plan to do there? Or when you think a decision would be made
Steve Downing: Yeah. So, the audio team, so primarily Klipsch, but Klipsch and Onkyo teams have done a phenomenal job of proactively getting sourcing decisions made to reduce that risk. So, in that in that case, in particular, now as a consumer electronics company, they have a lot more flexibility than an automotive supplier does for sure. And so a lot of those they've made already made decisions with the existing supply base of how to reduce the risk and exposure to tariffs out of the China market. And so they're actively pursuing relocation of manufacturing in their supply base currently. I would expect that within 12 months, they basically, that, most of those transitions will have been handled already.
And so to your point, it will be nowhere near that kinda 100% that was that was threatened and worrisome. They're obviously based on trade deals that are happening between the US and the rest of the world. There will be some remnant of tariffs that will exist for the long period, but it'll be significantly lower than what that 100% risk factor was.
Joseph Spak: K. Last one for me just on sort of the core Gentex. Mirror business. I think like second quarter production did certainly come in better. That benefited from you. We're seeing some signs of softening schedules in the back half. You think there was any like, would you classify that as any sort of, like, pull forward or shifting in timing? Or, I guess, how do you sort of view those the cadence of sort of production, you know, 2Q through the balance of the year?
Steve Downing: It was like, if you look at Q2 and what we're seeing in Q3, we think Q3 is going to be very similar to Q2. I think the softening is really going to happen in Q4, and that's if you look at our primary markets, North America and Japan, Korea markets are the ones that are probably on a year-over-year basis. In Q4 going to be down the most. If you look at it, there was some pull forward a little bit. We did push back on that with our customers. In other words, what they were looking for was some shipments ahead of trade deadlines.
We just worked with them very openly about, well, we could do that for you, but that you're gonna we're incur a tremendous amount of cost on overtime side. If that's something you need us to do, we'll do. But we gotta talk about the expenses associated with that. And, and most of our customers made decisions based on that delta cost basis of whether or not they wanted us to, pull ahead schedules. So I don't think it was as much as what has been speculated. There definitely was a little bit, but it I wouldn't say it was significant portion of our revenue was up Was a pull forward from the back half of the year into Q2.
Joseph Spak: K. Great. Thanks so much, guys.
Operator: Thanks, Joe. Thank you. Thanks, Joe. Our next question comes from the line of James Picariello with BNP Paribas. Your line is now open.
James Picariello: Hey, guys. This is Jake on for James. Now that you've had a chance to have a full quarter, you know, owning VOXX and really dig into the business, how do you think about what portion of VOXX revenue should be considered noncore and could be divested versus what you guys definitely wanna kinda pull into the core business?
Steve Downing: Well, I think, you know, if you look at that total business, right, I mean, it really breaks up into really two separate Right? In terms of revenue. You have the premium audio, and part of the reason we are excited about premium audio is when you Neil referenced our PLACE launch, and that move into what we're trying to do is expand our HomeLink brand. Into home automation. And so both our PLACE product and the Klipsch and Onkyo brands were part of that strategy of how do we how do we combine that business and start to become a bigger player in the home automation space. And start to leverage our manufacturing capability in home electronics as well.
And so I look at that and say that was really part of what we are really attracted to in the acquisition of VOXX. The other two pieces are really very similar piece of business to what we do. So you have an OEM piece of the business, that VOXX on the electronic side handles, and then they have an after automotive aftermarket business. And so they done distribution for us for a long period of time, and we're very familiar with what their distribution model looks like. As we sit here today, both of those are still interesting pieces of business for us. Where we look at that and say, you know, hey.
How can we know we can help improve the overall of those businesses, and so we wanna leverage our supply base on the cost reduction side from a bill material standpoint. But then also look at, you know, how can we get those products to market quicker at a lower OpEx. And then the one last piece is the biometrics, which we Sure. Was has always been part of our growth path for, in the mirror growth and we got we're getting our hands on the underlying algorithm through that acquisition. So the EyeLock piece is more of a longer-term strategy, but able to own that technology was important too.
James Picariello: Alright. Thanks, guys. And then I just wanted to quickly follow-up on China. How should we think about the first half, second half split? And then what does the run rate look like going forward into 2026 and beyond?
Steve Downing: Yeah. If you look at the first quarter was, almost a normal quarter for us really in terms of into China. I think that was at $43 million I believe and then $33 million. You know, I would say probably in the back half, you're probably more like $25 million per quarter roughly. And then after that, I mean, who knows? But if it's if a deal gets done that's, you know, sub 50% tariff rates, then I would say it's probably a you know, $75 million to $110 million book of business for us going forward versus the $242 million to $250 million we are anticipating this year.
Operator: Thank you. Our next question comes from the line of Josh Nichols with B. Riley. Your line is now open.
Josh Nichols: Yes. Thanks for taking my question. Great to see the margin and the revenue bump. Coming here. I know I think last quarter, things have been shifting a lot with the tariff news. And whatnot. Mix was a big question, right, last quarter. And, clearly, mix has become a pretty big tailwind for this quarter. You've seen FDM, other advanced feature mirrors, move higher. I'm kinda curious, like, what's changed a little bit of what you're hearing from your customers for how they're focusing on mix for some of these higher value products and what continues to be a little bit of a challenging like, vehicle production market.
Steve Downing: Yeah. I think I think overall, you're seeing is kind of return to where we were a couple of years ago where OEMs were focused on profitability. Knowing that overall light vehicle production isn't probably gonna be what anyone would like. But based on that, how do you know, that does tend to shift part of the part of the upper half of the production volume into higher mix for us. That's good. At the at the same time, though, you'll see some OEC declines, and, you know, that's obviously a negative on the on the margin profile side.
And so, you know, we're there is some good news in there, but there's also there also is some contenting and some focus on cost from an OEM standpoint that have negative negatively impacted our OEC volumes. And so it's not all positive tailwinds. We actually fought some additional headwinds. And so the financial performance, given that full context, was actually very, very good. You look at losing that type of OEC volume on a year-over-year basis, that is a pretty negative both operationally, but also on the overall margin profile.
And so, you know, while there is some definite trend towards FDM and increased take rates on advanced features, the outside part portion of the book of business is definitely struggling a little.
Josh Nichols: And that's just to touch on, like, VOXX real quick. I think at a high level, you mentioned it. You know, it's running around breakeven today. But when you look at the opportunity you know, for margin expansion, I think the guidance for VOXX is, like, 27% to 29%. This year, you guys, your core business is, you know, running the best in class numbers 34% plus this year. Like, how much do you think that those margins for VOXX could improve over the next, like, 12 to 24 months? As you mentioned, probably not to the level that you guys are operating at the core business given the nature of it.
But I'm just curious how much of that synergies in operating leverage is gonna be coming through the gross margin line for VOXX.
Steve Downing: Yeah. I would say I don't know about given the industries, I think on the Klipsch side, you have you can improve it in a quicker environment because of the cycle on how quickly those products are redesigned, and that tends to be reset the margin profile. Profile of consumer electronics quicker. And every one of those redesigns gives you an opportunity to improve bill. The automotive side obviously takes a little longer, but I would say if you're looking out two years or so, I think I think two to 300 basis points of improvement in the gross margin is absolutely achievable.
Josh Nichols: And then last question for me. You touched on the dimmable glass, a very big opportunity there. Good see the progress the company has been making on that front. On driver monitoring, a little bit more near-term revenue opportunity. Any updates on that? I know you expect to do a little bit of revenue this year. And but that could ramp, you know, to be more material over the 27, 28 type time frame.
Neil Boehm: Right. Yeah. Exactly. So we start our second customer will go to production here in late Q3, early Q4. And then the additional then actually, there's customer two will be late Q3, early Q4. Customer three will be late Q4, early Q1 of next year, and then the fourth one will also be 2026 with as you said, volumes will be ramping up over the next couple years. Really, '27 into '28 is when it becomes more significant or substantial.
Josh Nichols: Appreciate the context. Thanks.
Operator: Thank you. As a reminder, to ask a question at this time, please press Our next question comes from the line of Ron Jewsikow with Guggenheim Securities. Your line is now open.
Ron Jewsikow: Yeah. Good morning, and for taking my questions. Hey, John. Maybe starting on just the FDM growth, the increase in the guide. Any color on kind of what's driving the roughly 5% upside versus prior shipment expectations? I guess want to unpack like I don't think it's probably, like, vehicle production volumes, or is it is it take rates? Is it launches coming quicker than expected? Just kind of what you're seeing.
Steve Downing: Really a combination of both of those. I'd say the launch cadence and both take rates, I mean, we have line of sight to what this could be. I think we are a little bit are a little bit more pessimistic on LVP in the first half of the year than what actually happened. And so, with that, we were like, we had talked at the beginning of the year that we thought there was a little bit more risk factors there. Given the strong first half of the year, and the launches that Neil referenced in the second half, know, our confidence is starting to increase in us hitting those numbers. Primarily based on what's already happened this year.
But then also even with the lower production volumes, if you look at how we're how we're laid out across those OEMs and what those take rates could look like, we think there's a little less risk factor now than what we thought at the beginning of the year. And so, yeah, I think take rates continue to trend positive, and then the launches have not slowed down. And I think that's one of the big improvements in the back half of this year. OEMs are still are still committed to their product launch cycles. And, we're hitting those.
Ron Jewsikow: Okay. Now that's super helpful color. And wanna maybe double tap or it might be triple or quadruple at this point on the China guide. I guess, just what is the reason in your estimation that the China market is not bouncing back, I think post tariff relief to kind of pre-tariff levels. Is local competition filling the void? Was there a kind of enough inventory in the channel already that OEMs were able to use that, or is there kind of just the content thing on at certain OEMs as a result of tariffs?
Steve Downing: Yeah. If we were if we were all three of them are true, but the single biggest one is decontenting. If you look in it and this is really driven by the profit OEMs in that market right now being squeezed very, very tight, a lot of them, and you've seen the announcements on, you know, negative margin profile. For several OEMs and others struggling just to break even. A lot of it has been driven by, you know, driven by decontenting, trying to get the cost per vehicle down. There has been a little bit of on local competition, but I would say that's a much, much smaller percentage of the business loss in China is driven by that.
More of it's driven by decontenting.
Ron Jewsikow: Okay. That's helpful color. And if I could just squeeze one more in, on the tariffs or the net tariff costs that reimbursed this quarter, seems like it was maybe 4 to 5 million of net cost. Is that
Steve Downing: Sorry. It's about 2.7.
Ron Jewsikow: Okay. Do you expect those to be reimbursed in the second half, or is that kind of assumed as kind of leakage in the guide?
Steve Downing: No. The team's very clear that our expectation is that we're gonna get at least most, if not all, of that reimbursed.
Ron Jewsikow: Okay. No. That's super helpful. And, I really appreciate you taking my questions.
Steve Downing: Thanks, Ron.
Operator: Our next question comes from the line of David Whiston with Morningstar. Your line is open.
David Whiston: In terms of the core company, getting that gross margin target to 35% to 36%, what major activities still need to be done to get to that level?
Steve Downing: Right now, if mix stayed the same, I would tell you we're there. But we have additional things that we had kicked off that we're still working on. That includes some product redesigns, definitely, it all started if you go back to when the cost increases happened on the on the con on the electric piece. There were several things that we began working on. Some of those redesigns we're still working on that we haven't fully executed yet. There's obviously continued continuous improvement on the manufacturing piece, throughput, yield, scrap, cost, those types of things. Also, one of the things that we always work on is, replacement products, and that can mean that can mean different things Right?
So some of our incoming bill materials are impact impacted by tariffs. From different regions, so looking for alternative supply. And so we're constantly looking at those saying, how do we derisk business to make sure we get to this margin profile and stay at it for a longer period of time.
David Whiston: K. Thanks. And then on your supply chain, how much you exposure do you guys have to, rare earths and magnet materials from China upstream?
Steve Downing: I would say on the rare earth side, there's quite a bit of exposure on the coding side for core Gentex. Right? There's a lot on the precious metal side. And our coatings especially. Obviously, with the Klipsch acquisition, magnets became a much bigger piece of magnets weren't a problem for us. Pre-acquisition, but, obviously, that is something that the Klipsch team and the premium audio team has been working really hard on to make sure that does not become an issue for them and their ability to deliver to their customer base. I would say they've done a really good job of derisking that supply as much as humanly possible in this environment.
Not that it's not that it's completely risk-free, but right now, we feel like we have a very good plan of how to make sure to maintain supply of magnets for their speaker products.
David Whiston: Yeah. Thanks, guys.
Josh O'Berski: You did. Thank you. And I'm currently showing no further questions at this time. I'd like to hand the call back over to Josh O'Berski for closing remarks.
Josh O'Berski: Thank you, everyone, for your time today. As a reminder, we will be at CEMA in November. If any investors are interested in joining us, please reach out. But this concludes our conference call. Have a great weekend.
Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.