Gentex Corporation (GNTX)

Investor Day 2019

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Aug 21, 2019

All contents of this webcast are the property of Gentex Corporation and may not be copied, published, reproduced, rebroadcast, retransmitted, transcribed or otherwise redistributed. Gentex Corporation will hold responsible and liable any party for any damages incurred by Gentex Corporation with respect to any unauthorized use of the contents of this webcast. This webcast contains forward looking information within the meaning of the Gentex Safe Harbor statement included in the Gentex twenty nineteen Analyst and Investor Day presentation on the Gentex Investor Relations website and as always shown on the main Gentex website. Your participation in this webcast implies consent to these terms. Now I'll turn the webcast over to Steve Downing for a short presentation, after which we will open the floor for questions from our guests in the audience. For any webcast listeners, please e mail your questions to me at josh. Oberskegentex dot com. Steve, go ahead. Thanks, Josh. First, I want to welcome you guys, especially everyone who was able to make it to Zealand. We understand getting, A, to Zealand is not exactly the simplest of tasks, but we love having people here. We believe to really truly understand Gentex, a, coming here, seeing what we're doing, seeing the products, seeing the facilities, meeting the team. It's a very special part of that experience. It resonates with our customers. We hope it does with you, too. The presentation I'm going to walk through today is pretty canned. We did that deliberately. We really want to get to Q and A. So upfront, we have Kevin Nash and Neil Baim, who's our CFO and CTO. Between the three of us, we'll be kind of handing off questions. Our real goal is to get through this, really to use it as a simulator to hopefully get that Q and A to be a little more lively than it tends to be in some of these interactions. Honestly, if you do even if you're sitting here, if you want to email Josh, if something kind of piques your curiosity and you have a question, feel free to email him. He's more than happy to interrupt me. So he would, I'm sure, love to interrupt the presentation and ask some questions. If not, it'll help get the Q and A going up probably a little quicker than it would otherwise. So with that, we're going to jump in. I think you guys are familiar with the format. It's going be pretty basic. At the end, if anyone is interested, at the end of the time today, we're going to do a quick factory tour as well, let you see our latest building that we've put up and see kind of the expansion plans there, and then also see some of the automation in the final assembly areas. It's allowed us to take labor costs out of our process and really kind of centralize and focus manufacturing in the West Michigan area. So if you have time, it's pretty cool to see. We love going on factory tours. It's great for our customers. It does give you a little different perspective of what type of operations we have. We joke all the time that as an automotive supplier, people think of greasy parts. That's not what we do. It doesn't mean there's anything wrong with that. But when it comes to our operations, it really speaks to the high level of engineering that exists even in our manufacturing floor. That was way longer. Josh basically read this, so I'm going to skip it. There'll be a test later. If you get anything wrong, we keep your stock. No big deal. Just going around the room here, forgot to introduce everybody. Robert Vance is in the back. Robert is our VP of New Biz, so he helps us focus on new technologies, innovation, start ups, looking for opportunities with other companies in partnership and otherwise. Matt Chayot, next to him, is our VP of Sales globally. So hence the jokes about why are you in this room and not selling something. And Scott Ryan is our GC. So he's actually more entertaining than that sounds. So if you get a chance one of the one of the things I do find unique about our team is any one of these guys could get up and give this product presentation. And that's really critical to who we are as a company. We believe that by having the strategy very transparent and discussing it amongst ourselves, we're all on the same page. So we can be traveling internationally. If we see opportunity or a company or something we want to work with, they understand the strategic inherent value of it, we come together very quickly. We tend to be on the same page as a pretty small management team. Quick company snapshot. So nothing real surprising here. It's who we are. If you look basically, if they're building a car somewhere in the world, we're participating in that. Over five we're on over 500 nameplates globally now. And basically, OEM, like I mentioned, if you're building a car, we're probably selling to you. Currently, I think this number is actually this is a little outdated. Think we're about 50 eightfifty in terms of employees, right around there, 90%, 95% of which are all in Zeeland, Michigan. I'm going to quick reset the table just for a few minutes on 2018 product performance. And the reason why is it's important to see kind of the trajectory of where we've been in the last year, kind of where we're at and where we're trending to in 2019, and it'll hopefully help answer some of those questions about what does the future look like for us as a company. In 2018, we shipped almost 30,000,000 inside mirrors, which was about a 5% growth rate over 2017. We shipped nearly 12,000,000 outside mirrors at a growth rate of 9% over prior year. So out of these facilities last year, we shipped almost 42,000,000 mirrors globally. That represented about a 6% unit growth rate collectively. In terms of product penetration or where are we at on the vehicles produced, we're on over 31% of the world's production with our inside mirrors and just over 12% of the world's production with our outside mirrors. And the reason why that's really relevant is we talk about an aging product that people think of as mature, when in reality, we still see tremendous growth prospects for our products, especially in emerging markets, where you can start talking about inside and outside auto dimming mirror penetration rates going up significantly over the next several years. How that correlated to money because that's really what it's all about at the end of the day. 6% unit growth really brought about 2% revenue growth for the business and $1,834,000,000 in revenue last year. About a 37.6% gross margin for the year. If you've watched us, and a lot of you have known us for a really long time, you've seen a lot of fluctuation in gross margin over the years. As high as the high 30s to low 40s at some points, really in 2010 through 'twelve time period, it hit a bottom in that 32%, 33% range. The team's worked really hard on the financial discipline side, both in how we quote products, how we negotiate contracts, and how we feel really good about this gross margin profile given the size we are in that kind of 36% to 37% range. Last year was $182,000,000 in OpEx and a 16% tax rate. Also, if you've been with us for a long time, we traded at the very high end of the tax rate range for a long time. The team has worked really hard on that over the years. Obviously, the tax law changes that went into effect really helped us. If you think about us as a company as a net exporter of goods, you really couldn't have modeled a better tax profile for our company. Headquartered in The U. Distributing high value, high content products all over the world really helped address the tax rate gap between The U. S. And some of the other countries. So we feel probably that we're one of the larger benefactors of the tax policy changes. Dollars 86,000,000 in CapEx. The one thing I'll point out there is in 2018, we focused on making sure our CapEx aligns with what was happening in the business environment. We were able to shrink up that CapEx quite a bit last year, and you saw us actually lower our CapEx guidance for this year as well. We're doing a lot more with a lot less than what we've done historically. We haven't we've not we're still funding this business more than adequately, still investing in new technology. But the slower growth rate range in terms of units have given us some opportunities to focus and shore up that spend on the CapEx side. That equated to $102,000,000 in depreciation amortization. And then lastly, what we loved was 2018, despite the slower growth rate on the top line, what you saw was 8% improvement in net income and a 15% improvement in EPS for the year. And that gap between net income and EPS was really driven by not only our focus on the business, but having a well executed capital allocation strategy. In 2018, return to shareholders. This is one most of you I met when I took over as CFO for the first time in 2013. And really, the company lacked a coherent strategy around capital allocation. Not only did it not have one, it didn't execute anything, and it really didn't talk about it as part of the business discipline. One of the things we've been working on is become more prescriptive about what that strategy is and then making sure we stay disciplined along that. So in 2018, there was about $0.44 per share in dividends. That was about $116,000,000 paid out to shareholders in dividends in 2018. We also repurchased Founders shares. So that, in combination with our open market transactions, we bought over 26,000,000 shares last year for nearly $600,000,000 in share repurchases. So in terms of total return to shareholders, last year alone was over $700,000,000 return to shareholders. Now in terms of our philosophy going forward did I skip one? Maybe not. I'll go get to it. I think it's after this one. I'm getting ahead of myself. Get out over my ski tips once in a while. Turning to 2019 guidance. If you look at this is the most updated numbers from our July conference call. So revenue was forecast to be between 1,870,000,000.00 and $1,900,000,000 this year. The gross margin, we actually narrowed up that range and raised the bottom end to thirty six point five percent and thirty seven point five percent for the year. If you remember, that's right now at the midpoint would only be slightly down from last year's performance despite the tariff headwinds that we're facing. And so on an annual basis, we're facing anywhere from 15,000,000 to $45,000,000 in tariffs. So we're offsetting that and maintaining our margin profile even despite those. And that's really a testament to the focus of the team and the work that we've done to focus on costs. OpEx, about 195,000,000 to $200,000,000 which is up over prior year, and it's running at a growth rate slightly ahead of our sales growth. And part of the reason is that product portfolio that we're going talk about later, making sure that we're funding this business to bring about sustainable revenue and profitability over the long term. Annual tax rate, we narrowed up this guidance as well, pretty similar to last year's in the 16% to 17% range. One of the biggest factors and fluctuation there is foreign derived income. When you look at us as a net exporter, one of the tax credits you get is for the value So obviously, as your business grows in different markets, it's about the revenue and profitability driven by those exports. So this number will fluctuate a little more than it has for us historically. But honestly, at half the tax rate, we're okay with that volatility. CapEx this year is one of the things we focused on. Again, we brought this down versus the beginning of the year forecast down to a 90,000,000 to $100,000,000 CapEx spend. We feel really good about that. Feel like we're funding the business adequately and providing for our future. And then lastly, about 100,000,000 to $110,000,000 in depreciation and amortization. And then the little one, the one that gets kind of washed out at times is throughout this year, despite the headwinds in our industry, what we've done is continue to maintain our guidance for 2020 to be about 3% to 8% higher than 2019 revenue performance for next year. This is the one I was thinking of. So we get asked this a lot about, okay, with the stock run up and the change in price, what's your capital allocation philosophy? Is it going to change? And the nice part about being a bunch of meatheads in the room is, honestly, we establish a strategy, we execute the strategy. And the strategy is to use nearly 100% of cash flow in the business for these areas. And they're not listed in any particular order. Obviously, we list them in this case, just focused on what we've the prior spend has been, but focused on CapEx, on dividends, on making sure we stay disciplined about our repurchase philosophy and then lastly, M and A. And the biggest question we get about M and A is we haven't done anything big in a few years, and that's primarily driven by availability of resources and what we think fair market prices are for access to technology. What you've seen us do the last couple of years is really focus on smaller acquisitions of technology through almost like venture capital type plays, looking for new start ups, going through rounds of financing with them, getting access to either ownership or a combination of ownership and exclusivity for the markets we're in. And so you'll see us continue to bring about new technologies and innovations, both internally and looking at startups on the outside that have ideas that we think could be relevant in our space and areas that we can provide value. The fun part of the conversation. So I always feel inadequate when we start talking about Neil's work, but nonetheless, I'm going to do this. But the future direction of the company. And this is one that we've worked really hard on the last few years. Starting about three years ago, you'd go Neil came with us to New York for a conference. I think it was the JPMorgan conference at the time, was one of the first ones Neil came to. And literally, you'd walk out of every one of those thirty minute meetings, like that is just a very different perception of what we believe happening in the marketplace. And three to four years ago, it was like every investor and every analyst believed that we were going to walk outside on the streets of New York that day, and every car was going to be fully autonomous with no mirrors, no steering wheels, no brakes, And then somehow, we were blind to the what was happening in the space. So some of our favorites, we use them against you. We read analyst reports, too. So occasionally, we like to throw out some of those one liners. So we've been called everything from dead money to buggy whips. Like I said, a bunch of me heads use that as motivation. But nonetheless, it is a relevant part of our strategy. And so what we've tried to do is do a better job of showing what are those disintermediation risks, what have we been doing. And more importantly, the spin that Gentex puts on it is we don't see the risk level that people would prescribe for these areas. What we do see is an ability to grow through those opportunities because they're right in our wheelhouse in terms of our strategy and our execution ability to deliver products. So one of the things we talk about, as we're developing our strategy internally, and you see us use this a lot with shareholders for that same reason, is because we want to make sure that the strategy that we put together and the products that we're working on leverage our core competencies and then ultimately become competitive advantages. So this is just a truncated list of things that we believe we're truly uniquely good at and help us provide value for our customers. And really, what's important here is how these come together. And so you take those core competencies and you put them into a list of competitive advantages, and really, it's about distinct products. So if you look what we do, and Gentex is always different. Our customers actually love coming here because we have a different take on every problem. And so we joke all the time that we're not going to be able to answer every problem an OEM has. But if they have a really unique problem, we always welcome them to come here, give us the problem statement. Let us see if we can come up with unique solution. And really, for us, that comes focused on combining those core competencies: chemistry, applied materials, coding, software, hardware, putting those together in a very unique situation to hopefully solve a problem that others are struggling with. And so that last bullet point on this slide, or the unique fusion of technologies, for me, really summarizes this company really well. We take a whole bunch of science and a whole bunch of technology. We combine it in a different use case and a different form to hopefully provide value for our customers. So this is back to that market perception. So summarizing kind of the fair case for us, we kind of break it down to these three areas, and really four. But cameras can replace mirrors, which really parallels with the autonomous vehicle of the future, the fact that it may not need that type of technology. The second one is ride sharing. And some of the things that are happening on autonomous vehicles have the potential to reduce production rates in the long term. So that obviously could put a damper or a headwind on the overall industry. That we would disagree with those statements for several reasons, or at least the severity with which they'll impact automotive production. And then lastly, the apps or software will start to replace some of the traditional hardware that the company has participated in. And so for us, we just like to break it down into pretty simple answers. What is our answer or solution? What are we doing about these issues? And then more importantly, the flip in that switch that I would propose is not only what are we doing to prevent those from being risks, what are we doing to take advantage of the opportunities that they create? And so for us, we kind of break up our product strategy into three simple areas, at least over the next few years, and that is vision systems. And a vision system can be anything from a mirror to a camera to a display. Basically, it's solving that issue of what's going on around the vehicle and how do you make that happen. And so when we talk about our technology strategy, we're going go into just a slide each on each of these, and it's going to answer that question of what is that strategy, Why does it leverage our core competencies? And then where are we at in the execution of that strategy? In terms of Connected Car, if you saw the product showroom at all, if you didn't see that little room in there, it's showing the home automation room. I really encourage you to check that out. It's a really cool concept of what we can do. It's actually a live demo we use for our customers. So there's live webcams in there. When we're sitting remotely internationally, we can actually pull those up, see the webcams, and actually control those devices from anywhere in the world. And then lastly, where are we at on dimmable devices? And dimmable devices is a combination of vision systems and large area devices. It's the concept of electrochromics and mirrors, but it's also the concept of electrochromics in aerospace and other large area applications for the vehicle and outside of the car. So the first one, the strategy on the Vision system is pretty simple. So it's to continue our long tradition of mirrored growth in emerging markets. You've noticed in the conference calls, we talk about launches in China, launches in India in the latest quarterly conference call. Our focus has been continuing to try to grow our presence in those emerging markets. Historically, they've been lower end vehicles. They haven't had this type of technology. There's a business case that we have to build, not only for ourselves but for our customers and ultimately for the consumer. And so we've been doing a much better job of that in the last several years. We're continuing to see growth rates far above corporate average in those emerging markets. Obviously, it leverages all of our core competencies. It's our kind of core product, so it kind of sticks elbows really in tight and delivering what we've been historically very good at, which is EC mirrors, inside and outside mirrors and the execution of those. Longer term, it starts the opportunity to open up other advanced systems beyond just mirrors. If you look at what we've done, so inside and outside mirrors, our camera system starting with SmartBeam, which continues to have a market presence, but leveraging the skill sets and the know how that we've gained from machine vision and taking that the next step into camera monitoring systems. So at CES, the last couple of years, you've seen us show hybrid solutions, full CMS solutions, different examples of how Gentex can play a very unique role and contributor in vision systems and digital vision systems in the automotive market. That next category for connected car. This strategy is the basics of it are taking what we have in HomeLink, which is on about 55%, 60% of the North American production, and saying, how do we take that HomeLink product, where we're connecting the car to the home and take that to the next level? And so that included two things, one of which was the home automation system. We partnered with a company called Yonomi, who is an app integration. We did a venture round of financing with them. That got us the back end or compatibility with a large a lot of different home automation suppliers, so devices in the home space. What we then did was take and focus on the app for the OEM. So we've written our own app. We actually made a press release just, I think, a week ago, talking about it launching into the aftermarket through VOXX. And really, what this is, is a start of consumer feedback. So we've had hundreds of employees using and operating device already to get that feedback of where our weaknesses are and how to improve our app and the integration. But more importantly, when we get this hands with consumers, we'll start to get even better feedback. How are they using it? How often are they using it? They are cloud based transactions that take place between your car and the home. So how often is that being used, and what are those use cases? How do we make that product even more effective? In essence, the use case is really simple on HomeLink Connect, and that is how do I pair my mobile device and all my apps at home with a single button press? Press? Create scenes, my arriving at home scene, my departing home scene. So it can do anything from closing your garage door to turning off your lights, changing your thermostat, turning off music. Whatever home automation devices you have, this product will be capable of interacting with and controlling with a single button press. And so this is really about ease of use and embedding the technology at the car level to make it much easier for a consumer to use this type of technology. The advantage of our product over any other is it combines our RF devices, which are security devices, your garage door, gates, locks. Those type of devices are very unique and very proprietary for security reasons. Through HomeLink, have access to that technology, so we continue to leverage our position as the preferred partner in automotive for security type devices. Beyond that, we start talking about one of the newer exciting products for us, and that's integrated toll module. Integrated toll module takes exactly what we're doing in the home space and moves it into the infrastructure. Not only does it give you compatibility with all the tolling in the North American market, more importantly, it starts to bring about the advantage of a transactional vehicle. The difficulty is we talk about transactional cars a lot. The space the industry has talked about them for years. The problem is there's not a known use case other than tolling. In other words, there's not everything else is key fob driven, right? So a gap pump is still a wand or a key fob that you hold on your key chain. There isn't really a lot of use cases where the car actually communicates with infrastructure and can transact on your behalf. Integrated Toll Module, we believe, is the first execution of a product like this in the space, and it's a known use case. The advantage of that is, is that tolling modules are much more simple. They're much cleaner. They're better executed. We can test their reliability and dependability at the OEM level. And more importantly, what it does is it opens up the opportunity to conceal these and put them in a much more pleasing and aesthetic manner. From a user standpoint, the nice part about this is, the first time really as a consumer, you can register your ITM. So if you buy an Audi e tron, which is the only vehicle in production currently, you can register your car nationally, drive anywhere in the country, and it will transact tolls automatically on your behalf. So from an ease of use and a complexity standpoint, it makes this type of product really compelling. Longer term, what's exciting about the concept of ITM is the ability to engage more infrastructure partners, whether that's parking barriers, drive throughs, other types of things that you would like or gas pumps, things that you would like your car to speak to and transact with without you needing to handle card swipes. From a consumer standpoint, the advantage is the fewer the card swipes, the less risk of identity theft or cards being stolen. It's a lock and key system, so it's a very secure network. It transacts at very high speed, point to point, not over the cloud. And so the advantage is that you can have a very secure payment system embedded at the card level. Lastly, as you think through this product lineup, we added an interesting one here a couple of years ago at CES. It was called Biometrics. For us, it was an Iris based. We did a venture round of financing with the Silicon Valley startup, where we got a portion of equity, but then also that company ultimately got acquired by a biometrics company. But we kept our exclusivity for access into the automotive space through this. If you think about what this whole connected car space is, it's a security device and a transactional device. The ability to identify a driver and make sure that we secure that at the driver level became part of what we knew we needed to have longer term. And so that really fits in really well with that whole security and transactional vehicle model, is making sure that we identify a driver. For us, who we are is camera based. And so if you think about our machine vision, our experience with cameras, it really fit very closely to our some of our skill sets internally. And our geography in the vehicle is very good for this type of technology. Lastly, dimmable devices. So like I mentioned, most of our strategies aren't rocket science. If you peel back the onion and you look at who we are, what we're good at, this one's a very simple strategy, incredibly difficult to execute. Take what we do in mirrors and electrochromics and expand them into much larger area devices in the new markets. So we got our legs under us with the Boeing seven eighty seven program. That's been very, very good for us as a company. We've basically revolutionized our electrochromic technology, the core chemistry, probably four or five times since we quoted that business initially. That helped us improve mirrors, but also pushed us into ability to do larger area devices beyond just the seven eighty seven. At CES in January, we announced our second program with Boeing for the seven seventy seven MAX, which will be optional content, but exciting because it starts to show the proliferation of that product beyond just one program opportunities. And then lastly, at CES this year, we showed that taken to the whole another level, the ability to form and bend glass, laminate it, and show it in sunroof applications. So if you haven't got a chance to check the Cadillac CTS V or the Volvo XC90, both those vehicles at CES showed electrochromic sunroofs that were our technology. The Volvo is a great one because it actually has the standard sunroof in the back, what the Volvo ships with, and then ours in the front. So you can see the differences, and what we believe to be the inherent value of our product versus a traditional sunroof. So we're going to wrap up quickly, and open up the floor for questions. So if you have any, feel free. Josh, don't know if you want to get things started. Yes, we did get one coming in from email. This person asked, Regarding the automotive window dimming market opportunity, so our large area dimmable devices. Current solutions have been achieving slow adoption. High costs are the primary obstacle. Can Gentex bend the cost curve significantly here? And can you quantify that in percentage terms? Well, I'd say, yes. Mean, there's really been only one other technology that the space defines as electrochromics. And it's a very different form of electrochromics than what we have. It's been adopted in automotive. So the differences in technology is this basically darkens. It doesn't technically darken, it turns opaque. And so it limits light saturation through turning opaque. The difference, obviously, in solution phase electrochromics is that you achieve grayscale over a course of a much wider percent. So if you look at our technology versus other kind of competing technologies, the primary difference is what we refer to as dynamic range. So in the Volvo or in the Cadillac, what you'll see is, in the clear state, you're looking at high 50s, mid-50s percent transmittance of light through that. At the dark state, we can go in aerospace, for instance, down to 0.001%. Typical in automotive, most of what we're showing in order to achieve speed, we're showing going down to like low single digits, so one to 2% kind of darkening. So that 50% to 55% dynamic range is very different than what competing technologies offer. Now on the cost side, obviously, all these technologies are expensive when you begin. Part of the reason you see us starting to work on scale and invest in some larger area manufacturing space is try to achieve that scale. So it's very early to try to predict what can we do from a total cost curve standpoint. What we believe from our initial conversations with our customers is that there's not we feel very confident that we can hit a price point that they believe they can sell to consumers. And so that's our focus over the next couple of years is refine that manufacturing process and go through the full testing and qualification process to make sure if we're selling a device, that we know it's going to last and meet OEM requirements. That was actually the only one that came in from the web so far. So if anyone in the room has questions, feel free to raise your hand My name is Charles Long, both family advisors in Chicago. And we've owned the stock for a long time and so obsessed with the company. From perspective, how has the Board changed over the past couple of years? And where do you see that going forward, number one? And then I have a follow-up. Sure. So it has changed a lot. I mean if you look at the Board, it's been very consistent for a long time, which has been great. I mean the consistency to weather recessions and stay focused on our core technology has been a great asset. Now we've reached that point where we're starting to add some new Board members, as you can tell. For us, what we look for and what I look for is a range of personalities and backgrounds. One of the things that's been exciting, had different people. I had a guy like Brian Walker, who recently retired from Herman. He's a Midwestern guy. He's a local guy. But more importantly, he has no problem still pushing really hard on is it enough? And so what we're looking for is a combination and balance between stability and who we are and making sure we stay disciplined, but at the same time, asking us the tough questions about are you doing enough even. And as we go forward, I think you're going continue to see that type of philosophy change, especially looking outside of just this area, outside of just our market. Somebody mentioned on our tour, actually, you did this morning that we behave and act like a technology company even though most of our revenue comes in automotive. And so making sure our Board continues to push us to think that way is incredibly important. In other words, think and act like a technology company regardless of where your revenue comes. And then at the Board level, what are the do you have any conversations about positives and negatives perhaps of being a public corporation versus a private corporation? Yes. There's a lot of conversations usually around Board meeting and conference call times about the negatives. No, I joke. But it is one you have it's one you think about all the time, one that we struggle with as a management team. There's times when being private, you may choose a different path than you would if you're public. What I love about what we've done in the last couple of years is you've seen us really act more like I'd say we handle the public aspects of it better now than we did, but we're making the right strategic decisions. We're just communicating them more openly about what those decisions are. And so I feel like we've kind of finally started to find that right balance between acting like a private company when it's the right thing to do, but behaving more mature like a public company when it's necessary. But I mean, obviously, being public has some inefficiencies associated with it. And so what we've done a better job of is building the team to hopefully minimize the amount of time we spend just checking the box versus actually moving the needle. And Josh, for instance, has been a huge advantage there. At the beginning of this six years ago, we were on calls weekly. Josh has done a great job on the IR side of hopefully being a good sounding piece for you and someone that you can communicate with anytime. Well, I mean he's slightly a below average, but, but hopefully hopefully, he's at least accessible. Brad, that's Yeah. And then on your capital allocation policy specifically, where are you at with regard to the target that you're setting on cash? And I want to just pin down that picture a little bit for myself. Sure. So I'm gonna make Kevin answer this because I always get accused of answering all the questions. But the physical format of this doesn't allow me. It isn't easy, so I'm gonna make Kevin answer. You've already been paying attention. Well, I think we when we did roll out the capital allocation strategy, we talked about that net cash at that $525,000,000 level. But that was coming down from an $800,000,000 level in that year. So we were very aggressive last year in kind of getting to that target. I'll be honest, I didn't think we could get in within $500,000 But our goal that's a loose goal at this point. I mean, give or take, call it, dollars 100,000,000 depending on market conditions and availability of acquisitions. But we're still a Midwest company, and we like to do things that are sustainable and repeatable. And so if an acquisition comes up that we want to take advantage of, cash has been a big asset for us being faster than others. We take our time as it relates to investing getting IP and doing our diligence on acquisitions. The one thing we can offer is we're quicker to close than others. So we still have a bent towards maintaining a conservative balance sheet. But we're not afraid to go lever up. We had an acquisition that made sense. We did take on debt when we bought the HomeLink business several years ago. But from our perspective, efficiency of running our business the way we do, we still go back we've gone back to that kind of conservative balance sheet. But we're not afraid in the moment if the stock price retrenches and we want to take more advantage of repurchase program or things like that, that we would move the needle. But as of right now, we've kind of landed on that soft target, and we'll stay there unless there's a reason for changing. Yes. If you don't mind, if I could just look back on that just a second. How much cash could you conceptually see as a Midwestern company using for an acquisition? Well, paid $700,000,000 for HomeLink. So that's not out of the wheelhouse by any stretch. I think it goes back to that slide that Steve talked about. If it fits in our core competencies and we can find a competitive advantage of buying a business that size, a large business, then I don't think any dollar amount is necessarily off the table. I mean because as a tech company, right, you trade at 14x earnings. Yes. Okay. And you're growing? You should have a twenty, twenty five multiple to the stock. It went well, so it's going up. I agree. And so I just wonder what the Board's thinking is on the cash levels that you need. Because in 2010, you lost $10,000,000 And that was a tough year for auto production, as I recall. So I'm just It's really the cash and really, the it's targeted the Board loved our philosophy when we brought it because it showed a maturing process, not being paranoid or afraid of what we're doing and knowing that we're going to have to be disciplined, but it left us with maximum flexibility. So without with saying, hey, we're going to redeploy 100% basically of cash flow every year back to shareholders or towards acquisitions, I think that's a much more aggressive position than the company has ever taken. And so our plan was to give this a few years, see how we're doing, obviously reevaluate that cash target every year. And so this year, we decided, hey, it works. Let's stick with it. Let's give ourselves two years. And quite honestly, what we're hoping for is that valuations start to come down on the acquisition space. I would tell you that we've been pitched to a lot of what I would call tech that is closer to garbage than tech at valuations that make no sense. And so for us, given this overheated market on the M and A space, we're waiting for valuations to come back down to the realm of reality. And our definition of that is, if I'm buying tech, it better have a ten to fifteen year useful life where I could see us still making it in ten or fifteen years because that's about what the payback period is unless you find a way to grow it faster than their current growth rates. And so for us, I like I always joke that our hurdle rate is that investment better be better than buying this company in Zeeland, Michigan called Gentex. And so if it's not better than that, then why would we? And so now the nice part is, is that as we get bigger and as we've kind of grown our technology space, the strike zone starts to get a little larger in terms of tech that could be interesting to us. Ten years ago, that strike zone was really tiny of what we felt like we could buy and then make better. Because that's ultimately when you talk about an acquisition, that's what you're looking at, is not only your ability to manage it, but make it better than it is currently. And so that one, we're excited. I mean you hate to talk about recessions, but the one nice part about what's happening in the automotive space is everyone's starting to become a little five years ago, automotive was us suddenly we joke all the time, suddenly we were the belle of the ball as the automotive industry, when five years before that, we were shipped out to So sea and left for it will be interesting. Fully believe that, that same rhetoric will come back in automotive again. It may be starting to already as it relates to interest from the Valley and interest from outside players. I think automotive is going to become a continually challenged area as it relates to what multiples are trading for, for technology in this space. So as long as that happens, then we'll hopefully be well positioned to move when something actually attractive pops. Yeah. Great question. Speak louder, I think. I've got the microphone right. Fine, man. You guys hear me okay? Nobody. No. You can't hear me? Can you hear me now? Okay. I'll try to speak louder. That way. So with Homeless Connect, question so it's about the capability and the evaluation of the products. What we learned through that trial is literally how people use it. Right? So home automation is growing. In some areas, it's a lot more popular than others. But what we learned through it is how people use it, how do they interface with it, and then the usability, not just of the button to press, but the app itself. Because we did our own app development, zero user interface, user the UIUX aspect of the app is extremely important. It's cumbersome. The consumer is not going to use it. So that was a big part of the trial. And that's even with our latest release. It's a small quantity of parts that are going to go out in the field, and we're going to start getting more feedback and evaluation. We've got a plan on upgrading and modifying the app to continue to improve it over the next six months. I mean, it's all about usability. There's one thing we learned that if you put something out there that's not consumer friendly, people don't use it. Right? And if they don't use it, nobody's gonna download it. Nobody's gonna help function it and wanna buy it on the next page. The other part of that that we've had to learn about too is the part no one talks about on the home automation space is it costs money for people to use apps. Right. So the app provider, it's costing money. Mean, I whether you're using Amazon Web Services for your back end or whatever, I mean, every button press is a push of data, and every push of data costs money. So building a business case for ourselves, for our customers, and then ultimately, something that's palatable from a consumer is equally as important. And so that's where every piece of this comes together ultimately saying, okay, you can technically do it. Yes, we're learning about it. We'll continue to refine that. But ultimately, Genpex provides value for our customer base is bringing that to them at the front and saying, Hey, by the way, this is going to cost money over the long term. So how are you going to position yourself as an OEM? And how are we going to position ourselves as a company to hopefully take keep this product moving forward, but then also find a way to drive revenue from it. Yes. So on the competitive side. So from the app space, obviously, there's a lot in the media and the news about it. I think one of the things that's really unique about our product is you have a low energy Bluetooth connection in the mirror with your HomeLink product. It connects to your phone. It's not actually going through the vehicle architecture. So from a vehicle security, it's actually isolated. So it actually allows for home automation to occur without being deep into the vehicle architecture, which is an advantage from our OEM side. One of the areas and Steve mentioned the company, UNOME. UNOME is a third party aggregator of home automation. That's what they do, is getting keeping and developing and then keeping and maintaining that compatibility. One of the risks, right, if you were to lay out the risks like we do all the time, one of the risks would be not sustaining compatibility with the larger players long term. But that's absolutely a significant and important part of the process for us is making sure you know who's funded, you know who's moving forward with those compatibility items and how we can help them bring that to the government side specifically, we're working with them. And if you look at our traditional HomeLink business, there's really no nothing from a competitive landscape other than kind of app based systems that are segmented to the OEM manufacturers of garage door openers. And we have existing relationships with those guys that it makes sense that we're both successful in that. And then the OEM continues to be monetized. They make more money on our product when it's integrated into the vehicle. So they have incentive to continue to put the HomeLink product hardware in the vehicle. So when you put all the combination of that in addition to our IP portfolio, protecting the existing HomeLink business, that kind of rounds out all of its factors. Sure. And automotive, this is an interesting one. Really, you got to dive into each segment of the market in terms of geography. And the reason why is how people consume is very different. So if you look at Europe, for instance, very troubled from a production standpoint in these last six months. However, if you look at high end German automotive makers, for instance, and how their consumers consume, very typical, somebody is going to spec out the car exactly the way they want it, have it built for them and then take delivery. And those markets, we tend to do very well. Now if you see a prolonged recession, like you saw in 'eight and 'nine, that's when you see and there's a large percentage of vehicles sold in Europe that are fleet vehicles for companies, for their employees. And so that's when you start to see if there's a headwind to the economy longer term, you'll see them kind of scale back the frequency of cars that they're buying or the dollar content. However, if the consumer is still picking, we our features do very well and their line items. So in other words, when you're building yourself a BMW, if you live in Germany, you're going to go in and say, listen, inside, outside auto dimming mirrors, it cost me a couple of $100, that's a great value, I'm going to buy them. And so as long as we're focused on that marketability in Europe, we think we can do really well. When you look at the North American market, it's a tougher market. I mean, we show up at a car lot. Typically, we just want to walk away with one. Less patience here as a consumer. So how you get packaged by the OEM becomes incredibly important. That's where Matt, in combination with our marketing team, spends a lot of time and effort with our OEMs talking about what the feature is, what option package they're going to offer that, what price point, how do we try to make sure we're moving up into better and better packages or finding ourselves at least available for stand alone items as an add on. One of the things I love about Full Display Mirror is that it has enough attention that a lot of OEMs now are starting to offer at GM included in certain vehicles as a stand alone option. So you can get it in several option packages, but you can also line item that product by itself. And that's when you start to really cross over between historical products for Gentex, where nobody was going offer an auto dimming mirror as a stand alone option, not no one, but very few. Times have that occurred. Full display mirror has enough consumer attention. It's been focused on enough in commercials and other places that, that product actually has, we believe, consumer direct appeal. And so our job is to make sure that we continue to focus on how those things get packaged. What I would say is right now, we're not seeing any trend from an OEM that suggests that it's impacting our take rates or our packaging at all. I think concept of having a headwind in the space, luckily, where that headwind is coming from is really on the lower end vehicles in North America, not on trucks and SUVs and D and E segment vehicles. That segment has actually held up really well in the North American space. That continues to help us move forward. The one thing that is interesting is even if you start to see some struggles on the bottom end of a market, we actually have some dollar content options now that can help offset some of those pure volume headwinds and replace them with an FDM or an ITM type dollar content product that will help offset a lot of those headwinds from a pure volume or an EC and MIR driven standpoint. I'm I'm sorry. Just going back to the home. Yeah. So we don't have we still need visibility into your modular sales. Right. So that that case, your revenue looks like through the first half down high single digits. Yes. Does Modular sales represent like a little more than half of your total HomeLink revenue? So you can correct me there. And then what is the trend overall for HomeLink? Yes, absolutely. So when we acquired HomeLink, one of the things that the SEC had asked us to do was to disclose the acquired portion of that business. In other words, what did we actually acquire? Now we had at the time when we bought it, we had about 40% of revenue well, 40% of the volume was in the mirror already, a little more than half of the revenue. So our pricing was a little better than theirs on a full book of business basis. Over the course of the last six years, what you've seen and the reason why the homemade modules are down slightly, we've been actually moving some of those modules into the MiR. So while the modules were down really for the first time since we bought it, it's because it was moving over to the MiR side. I think on a net net basis, we were up like mid single digits on HomeLink, if you look at the aggregate of the whole business. And so for us, the advantage of that is, to the OEM, is there's one less Tier one marking up that product. When we sell a module, it goes to a Tier one. They place it in an overhead or in an adviser, so it gets marked up, say, 10%, 15%, whatever that Tier one can negotiate. So when we move it into a mirror, we're building single circuit boards and one final goods housing. You take a third party out of that markup stream, the OEM gets a slightly better price. And quite frankly, we do a little better, too. Can you talk a little bit about how we should expect the FDM count to grow half the $500,000 this year? And also, I'm curious on I think you said you expect to end the year with 38 nameplate. Yep. What is the potential yearly output from those 38 nameplate if everything was running as we expected to? I understand it will ramp up your time. I'm just trying to understand Sure. Well, first of let's talk about the trajectory. So if you look at FDM in 'seventeen, you're talking that was 180,000 units. Last year was about three eighty thousand. That trajectory is what we're seeing into 2019 and beyond. And so I think that if you slope out that kind of curve on a units basis, not on a percentage growth basis, would be kind of our expectations for growth rate over the next several years. In terms of what could the 38 nameplates be, obviously, that puts us those 38 nameplates are what get us to north of 500,000 units by the end of the year. How much fluctuation could you see in that product? It's a lot. If you look at luxury vehicles we've talked about, we tend to be contented at about 50% take rate on high end luxury vehicles with FDM. When it comes to more volume based vehicles, probably in the 20% range. So that's your maximum volatility is what would it take for 50 to go to 100 or 20 to go to 50. And then obviously, we all know what zero is. The bottom end of that bookend is pretty obvious. But that trajectory, what we're seeing in OEMs as they launch, everyone's going to take a unique position on how they execute the take rates of that product. So when we talk about those take rates, we're really talking about our first five OEMs who are in production right now. The next four OEMs that we've already said we booked business with, those are going to play out over the next two years as we launch those. Quite frankly, they quote us we obviously quote against volumes or estimated volumes and take rates, but a ton changes from the time you quote until it goes into production. It's really about that OEM, how do they feel like they're positioned in the marketplace, How do they price the product? And then ultimately, what is that business case? And how forward are they with marketing this as one of their key features? What really helped us, GM, put full display mirror front and center. Our world changed. I think it was our second year doing CES. Had Mary Barra announce the Chevy Volt at CES. We drove it on stage. One of the five things she talked about was full display mirror. Let's just say that press conference ended about an hour and a half later. There was about 5,000 people showed up at our booth. Can't I guess you could, but I would say you can apply that kind of publicity. In theory, I guess you can. But what that did was not only that announcement, but then GM, so many vehicles show our full display mirror in the commercials for that product for their cars. And I think that brought digital technology front and center in OEMs' minds that, okay, this is real. There's guys that have this product. They've been trying to sell it to us. What is our position going to be on displays and digital vision? And so we feel really well positioned. We're still looking for that next great thing. More importantly, when I talk about the technology evolution, what was great about that GM product is we launched with a product that we would tell you we weren't we knew wasn't the right product when we started shipping Gen one to GM. To the extent to which we had already developed and we're kicking off tooling for a Gen two solution for GM when we shipped our very first production Gen one. And so that kind of addiction one things I do say from a cultural standpoint that makes Gen six unique is our philosophy is we have to obsolete ourselves because if not, someone else will. And so we basically we were shipping Gen one really for about two years, two point five years, but our focus was all on Gen two and what's beyond Gen two. And for us, Gen two meant bigger display, closer to the edge, ground and polished glass, making this look like a smart device and taking the technology to the next level. And I think that will determine the long term trajectory more than almost anything else, and that is how much evolution evolutionary and revolutionary type products can come up with along the way. The other one is going to be leveraging that display location in the car from a UIX standpoint. When you get in, OEMs now pay for digital vision and the display, but how do you use that display as a strategic location in the car to move information around? And I think those will all start to become differentiated by OEM. Our primary play in initial onset is a hardware play. In other words, selling the hardware into the OEM and our traditional business model. But we'd be lying to you to tell you we're not excited about longer term, the aspects of having a recurring system. And does that exist today? No. So what we did is we built a business case that's very similar to typical Gentex business case off of hardware play. But we know longer term, as we get our kind of foot in the door and start to understand this market better, we believe there are opportunities for recurring revenue, either on the Home and Connect side or on the ITM side. And so the more products we have that connected, are touching consumer directly, the more opportunities there are for finding recurring forms of revenue. But the beautiful part is we're not compromising our traditional business case to get there. It's still a traditional cell hardware, normal margin profile for our company based on that technology. We did have one come in from the from e mail asking, is it too early to forecast how soon we might see sorry, wrong one. We are seeing, in terms of OEM interest in ITM, in addition to Audi, when might we see more models launched? It's kind of in that same vein. Sure. So first and foremost, Audi when we made that announcement, we talked about Audi had a broader rollout than just the e tron. And so you'll see more vehicles launching over the next several years as they get those vehicles ready to integrate ITM into the car. We've also announced that we have two additional OEMs who have made commitments to launch ITM product. And those will both of those will be kind of early starting in early twenty twenty one will be the first. And throughout hopefully, the next couple of years after that, we'll see more OEMs coming on as well. That would be the second OEM. Yes. During that throughout 2020, though, you'll start to see additional All programs as well. Bit more in terms of Mhmm. Where we can gain foresee it currently and and and and so forth? Sure. The two the two quickest ones to see a tangible product that we could walk you through and show you a demo on are our Homeland Connect with You Know Me and then the Iris based biometric solution. And so those are the two that actually got us products almost right away that we continue to market and try to sell and do business development with OEMs. We have two more that we have done that I would say, longer term, they're probably five years out before we'll see anything tangible from them. The nice part, like all of these, like we mentioned, of these are very small like plays, right? I mean typical anywhere $500,000 to a couple of million bucks from an investment round of financing standpoint. What's great about it is Neil's team is incredibly technical. Most of these align really well with skill sets we have in house already. And that's what's really compelling about it from the start up. One of these, for instance, was more of a chemistry type background or play. And so when they came and see our scale and what we can do from a high volume chemistry and applied materials standpoint, they love it because they say, Hey, we don't if you're a start up, one the things you're worried about is I get the tech right, but then how do I scale manufacturing, which is incredibly expensive. What we offer as a partner is the ability to help them with that scale. And so we continue to look for opportunities like that. Quite honestly, if you ever see anything on the chemistry side or applied materials side, let us know. When we go to CES, Neil's team well, we're out pedaling car parts. Neil's team is looking for tech. And so with most tech shows, we'll have somebody on the ground looking, trying to find something that aligns really well from a strategy standpoint with us. So my goal, personally, in terms of hit rate, hit rate is a weird thing when they talk about what we do. What I'd say is we've done four or five of these now in the last two years, I guess. And it's a combination of trying to make sure you don't spread yourself too thin, that you can make sure you're helping them and keep them accountable. But more importantly, and for us, more importantly, finding things that are five to seven, ten years out. And we want to find them very early on while you can still control how they go to the market. One of the struggles we have is a lot of tech companies start off focused on consumer and mobile devices, thinking there's billions of units produced, so how do we make a couple of pennies on each one? We bring a different type of discipline, talking about different markets, aerospace, automotive, other ways you can create value. We're not looking at needing billions of units, needing hundreds of thousands of units to build a really solid business case. And so we're hoping to catch these guys before they overcommit or, more importantly, where we can bring them markets that they probably don't have the balance sheet or the time to withstand. An automotive business development cycle with the type of tech we're talking about, it's seven years. You take even a biometric solution in automotive. Nobody really has biometrics in automotive. You're pitching a concept of what do you want your user experience to be in five years? And we're asking very existential questions are hard to answer and are difficult for the right reason for an OEM. And so what we do is we believe in the philosophy that you got to build proof of concepts, you got to give these guys demos, let them see the product in form and then determine what they what, if anything, they want do with it. And that's where we're at with a lot of the technology play. If you didn't get a chance to sit in the CTS V, make sure you sit in that. Not only does it have the sunroof, it has iris biometrics enabled at a level that we believe is absolutely very real of what it could look like in an automotive space, very concealed, very quick, very responsive. We think that showcased that type of technology really well. So So I know you guys are interested in how kind of your expectations for the industry going forward is fully autonomous or whatever is moving a little bit far. We do see maybe Level four or Level five autonomy coming in probably later than some people expected a few years ago. So I guess being in the business of high-tech, following what you can see around the vehicle, would you guys ever consider going into like a tunnel position system? So we when we partnered with Mobileye, that was one of the things we were working on initially, right? So we had our lighting control system that we were using machine vision for. We did the integration of Mobileye to help understand what our value prop could be. Trying to go compete with Mobileye right now is not in our strategy or wheelhouse. We believe that there's plenty of suppliers working in that space. We also believe there's going to be a handful of money made in that space longer term, given how many people are rushing towards it. So what we look at is saying, what else can we do? What the technical issues that exist around known technologies today that can't solve that? So looking for the weakness or the Achilles heel in the current systems and how do we help provide something there or how do we focus on the driver. And that's the one thing that everyone's lost sight of through this is if you get into an autonomous vehicle, the concept that you're going want to just sit and stare off in space isn't as real as people think. And so how do you continue? And because there's this inflection point between when the technology is ready, right now, it's called driver assist systems for a reason, right? Because they're there to help you in case you lose focus or you're not paying attention to help keep you operating the car safely. Even when the technology starts to emerge, the driver becomes the backup system. So how do you keep a driver focused and attentive and aware and alert that they're ready to assist in case the system fails or isn't in a perfect situation. And so we're looking at ways we do that. If you think about what we do on our vision system side, what's very compelling about it, we joke about it all the time with full display mirror, if you drive one for the first time, you're going to stare at it way too much. And that's what people don't realize when you talk about digital vision. Your mirror is really easy to use, and the reason is the focal point. The focal point's focused on infinity just like anything else. So you look at it. It applies naturally to your line of sight. That full display mirror is so vivid that you're going to look at it way more than you should be looking at it. And so the concept, though, of how do you solve that in an autonomous world going forward, how do you make sure the driver is paying attention enough to be ready to assist if they need to? How do we make sure we're interfacing with that backup system being the driver in such a way that they're ready to react if they need to? And then longer term, how do you give them a comfortable environment? So not only do you stare at your FDM too long when you first drive it, the other thing that no one wants to talk about is our data will tell us that 10% to 15% of drivers don't like digital vision systems. Don't like them. And we talk about this very openly with our customers because you have to. In other words, we have chief engineers come in, look at our product displays, just standing on the wall, even looking at them and saying, I can't look at that. It makes me dizzy. It's just not comfortable. And that's where our solution, we believe, is world class in that it offers both scenarios. If for whatever reason you find that to be a polarizing feature you don't want, you can turn it off and operate it in mirror mode, not even know that there's a display behind it. If you prefer the digital vision system, you can have that. So the ability and you think about our lives as consumers, we pay a lot every day for things that offer us a choice or the ability to change modes or control the environment. And so one of the things we're looking at is how do we take our products and make them more adaptable? How do we continue to evolve our products to make sure that as a consumer, you get in a vehicle and you have the best of both worlds. You have bimodality or you have alternatives or ways to use that product. As we're trying to continue to evolve who we are as a tech company, that's one of the things that all great tech companies do, continue to focus on the consumer, not just the here and now. And so we think there's a tremendous amount of applications we have to solve yet on the technology side to take that full display mirror all the way to what it really could be and should be. Yeah. So the real advantage is, if you think about your home automation devices, have let's say you have a Nest, let's say you have Sonos, let's say you have, you know, whatever, four security systems. So let's say you have four different apps that you use regularly. Right? You're saying, Hey, every time I come home, I do this. Every time I leave, I do this. The advantage of this system is that you can pair or use our app to control your Nest, control your thermostat, your Nest, your security system, whatever, so that with a single button press, don't have to open up four different apps. More importantly, you don't have to get out your phone at all. You can then pair it to our mirror or pair it to our HomeLink modules or to a center stack in a car through a low energy Bluetooth connection or through either plugging it in if that's the way the OEM wants to go. But then you can replicate those buttons in in the vehicle, either in our homemade buttons or on the radio display. And with a single button press, you don't have to open up apps. So that's the real advantage. And Google's on board with that too? They're not making up the capability, they're not fighting So that's what Neil was talking about, right? This is an every day is a different day in the home automation space. We play well with others and who's not. The vast majority of the new devices that are coming on are live in like this state where all the app guys will talk about, right, where it's a free market, it's all open source stuff, they share back and forth. There's a handful of guys that have taken some interesting positions, and that's still playing out as we speak. So right away, we'd say we're probably at, I don't know, 70% compatibility with the device base, 80%, which is pretty good. It's really it's actually better than anyone else has currently. But it's likely that you're never going to get to 100% compatibility with all device manufacturers Some device manufacturers just refuse to allow other devices to control their stuff. So that's the one that's the that's where Younomi also provides value. Because we're now not in trying to convince these guys to allow this from a vehicle standpoint. You have an app developer who's focused on a mobile device trying to convince these guys to allow compatibility. So we are pushing buttons. Can you activate this? Absolutely. I mean that's all about an HMI and what an OEM wants to use for how they would want to do it. Technically, very feasible. Absolutely feasible. Our position has been with OEMs. We talk about buttons. A lot of people don't use their voice activation system in their cars, because quite frankly, many of them are not great. So what we found I have a couple different vehicles that I've never used. I've tried to use voice activation in, but ultimately, I stopped because it's too irritating. So if we have the capability, that's all about that's all about how an OEM wants to create UIX for the driver. If they want that user experience to be fully there or button or both, we can accommodate either of those. Yes. Longer term, yes. So let's say home automation became completely fragmented where no one starts everyone stopped playing well with each other from a compatibility standpoint, it would hurt the execution of this product. But the upside would be it would de risk our core homeland products because no one's communicating with each other, everything's proprietary. The biggest risk you have with these type of environments is it becomes completely interchangeable. And so why we participate in the space was create additional value. The advantage HomeLink has is that it is a security device, so it's not a cloud based transaction. Almost no one's garage doors. If you guys go home like there's a hole around the room, if you have a garage door, the question is, is connected? Most of you would probably say no, and you don't even really care if it is. That's where HomeLink core value comes from, is that it's an RF based technology that works even if the power is down, if your Internet is down, if anything has happened. A lot of people do have backup batteries for their garage door. It's pretty standard now when you buy a newer one, so that if there's a power outage or anything else, you can still get in your home. We live in Mayberry here, so I don't have a house key. Basically, if you're in my garage or in my house, minus the dog, which, by the way, she wouldn't hurt anybody, so that's not gonna help much. It's a 70 pound, mud. But, if you look at if you look at that overall compatibility, that becomes a problem, right, if if it becomes incredibly fragmented, but it derisks our existing business. The upside is that even if one player doesn't, participate, the fact that you have compatibility with tons of other devices means you can still simplify your life. In other words, let's say you decided to use a Smart Things like, I have I have Samsung SmartThings in my house. So you can you know, I can operate my lights and smart lights and and nets and everything through that device, through that one through that one application, through my HomeLink Connect device. Now if if, you know, if three or four of all the major guys lock this down, then you're gonna have to work with them to specifically who their partnerships are. So it's not like it goes away completely. The concept would be probably more than likely anyway that Samsung developed very specific relationships with other device manufacturers despite their own, that Amazon and Alexa kind of do theirs with their strategic partners and Google does theirs with theirs. So ultimately, you would have some backdoors and some overlap, but that is the hardest part when it comes to home automation is trying to keep compatibility high and high enough that a consumer sees value. And that's what the entire space is struggling with right now is trying to get though get, you know, get that compatibility level up to a high enough level. And it takes a tremendous amount of work because all these guys are writing their unique APIs. So every device manufacturer that's why we didn't wanna go focus on it. We wanted somebody that was focused on it so that every time there's a new device I mean, it's crazy. Right? I mean, connected crock pots to you name it. I would use that as an example because it kinda defines the purpose of a product in the first place. But that's but, literally, you can find connected scales and everything's got a connection to it. And so there's there's got to be hundreds, if not thousands, of devices now that are connected that we're trying to maintain compatibility with through our partner. There's a security aspect, but everything is connected. You've got to have the security built 100% in all of these devices that are interconnected. That's very, very different. Well, two things there that's really important. One of them is the reason why OEMs like this as a concept is because it's not putting this risk on the vehicle. And part of the if you read the articles about the Ford I mean, the Jeep getting hacked on remotely, the advantage of this product embedded at a car level means you're not putting this infrastructure on the vehicle network itself. It's staying on your mobile device. We're replicating those buttons in hardware buttons or in soft buttons, but the application isn't running on the car. So from an OEM standpoint, you're derisking that solution for them. On the back end side, there's absolutely a huge backdoor into your home that opens up as soon as you add a connected device into your home application. Our goal is to secure our entry point. We're never going to be able to help secure the actual devices themselves. So that's going to maintain a risk factor longer term for anybody who uses home automation devices. Now luckily, and this is where our partnerships from HomeLink are with the security companies, the door locks, the gates, the garage door openers. Those that's why we talk about with our customers maintaining that RF push for those security devices because they're much more secure versus using cloud based connections. The moment you introduce cloud based connections, you do open up the world to security not and people being able see what's happening, but actually gaining physical access to a home or to an environment. And so we think using both technologies in one are really critical for that and separating the nice to haves versus the security devices and having different levels of security for those two. Somebody takes over my lighting or turns on my speakers, probably not going to lose a lot of sleep over that, might be annoyed for a few minutes. Somebody gets in my house, that's different. Apartment buildings all over the place. The car is parked somewhere else. It might be a challenge for an RF length to even get to the apartment. Mhmm. And you may have parking in the building, and separated by, you know, 20 concrete floors between the apartment that you're living in and the place where you're actually parking the car. Right. And living in cities is probably going to be a bigger percentage of the population in the future than it is right now. Right. Well, that's what really, that thought process is what got us headed down the path of how do we create Homeland Connect because it helps open up more urban type environments. So if you live in a large if you live in a high you live in a city, you have like a you live in an apartment building where you have parking, RF will still work because at some point, you're going through a gate. When the car physically goes through that gate to the private parking area, HomeLink will work just fine. The cloud based side will work wherever you are, as long as you have a cell phone connection. So really, it starts to open up that use case. If you think about an urban environment where you actually don't have a garage or you don't have a gate, HomeLink right now has very little value to you. However, a HomeLink Connect would have value. If you had home automation devices running in the space, but you're parking in a parking garage or somewhere that's not yours, you could still access all your home automation devices through that app. And so that one for us kind of really started to round out the product to make it more relevant versus just garage door openers and gates and freestanding environments to higher volume applications associated with urban living. And that's where it really started to open up. And part of that push for us in the China market was around that same concept. Very few people have a freestanding garage that they're going to use to open it. However, a tremendous amount of parking barriers in the China market, where I pay for this parking spot, it's mine, but I have no way of securing the spot itself. So literally in these markets you see I'm starting to see them in Europe now, too. You literally buy a metal parking barrier. So when you leave your space, it pops up, so people can't pull into your spot. Those are all RF transmission devices as well. So when we first acquired HomeLink, we had, I think, basically zero compatibility in the China market for devices like that. It's got to be 80%, 90% now compatibility in the China market for parking barriers and things that are more addressing urban environments more so than what our traditional market has been. So we view this as all upside because we hadn't historically had anything that was relevant in that space, and now we're starting to get a product that we believe could be relevant in more urban environments. Yes. Yes. So I mean if you look at overall vehicle production and what it means for us, I mean, that's obviously important. However, the one nice part about the Gentex play is it's less important than it is to a lot of other suppliers. Technology tends to drive our revenue more than anything else. Obviously, facing a 5% vehicle production headwind isn't fun for anybody. Really, what that speaks to, though, for us maintaining our guidance is our confidence that at level we can outperform vehicle production. And so when you think through that guidance of what it is, if you look at like this last quarter, if you look at our financial results versus everyone else's, the ability to grow in really a pretty troubled market, we feel really good about how we're positioned. That being said, I mean, yes, it's tough when you're selling in essence, when your customers are 5% to 7% smaller than they were the prior year, that's a difficult environment. So what we have to work really hard on and it's not our only headwind. I mean one of the things we'd like to point out is there's other headwinds with the mobile reductions and that wind down in that business. That's creating another $25,300 basis point headwind in revenue as that business winds down. So for us to have the outperformance we had in the market conditions and what we've talked about before while we watch that Mobileye business shrink, we really we feel good about how our products are positioned and where we're at. That being said, we feel like we need more. We need more products. We need more technology. We need more things that will help us not in 2020, but help us in 2025, help us in 2027, continue that history of outgrowth. From a margin standpoint, you look at next year, we continue to talk about we feel comfortable in that 36% to 37% range, not just that year, but really going forward. And so we worked really hard to maintain that. It's not easily accomplished in our industry. What that is dependent on is our ability to produce new, higher revenue products at a decent margin profile. And so we continue to believe that, that margin profile fits. Hopefully, there's some clarity in the trade situation. If not, obviously, we're going to be looking at ways to help offset tariffs even more than we have already, but then also looking at opportunities for us to make sure that our prices stay competitive, especially in the China market. Because part of what no one talks about, everyone talks about incoming for the supply base, what very few people talk about is for us, it also affects our outgoing product into China. Those duties and tariffs have changed drastically in the last eighteen months of the what our full landed price is to our customers in China. And so that's probably the one that we would focus on next as the primary solution. If this continues to happen, if it continues to escalate, we're going to have to make sure we're taking care of our customers and getting products into them in the ground in China in a more cost effective way. Yes. It's going to continue to grow with sales. Maybe like you've seen in last couple of years, even slightly higher than sales, not drastically higher. But on a percentage basis, I would say they're probably going to be just slightly ahead of sales growth level, especially on the R and D side. SG and A will be closer to growth in line with sales level. And that's just really, for us, taking advantage of some of these technologies we're looking at. And it's really about the what we believe is the optimism around where we are on the technology portfolio side and us continuing to have ideas that we resources to. All in all, if you look at our R and D and SG and A, if you look at OpEx as a percentage of sales over a fifteen year period, we're still in the strike zone of where we have been over that trend line over time. There's times when that drops and raises. Honestly, it dropped quite a bit after we acquired HomeLink. The HomeLink business we acquired didn't have the same level of R and D and SG and A. And when took the resources we needed, we had to take the whole business, so it was the book of business, and took 30 people that we needed. Other than that, we left them with all the overhead. And so that dropped, obviously, you pick up $150,000,000 in revenue overnight, and then you don't bring the same level of R and D and SG and A. What we did, though, is we knew that, that business had a lot of opportunity to actually take advantage of through applying more R and D resources to it. So Neil's team did that full deep dive. As a licensed partner of it for a long time, we felt like we knew where some of those opportunities were. Neil's team obviously put together a strategy and road map for how to get that R and D back in line with where we felt like it needed to be to keep that product growing and to keep it relevant longer. And that's what we do every day. So one of the things we try to talk about is, listen, if there's an inflection point or a difference in where R and D is going to go, we're going be telling you that ahead of time. And hopefully, it will be tied to an idea that we can actually verbalize. Right now, what we're talking about is supporting our existing launches, full display mirror launches, ITM growth and these new ideas that been working on. And the large area devices one, I don't want to diminish them. That's your pre revenue, talking about the concept of electrochromics and sunroofs, big capacity change. If you think about our entire infrastructure is built around building something this big. And that's why we're talking about building something this big. So as you can imagine, you can't take and retrofit your existing vending lines, for instance, or anything else to make it it's just too big. So what we're continuing to do, and you'll see us both in CapEx and in R and D, continuing to work on ways to help get that product ready and our customers feel comfortable that we're ready for production in the next several years inside of that budget. And that is honestly, the team has done a great job of doing that on a I don't want to say on a shoestring budget, but definitely very cost focused. We're not out over our ski tips and spending in that space. And that go ahead. You go ahead. Is that probably the headwind of the driver assistance marketing that's still on track for a 200 basis point headwind this year? It's more like 300 right now, two fifty to 300 probably, at least through the first six months. And then You one more year of Mobileye runoff. The 2021 year is a very small much smaller number in terms of headwind from the Mobileye side. Go ahead, Josh. Okay. So tailing back into that, we did have a question from the Internet. How soon might we see a Gentex dimmable sunroof in volume production? Hopefully, really soon, right, Matt? Yes. Like we talked about before, I mean there's two facets to that. One of them is our customers just saw it the first time in January. So as we sit here in August, we literally built pilot, we always joke like we were very nervous about putting those two in cars. We only had a handful of them that we got fully completed because it's not this isn't what we showed at CES wasn't just aerospace window that was sitting in free space. If you think about our aerospace execution, what's great about it, you have a pressure pane that's from an outside supplier, you've got a dust panel cover on the inside. We sit in between these two protected consumer. So structurally, we're not a structural product. We don't have to worry about lamination or anything else. That aerospace environment is really good. Now it's harsher in other way, but at least we don't have to mess with that. What we showed at CES were laminated cells that would withstand ball drop impact. So this is basically us getting from zero to hero in the sunroof space, things that we did never done nor experienced nor had to work on before. And so when we showed up with those samples at CES in January, we tacked the organization really hard to be able to show something that wasn't just a proof of concept in terms of theoretical, something that showed that it was mechanically not ready yet, but very close to being ready for the environmental impacts of a sunroof application. And so what we're working on is not only the ability to make the EC sell, but we've got to also work at how do we solve the rest of that interaction side to make sure that our customers feel comfortable that we can they can source us something, a, that they even want it and then b, that they can source us something that we can manufacture in a high volume, not to mention the durability testing. One of the as this has all been going on, one of the things we have to do is put these into cycle testing. And you're talking hundreds of thousands of cycles through heat, humidity, vibration performance. There's a lot of failure modes inside of a device like this. So we're trying to dual path all these areas and show that we're not only getting ready for manufacturing and providing concepts that they can source, but then also making sure that we feel comfortable that the durability and reliability will be there if we were to source the program. Like we mentioned at the beginning, I always use like kind of a seven year time line. From the time you show something the world's never seen before so you probably get like an Ethan order, you start ramping up, it's probably a seven year cycle. And it fits really well with the automotive cycle. And that's if you're really good. There's a lot of stuff that takes three years just to get a customer on board with even the concepts. And then until then, you can't really begin the prove out process. We've been able to expedite this by somewhat doing some of that prove out because we know electrochromics. We can do some of that prove out before being sourced. But ultimately, once an OEM does source you something, even in a low volume application, you have to go through a whole validation cycle, which that alone will be a two, two point five year period. Sure. So we with the Mobileye I'll start with the Mobileye one first, we'll talk about kind of supply constraints and what's going on in the space. But if look you at where we're at with Mobileye, we continue to stay focused on SmartBeam and kind of what that product is from a lighting control standpoint. The one thing that we view longer term is very interesting is camera based systems struggle to see at night, just like humans. So the concept that a fully autonomous system can use completely machine vision without great lighting support is not very accurate. So we need to find ways to continue to improve that product and make it more relevant and, quite frankly, hit price points that OEMs want So that's the development efforts we have. We have the book of business already. Our goal is to revolutionize that book of business and help turn it into what that product needs to be ten or fifteen years from now versus what it was five or ten years ago. So there's work that has to happen. We still have our customers, and we continue to work on that product. On the supply side, the nice the only if there's anything good about a slight recession in automotive and production is that these get helped with some of the tightness from standpoint. So what you'll see is and really, you're talking about capacitors more than anything else, incredibly tight supply. In the world of electronics, automotive is like 2%, if that, of the supply because it's, a, much more difficult to build and the reliability and the testing requirements are so much harder. The vast majority of electronic suppliers stay away from automotive because they won't automotive qual their products. The nice part is, as you see fluctuations in overall vehicle volumes, it does open up some of that capacity again. So we've actually we had some more headwinds forecasted on the pricing side this year. Some of that's actually slowed down a little bit because of the slowdown in automotive. So we're continuing to use this as a time, and it's honestly a state of execution. Our goal is to make sure that we have the right suppliers, multiple suppliers qualified so that supply constraints don't negatively impact financial performance like they can if you're not prepared. You wanna start first? Sure. Use cases around biometrics. So a lot of did you get a chance to see the IPD or go through any of the properties? Yes. Okay. So we'll walk through that. Maybe at break, I can take you through that. A lot of the use cases that we're demonstrating in that have to do with recognizing, obviously, who the driver is, not just from an impairment side, we'll set that one aside for now, but talk about who the driver is. And it gets around customization, personalization, and then setting the car up to be more transactional. So a lot of dialogue on can you just use a phone. So you can, but it's how secure is it? How secure do you want your personal data if you're sharing a car with everybody in the room? You want heaven forbid, would you want Jordan access to your navigation screen that shows where your home is? Probably not. So what we talk about and walk you through is using the biometric to identify who the person physically is, not just whose phone's in the area. And then from that, you can enable different features and options from setting up the vehicle the way you want it, radio stations, all the basic personalization items, to enabling your credit card to now enable transactions, to enable your ITM account to charge tolling directly to you versus the generic car. And you can continue to build off of that from the transactional side. We also see it as from a security. I mean, it is one of besides DNA, it's one of the most secure biometrics, unique biometrics that's available. And it's non contact. So you're not you know, where we live, obviously, a big portion of our year is in the cold and snow. You wear gloves in the winter. We always get asked, what about fingerprints? Can you put fingerprints on? And just do that sensing. Yeah, when it's nice out, that works great. But when you have ice, it's not such a viable option. So the camera based system and doing the biometric has been a is a positive because it's very secure, and it truly can identify, you know, who the person is. And it's quick. If you haven't seen the demo, the first time people think about it, they've seen in the system, you have these goggles, you put up your eyes to enroll. This system, you sit in the seat like you're in a car. It's five seconds. You're enrolled, and it's hundreds of milliseconds for authenticating each time just by a glance at the product. So very seamless in verifying who you are. On the impairment side, those conversations were really around OEMs asking about that more than us promoting it. And the problem with impairment, just like any other form of impairment, it's incredibly different by even seeing. So you could have four people have the exact same amount of alcohol or a prescription, all of the drug in that matter, and all four of these people have completely different Some have obvious changes in their eyes, some don't. And so the problem is with visual implications around impairment, it's incredibly difficult. It's not impossible to cast the net that's 100% accurate. So we're not saying that it's impossible. What we're saying is right now, no one's proven a reliable way to do that with a vision based system. However, there are other things you can do with vision based systems that do give you some indication of whether or not something's not right. Obviously, if you're watching drivers, you can imagine there's a whole range of you can do once you're looking at a driver to look for indicators of of problematic behavior. This would all be this would all be examples of things that you could see. Sorry. I'm just I think I oh, you're first. Okay. I wanted to go back to FDM, maybe answer my other question a little differently. So in the first quarter, I think someone asked you what the addressable market was for you can ramp to several millions? Well, no. The the addressable market question is what vehicles are a good fit for that type of product. That's the addressable market. Your actual story the only ones offering the product. No. Well, there's there's other competitors. But, I mean, the addressable market would be cars that we would look at, say, they're the right price point, the right build, the right structure, the OEM has the right mindset. We think that would be a good fit for those vehicles. That's what we mean by several million units being the addressable market. The total market is 100,000,000 cars or whatever it is now, 92,000,000, 80,000,000, whatever it's becoming. The addressable market would be which of those cars fit that population of saying that the consumer would pay you several $100 for this type of technology. The OEM participates in that level of the segment, in other words and the vehicles that are produced are designed around higher end consumers that where there's more discretion on the content side. So that's what we would define as the addressable market. Then from there, it's about your take rates. A, how your penetration? How is the sales process? And what are take rates going on those? What we're talking about on their actual volumes would be if you look at that progression from 180,000 to 380,000 to north of 500,000 units this year, that kind of paints for you the volumetric scale of where this business is on a trajectory towards. And we don't see that trajectory on a unit basis changing in the next several years. So we should expect 200,000 incremental units per year? Like, that's what you did as well? What I'm saying is that is the rough trajectory that we're on. Yeah. Okay. And then how quickly can the FDM be a significant portion of revenue? I think it's maybe 7% now. It seems like in three to five years, that could be 20% revenue or so. Is that If you look at if you follow that trajectory out, I would say that those ratios are reasonable if the volume keeps growing. And the reason why is remember, we've been in production now for three years for FDM. So we went from three years ago having zero revenue to us only being five or so of revenue. That's a for us, that's an incredible growth curve. In our industry, it's hard to get anything to be material from a revenue or dollar standpoint that quickly. Quite frankly, we're I think we're all a little surprised by how many OEMs we've secured and how those volumes have panned out. Our history would tell you that OEMs have ideas of how they're going to package products, but then they never come close to what they suggest. In reality, our first few OEMs have done exactly what they thought of and not gotten a little better once consumers saw the product. So and that for us is incredibly valuable from a marketing standpoint. But then more importantly, it's pretty indicative of what we think the consumer is really after and what they value. And it's not necessarily the things that the entire supply community has been talking about for a long time. It's things it's hands on products like this where they actually see value. So And then is it is it better for you guys We're all hungry. Well, we love benchmarking everything. So for us, benchmarking becomes key in our industry. And so the first I always joke, the first 10 customers are the hardest to get. After that, it starts not getting easier, but the business case is proven. Other OEMs are out there. You can't you know, you can find for us, good benchmarking, you need at least three or four competitive vehicles of every vehicle that you're trying to market to to be able to show this is that competitive vehicle that you guys are the people that you're competing with as an OEM. Here's the products they're deploying and here's the take rates, the rough take rates that they're using. And then eventually, even if they don't love the product, eventually, fear of missing out becomes almost equally as important as the technology play itself. And so what I would say is right now, because we're so early in this process, having more high end OEMs, luxury based OEs at good take rates would be incredibly valuable for us, but also having more volume vehicles even at a 10 or 20% take rate. And because if you look at the total business case, if you take a global if take a vehicle as a global production of 400,000 units and say I'd take 10% take rate on that all day long, right? I mean that's great volume and business for us. And so our goal is to, a, get the number of FDM products higher. And what that allows is Neil's team to not have to engineer completely from the ground up every time. The first thing that we should do is a complete engineering. Like you start at zero, you got to engineer the entire solution. So if you have 20 products on the shelf, now you can probably find something at least as a halfway starting point where you say, look, I'm going to start, take this and then modify it to get to this OEM instead of starting at zero. And so for us, right now, this is a classic business development effort when it comes to tech where you're worried about like depth and breadth. That's why I joke that you don't need both. And I just wanted to hit that So Okay. Why? Thank you. It's why it's nice having you here. Usually, we don't have any way to make fun of, separate tenants. I think we've got time for, like, maybe two or three more. I just wanna be conscious of everyone else's time so that way we do have enough time to go into the dining room again. Yes. So two things. I think in terms of units and revenue, sometimes those are different. When you look at dollars, FDM, by far, probably has the largest addressable market because of the dollar content associated with each product and because it's a global product. Think about ITM, it's a very large addressable market. In fact, every car in North America in our mind is missing out if it doesn't have a product like this. Now and the reality of it is and what we do a lot of studies on, where are these cars consumed. If you're on the coast, tolling is incredibly relevant. If you're in places like Texas now, where they're starting to roll out a lot more tolling, very relevant. If you live in Michigan, you struggle with OEMs that are based geographically that don't deal with tolling every day. If you're with an OEM who has tolling issues and they experience it personally, they understand it completely, and they get it right away. And so but that's also a very large addressable market. Now when you there's a second part of your question, I just blanked on it. In terms of Oh, R and D. We're all looking at based on what you think is the most addressable Sure. So there's I would break up R and D into two buckets. There's the R piece and the D piece. And the D, the development piece, is really based off source programs. So that one's not allocated based off of maximum opportunity. It's based off decisions we've already made and decisions OEMs have made. So those are prior commitments that are driving those development dollars. So that's taken it from concept to execution. Our dollars, though, are based on where do we see the biggest market opportunities and what do we believe we need to pour resources to. The one we didn't talk about from a total market space standpoint and the one I still believe could be the largest opportunity of all is actually large area devices. If you look at the concept of controlling light into any vehicle, whether it's a plane or a car or anything that moves, you think about that need is, a, global and b, it's been tried to be solved for many years with a lot of inferior technologies. And so we believe that you'll continue to see a huge push from us as a company in trying to find those solutions. And then b, I wouldn't limit that just to aerospace or automotive. Mean, we're gonna continue to look for opportunities to take product that we've developed and say, hey, is there a market forum in other areas? Thank you. If you're hungry and or bored, you can jump out. If you have questions, we'll be standing up here for a while and walking next door too. So Yeah. Take one more maybe, and then Josh is Josh is eyeballing me off. Yep. For for for FTM, FDM going go ahead after for that. That. Yeah. So today, you're shipping five OEMs across 38 main place? 30 currently. 30 currently. 38 by the end of the year. Yep. And then so you already signed out nine OEMs in total. Yep. 10 fairly soon, I imagine. So for next year, what's your best guess on the number of OEMs and nameplates that you could be shipping to next year? So I don't want to estimate the number of nameplates. I would say from an OEM standpoint, we know one or two more OEMs launch next year. Just it should be two, but you always worry end of the year, launches are always get a little dicey of when they actually when we define it as launch is when we start production shipments. So in other words, we wouldn't say it's launched until we're shipping in serial production. So it should be two. Worst case scenario, it would be probably one OEM next year in production. Number of nameplates is always tough to predict, And how you define those is interesting. We tend to take up when we say 30 as well, I mean, we're pretty hard on ourselves. I mean, you could make an argument it's technically more than that based off of trim levels and different names that they use for similar vehicles. But if you look at that, I would say that, that trajectory of, a, OEMs and b, nameplate launches, we don't see that slowing down. Great. So I do want to just say that this concludes the webcast portion of our twenty nineteen Analyst and Investor Day. If you have any further questions, please e mail me at josh. Oberskegentex dot com. Thank you, everyone, for your time, and have a great day.

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