All right. Thank you , everyone, for being here. My name is Josh O'Berski. I am Gentex's Vice President of Investor Relations. Appreciate you all making the trek, and thanks for everyone online watching this as well. Just a quick couple points of housekeeping. We are using the Q&A feature for the webcast. If you have questions and you are online and you want to submit those that way, please do not use the chat; use the Q&A function. That will keep everything streamlined, and it will be seen and read more easily. The other thing, and this is an apology from me, we had some AV issues this morning, and so we are actually running this presentation off of my computer. If you see any messages pop up from my wife, you did not see them.
If you see anything pop up from my Google Chat, you are now accomplices in what you have seen. I apologize in advance for that, and may God have mercy on all of our souls. With that said
Thank you. It is Google Chat. There is not anything you can do.
With that said, thank you again for being here. We are going to have Steve kick off the presentation. There will be some tours later. If you do not have an itinerary, I have got them printed out here. If you need anything, just shoot me an email or a text. Thanks again. Steve?
Thanks, Josh. If you need to peel off at any point, you need some privacy, let us know. Obviously, there's probably more important things than listening to us all day that you may need to deal with. So feel free to let us know. There's plenty of ways we can get you your privacy if you need it. Once again, it is odd, like Josh said, having to do this on his computer. If you don't know much about Josh drinks whiskey and plays a lot of games with his cat, Buddy. One of the many things that I'll never truly understand about Josh and what he does for fun. Also, no one turned in scorecards from those of you who golfed yesterday, so I had to officially declare that James, and half of the round that Josh played and I were the worst.
Since there's no verifiable proof otherwise. Also, James is the biggest sandbagger in the history of golf. James can verify this, too. I figure out he's like, "I'm a 12, I'm a 12, I'm a 12." After seven, he was two under. So I think there's no other conclusion other than he lies more than Josh or I.
That's right.
So you know I make a joke about a quiz afterwards. That's not entirely true, but I decided not to make Josh read this to you either. Most of our presentations today is going to be a little different than what we normally do. Everyone in this room and online, you know most of this data. So I'm going to hit a couple highlights and just a couple themes real quick, because it's really going to drive to the underlying theme for the conference, and that is when we look at the fundamental financial performance that we've put up over the last couple years especially, we truly believe that the market. We get it. It's a difficult market to convince investors that any play in automotive is a strong one.
But if you look at the fundamentals that we've put up, we believe we can paint a very compelling picture that we are significantly undervalued. Instead of talking through all the data that you already know, we're really going to focus on the presentation of that data and take a different cut and look at it, both in my presentation. Obviously, Neil will talk a lot about on the product side, but Kevin's got a few interesting slides as well that are really meant to drive home why we believe we've separated from the current constraints that we've all known and understand about automotive and how it drives potential revenue growth and obviously financial performance for us. Just going through a quick of these highlights real quick. If you look at net sales, first half of this year, up about $100 million versus last year.
Gross margin up 170 basis points versus last year. Income from operations, you can see up to $265 million versus $231 million last year. Net income up $213 million versus $190 million last year. EPS up from $1.06 versus $0.92 last year. We repurchased 5.9 million shares, about $137 million, in the first half of the year. With that performance, we can all see what the stock did. I'm not going to rub it in on our faces collectively, so I'm not going to show that chart, but I think we know the story of what's happened with most autos, quite frankly, during that same time period. Just a quick refresher. Where are we at? What was our original guidance for this year? Where are we sitting today? Revenue is still projected to be $2.65 billion-$2.75 billion for the year. We say it's unchanged.
That was from our July update when we posted earnings. We actually increased that about $50 million, both low end and high end in the April earnings call. So it is up versus beginning of the year. We lowered our operating expenses guidance. I will just point out, this is clear of severance and impairments, but we still anticipate there may be additional severance expense throughout this year. I will talk, and I think we're going to discuss a little bit about the VOXX integration, how we've done with that. The next wave of severance will likely come with our ERP upgrades. We're not going to have the efficiencies that you need until you get to that point where systems can help offset some of the manual workload that's existed inside of that organization for a long time.
We lowered our annual tax rate guidance for the year, lowered CapEx for the year. One of the things we want to point out, this is not about us not investing. In fact, today, part of the reason for the tours is to see where a lot of that investment over the last few years has gone. Primary reason why we're able to lower CapEx is maintenance CapEx. With the reduction in some of the volumes that we've seen, we have plenty of capacity for our core auto-dimming products. Most of the CapEx that you'll see and experience is really targeted over the next five years in the facilities, infrastructure, and manufacturing lines it'll take to help us grow revenue over the next five to 10 years. CapEx obviously down, and then depreciation and amortization unchanged.
We're still targeting this $2.8 billion to $2.9 billion next year, and that is in light of the second half of runoffs that we started talking about already in Q3, experiencing Q2, heading into Q3. Some of those will still contribute to some headwinds starting in the beginning of 2027, but we can more than offset those with growth in other areas of the market. This isn't to belabor the point, but this is what's happening in global light vehicle production. Obviously we've all lived through this. We've seen it. If you back up, I always like to joke, 20-some years ago when we got in this industry, China was less than 5% of global light vehicle production. You look at it now; they are the dominant player. Unfortunately for us, that's taken most of that skin, has come off the backs of our primary customers.
European, North America, Japan, and Korean customers are really the people who have contributed the volume declines that allowed China to pick up some of that extra volume. The reason why I bring this up is we've seen this coming for several years. The last five to seven years have been very obvious what the future holds as it relates to global light vehicle production. We knew the solution had to be technology. It wasn't going to be a volume game. There's not going to be a volume game to be had, and you're not going to get to where we believe we are capable of getting strictly off of selling more base inside mirrors.
This philosophy and backdrop really drives a lot of the tech innovation you've seen over the last three to four years and why we believe what we have to do and where we'll need to contribute to this business in order to help drive growth on a year-over-year basis. This is a chart that we put together really to help drive this scenario. If you look at this is interesting because it's really the last 25, 26 years, but if you look at the bar chart, that's global light vehicle production. The line chart on the right is our revenue against that backdrop. You'll notice a couple things. From the early 2000s , really, all the way until the mid-teens, basically, this gap between light vehicle production and our revenue was almost consistent across the board.
In other words, if you did the math on what are your average sales on a car built, whether you're on that car or not, you're going to see very similar numbers. In the late teens, you start to see that gap shorten between global light vehicle production and our revenue. Then if you look at the last couple years, you start to see the potential for breakout, meaning our ability to outgrow even if the market shrinks. The dollar content on a vehicle built anywhere in the world, whether we're on it or not, has continually increased. In a perfect world, and the one we're targeting, you'll see global light vehicle production relatively flat and our revenue line continuing to increase above. All that really means is we're less dependent on global light vehicle production to create growth. A couple of key points in this.
You go back to 2017: 95 million cars produced, $1.8 billion in revenue. 2025, 93 million cars produced. China even more of a percentage of total LVP. Revenue goes up to $2.5 billion. That is not by accident. Clearly, what you are seeing there is in a declining light vehicle production environment; we can still produce significant growth and profitability. Our goal is to continue to lessen our dependence on total vehicles produced and more about our ability to raise the average dollar content that we can sell on any vehicle produced globally. This is another way of looking at it, and this is where we start talking about, well, what about the dependence on auto-dimming inside mirrors, and how does that correlate to revenue? If you look at this chart, this is actually even more telling in some ways.
The reason why this correlation was so strong is because you are not wrong. For this entire history, you can see a very strong correlation between the number of units Gentex ships and what happens to revenue. It is really here in the last three, four years where you start to see that divergence, meaning units can decrease, revenues can increase. This is really the point of when we start talking about tech and that tech investment that we have made, why we believe this trend will continue over the next several years, and hopefully, we always joke, for the rest of our careers, at least. This is not by accident. As I mentioned before, we reached this conclusion, and later today we are going to reference a little bit at the end of my presentation, kind of a 10-year plan that we put together.
I always joke we created this as an executive team in late 2018, early 2019. 2020 was when we were going to roll it out. We actually codenamed it Project 2030 at the time. Then somehow, magically, there was this thing called COVID, and suddenly the world got turned upside down, and we figured it probably was not the best time to start pitching the team internally on a 10-year vision of what do we want to be when we grow up and how amazing things will be when nobody knew if you were going to be alive in six months or not. We punted on the timeline of that.
Unfortunately, what precipitated after that was a series of chaos that no one could have predicted as it relates to part shortages, labor shortages, and I do not really want to rehash it all because I still have some PTSD from it. The harsh reality is we decided in 2022 to roll out this plan internally because the chaos was not going to end. Part of that 10-year plan that we put together was saying, "We know that LVP is going to be problematic. We know that inside base mirrors are never going to be everything.
It's going to be part of who we are, but it can't be everything. " We began at that point in time to invest heavily in new tech, internally and externally; JVs; partnerships; even some tech investments and purchases that we've made, and starting to look at a way to diversify, not just out of automotive to avoid automotive, but part of this presentation you're going to see is we're doubling down on automotive. We believe there's tremendous growth there, but we do believe there's ways to tackle new markets with our core competencies and continue to expand our growth into other sectors and truly start to look at what does a diversified manufacturer looks like and/or a true tech company for that matter. A couple of the ways we've been able to accomplish this. I'm not going to belabor this point.
Everybody in the room understands what's happened with FDM. The chart speaks for itself. Quite frankly, this is our first great tech investment we had made in quite some time. Really, I think, Neil, we negotiated this deal in 2013, I think.
Yeah
when we sat in GM's lunchroom.
Because back then, that's where you were relegated when you were not performing well, was you got to negotiate everything in the break room. But we shook hands on this deal in that meeting, and since then—that's a couple of hard years of engineering, obviously—but the growth has been phenomenal. The reason why I'm going to point this out is there's a couple of parts of our new tech that we're going to talk about after we get through the morning. When I come back up, we're going to talk through some of the new tech ideas we have and why we think some of them could have a similar growth trajectory to what FDM experienced. I will point out just quickly, though, we're a little over, right around 3.2 million units last year. We launched 17 new models in 2025. We're on 22 brands, 140 nameplates currently.
We expect this year continued growth, 200,000-400,000 units this year, an additional 200,000-400,000 units next year. This is how you start to see what does growth really look like from an FDM perspective and why we believe that could be a strong platform for us and why every day we wake up trying to find new tech that is consumer-facing that can generate this type of growth profile. DMS is the next. One of the things through that Project 2030 plan, when we were talking about strategic, looking at where we were, we thought there was an opportunity to leverage our geography in the vehicle to embed more tech. This is one of the ideas that came out of that. At the time, we didn't have the play, we didn't have the tech internally. We made a small acquisition out of Tel Aviv called Guardian Optical.
They caught us up and actually put us on the radar inside of the industry of using our location for this type of technology. When we first started pitching this, like most things we do in automotive, everyone looks like we have four heads and we've fallen out of bed way too many times. The harsh reality is proving that this location is superior in a lot of ways has helped us win quite a few awards. You see the OEMs that we've launched with already. $50 million-$60 million roughly this year is what we're estimating. Next year, $80 million-$100 million in business focused on this type of technology, leveraging the things we're good at, our geography, our electrochromics, more importantly, cameras, vision systems, and ML and AI learning associated with these types of features. Just a quick one on VOXX.
We're going to talk a lot about VOXX and a couple of different cross-sections of the VOXX business today. This one that we're looking at right now is VOXX as in a total acquisition. If you look at this, right at $196 million, just under $200 million acquisition price. If you look at it, there are two things here. The first question is always, obviously, we bought it for basically asset value. We saw an opportunity to grow that business, improve profitability, and ultimately drive $40 million-$50 million a year in EBIT. Later in the presentation, we're going to talk about this wasn't just a PE play. Obviously, these types of numbers I love.
I love stuff for free, and I love stuff for free that generates cash later, and that's what we saw as an opportunity here, and we're well on our way to delivering those results. The harsh reality is if you're talking $40 million, $50 million in EBIT a year, you're not talking a very long payback period before you have a nice asset that's generating great cash flow and returns. Later, what we're going to talk about is what did we see beyond just the dollars that led us to the point that we thought this acquisition made sense for us. Kevin is going to go into some other details. I do a little bit, but some more details specifically about the PAC group, so the Premium Audio Company inside of VOXX. But we did want to give some quick highlights on this as we look at it.
On the discipline side, one of the things I love is post-acquisition, that target was $325 million to $375 million a year in revenue. Gross margins hovering around 28% on average. Remember, we closed on April 1, 2025, so we are going to give some highlights here where you talk about the first year. That first year of ownership actually was $355 million, so right in the sweet spot of our revenue guidance. Gross margins that were 30.5% versus the 28% at midpoint that we had guided to. Where we sit right now, it is very interesting. Year-to-date plus our forecast, we are targeting that $360 million to $380 million in revenue, but 33%-34% gross margin.
If you start looking at the gross margin performance of the business, the work we have done on the cost discipline side, on the gross margin line, is very impressive. The operating margin is even more impressive.
A lot of the savings that we have accomplished there have been on the R&D and SG&A sides, and in their business, primarily on the SG&A side. Our preference when we make an acquisition like this is to try to not impact R&D. We know that is the lifeline, that is how we live and work in our business. The SG&A, we wanted to get closer aligned to Gentex-type numbers, and we are making great progress in that direction. The next couple of slides before I hand it over to Kevin, we are going to take a step back, less about financials and a little bit more about strategy. This helps set the stage really for why we felt like this PAC investment especially made a lot of sense for us. One of the things I feel like we do not talk enough about is the HomeLink business itself.
I think we added this. If you look at it right now, it is about $330 million a year is the revenue associated with HomeLink. If you know HomeLink, some people have a love-hate relationship with it, but it is three buttons that controls garage doors and gate access. If you think about it is the very first original car-to-home automation tool. We have spent a lot of time since that acquisition working on updating, investing in that technology to make it stronger and better. One of the things that we saw as a key role to keep this product relevant, and this is both a defensive and an offensive strategy as it relates to HomeLink, this product could and will be threatened by apps. Our view was, instead of watching this happen, what if we led the space?
One of the things that we have invested in heavily is what we call HomeLink Smart Home Solutions. It is a series of compatibility with partners, Alarm.com, a lot of home automation devices that are now compatible with our HomeLink device through our HomeLink app. The goal is to create the infrastructure so that on a single button press, it would normally open your garage door. You could close your blinds, unlock your doors, set your alarm system. Do all these things through a single button press. Through that partnership with alarm.com, we have created a bridge that we actually supply to alarm.com that actually creates that combo unit so you can plug in a simple device, pair it to your alarm.com system, and then control your whole alarm.com system through our HomeLink app or button presses.
We've continued to expand that process both as a way to keep HomeLink relevant front and center with our automotive customers, but then ultimately to create this channel. If you're using HomeLink to control your Alarm.com system, or even if you're in an Alarm.com system and you have access to your HomeLink information, we can now start to market products like premium audio, for instance. It creates that channel and connection to the consumer. As we have continued to move into more and more consumer-type focused products, for instance, the premium audio group, our PLACE product, we wanted to help create this channel.
This was both the defensive side of protecting HomeLink and the future of HomeLink and also pairing it with this offensive strategy of how do we get more connected in the consumer space and drive more consumer electronics into the home through that HomeLink brand. The interesting part is we've also worked very hard on the other side of the HomeLink Smart Home Solutions, which it just isn't direct to consumer; it's also into building management. One of the needs that we found through this process is a lot of multi-family dwelling units and other facilities are looking for the same types of features. They want secure access control to gates, parking, doors and locks and systems and shared spaces. They also want to be able to do traffic monitoring, and where is this data coming and going?
How do we help create a more seamless operation for owners and operators of multi-family dwelling units? It also has a play in commercial space as well, whether that's industrial, freight handling, you name it. Semis coming and going out of facilities. How do we make that a more seamless operation from a security and access control standpoint? Then we'll jump into some of these other product lines. We kind of throw these all in here together, but it is important. If you look at the revenue over the last five years especially, you start talking about what's happening with the aerospace business. We're targeting about $25 million to $30 million this year. That business obviously went through a little bit of a rough patch after Boeing had some struggles with, well, pretty much everything, I guess. But if you look at it, we launched on the 787.
It's 100% content on that plane. We continue to see some strength and resilience in the demand for the 787, which is helping drive the business. Since that time, we've also been fully certified now with Airbus, so we're shipping on the Airbus A350. It is optional content for Airbus, but also we've launched on the 777 with optional content as well. If you look at the fire protection group, this is a group that's been dwindling over many years. The original founding of the company was commercial fire protection devices. I'm sure there's some of them in this room. I don't see them. Rob?
Yeah.
They are up here. But when we launched the PLACE product, it was really out of that 10-year vision as well. If we have a world-class detector and it is only focused on commercial applications, what could we do if we went after the residential space, especially on the consumer-focused residential space? So we launched this PLACE product line, and we have talked about it a lot, so I am not going to go through all the details of each of those units. But it does have a very unique feature set, fully connected. This became part of the impetus to say, "Well, if we have this new product, how are we going to create the channel to get that direct to the consumer?" Because as a company, we have never really focused on that, nor do we have those channels established. Fire protection in PLACE.
Really strong growth over the last 18 months, and we are continuing to see a lot of interest. There are some feature sets inside of that product that we did not anticipate necessarily being needed. We built them into PLACE for the consumer. There is a lot of code changes happening in California and Florida that are help driving additional demand outside of direct consumer and connected needs that are helping drive that business as well. Biometrics. We have only talked about a little bit last year. Was that mid last year?
We closed on BioConnect. It is a small company that we acquired that is primarily focused on point of entry and access control. Really, most of their customers right now are data centers. What is interesting about their business model, it is very similar to what we do. It is fingerprint, facial rec. Ultimately, we believe Iris Rec, that we have always worked on could be a huge part of this. If you have not been in a data center, security is absolutely imperative, especially many of the data centers that exist are not one-customer-type data centers. So a lot of data centers are generic, and they sell out their storage facilities to multiple companies. So now you have multiple players coming in, and you need to lock down each rack differently and independently.
So these people are being tracked from the time they get on property till the time they go through the data center and which cages they are coming and going to. So BioConnect's product actually provides that security control. What we really loved about their business model was about 30%-40% of their revenue is recurring based off the software and support that they do once they have installed the hardware. What they are really looking for and some of their customers are looking for, what is that next level, next 10 years of sensor technology that needs to exist in order to make sure you are secure and locked down. We believe this trend is well beyond just data centers. Financial services buildings to large corporations, large buildings in general.
We believe this is going to be a trend over the next 10 to 15 years, and this company is very well positioned with their hardware and software platform to help take advantage of that. Like I mentioned, we're going to get into this a little later. The Premium Audio portion of the VOXX acquisition is about $225 million to $250 million. You start to see, though, we're building out a nice sizable portion of the business that has no tie to automotive, but it has strong ties to our core competencies and what it is we do every day. I presented this at the Automotive Computing Conference two weeks ago, if I remember anymore. It's all a blur. We put this slide together to help the PAC customers understand why this automotive company was interested in a Premium Audio brand.
One of the things that I love about it is it just simply walks through the strategy we went through when we decided it was time to make this play. If you look at this first one, it's clearly obvious to me that that channel that we built out with HomeLink and the HomeLink Smart Home Solutions side becomes a clear way to help increase PAC sales, like having additional functionality that we can market and sell through our own HomeLink and HomeLink Smart Home Solutions apps. Secondly, we could sell Gentex products through the PAC channels. When we talk about the fact that we build this as classic Gentex, we engineer some of the world's best products. Sometimes we engineer them, and it's sitting on a table, and then we're like, "All right.
How the heck are we going to sell this thing now?" You can go out and build a direct-to-consumer channel. It's incredibly expensive, and there's no guarantee the relationships are intact and well. One of the things we got was immediate knowledge, relationships, and credibility by taking a Premium Audio brand that their customers know and love and saying, "Here's additional content." The reason why that becomes valuable is, and you and I learned about this by sitting and talking with a lot of these folks over the last five years at Bill R show and other places, a lot of these folks used to be primarily audio-focused, low-voltage installs. That means they made a lot of money running Cat5, Cat6 lines, and low-voltage wiring through buildings. Obviously, with the advent of Bluetooth and Z-Wave and Wi-Fi devices, a lot of that revenue started to dry up.
Those folks are looking for additional revenue features that they can sell to help make their businesses more relevant. More importantly, many of the low-voltage installers actually made the jump to high-voltage, 120-volt install base, meaning now they're installing things like smoke detectors, fire protection devices, and other hardwired areas inside of a building. So we saw an opportunity then to say, how do I take these people that are now making high-voltage installs and 120-volt installs and give them an additional pipeline of new products that they can help upsell their customers? For the most part, this is how this industry makes money. It's one thing to run wires. You can make up some amount of money on that. The actual upsell of new tech is where they make the majority of their money, and so we think there's a lot of synergies between those two.
In the future, though, what we really saw was a couple of things. Neil's going to laugh because I always say this every time. That first wave of PLACE products, one of the features I wanted was an audio play inside of that. We weren't able to pull that off, both from a partnership or timing standpoint when we started launching that. Imagine a lot of the Gentex devices, what we make and where we're headed, what we could do with a premium audio-type product embedded in our products or at least partnering with our existing customer base to make that more real. Then lastly, how do we take Gentex tech and put it into PAC products? If you think about a lot of our strategy we talk about over the years is we leverage our geography and the vehicle to sell more technology, more content.
If you look at what PAC occupies, they occupy premium locations inside of your home. Imagine the combination of what we could do with our camera sensors, biometrics inside of a home environment once you already have that geography. People don't think about this often, but some of the hardest part of building a business like this is getting that geography. Once you have it, the ability to upscale it, add additional technology is actually far easier than gaining access to that geography initially. If you think about this one, this is kind of an up/down, left/right type strategy. We've got very fortunate. When we saw it, obviously, for us, we felt like the financial side was very compelling and something we could manage very early on and make complete sense out of.
The long-term channel implications, cross-selling opportunities, and the ability to embed each other's tech, we thought, set up for a really nice play for us over a long period of time. Just a quick summary before I turn it over to Kevin. This is the PAC summary. If you look at what they're doing, you'll notice one thing, which is kind of funny. We've never had this before, but you have a business all of a sudden that has huge consumer focus, especially around the holidays. It's kind of wild when you're trying to predict a business talking about the Christmas holiday shopping season. As an automotive guy, we've never had to worry about, right? We usually view the world as like that may be the one week where no one bothers you if you're really lucky.
What's really cool about this business is not only the financial performance, but you look at that gross margin performance from where that came from pre-acquisition to where it's at now, and that, whatever, orange-ish, yellow line, that is actually net of tariffs. The reason why we say that, and their business is very unique in this regard. Tariffs in the automotive space—we all know the challenges. The tariffs hit. You're arguing with your customer base nonstop about reimbursement of it. Now, the one upside is if you get this figured out well with your customer base, usually it doesn't impact take rates too severely in the short term. PAC has a different problem. You're eating that cost right away. You do control the pricing to your consumer. The question is always, how are they going to respond? Does that absolutely destroy your volumes if you raise prices?
Does it stay the same? You would assume it lessens to some degree. One of the things that we've seen, the new tariff costs, when combined with a brand-new product lineup, we've seen great resilience from the consumer based off the new products that PAC has launched. One of the things that we're continuing to reinforce and work with them on is this is a different cadence in automotive. Every 18 months to two years, you had to have a new product lineup, new colors, new features, better performance. This is a constant innovation industry. We're excited because it does two things. Number one, gets us in, obviously, the financial opportunities that we know and love.
Number two, though, is that a little of the urgency of the consumer electronics space does help make our team internally quicker, more adapt, more agile as we respond to our OEM customers as well. I'll be back in a little bit, but I'm going to turn it over to Kevin, and he is going to wow you.
Thank you, Steve. Before I get started, I do say, you said you won based on score count, but I think there's many ways to measure winning in golf, and marketing is one of them
That's right.
All the balls we were using were Gentex balls. Andrew and Yash and I, we did our part of spreading most of those golf balls into the woods or around the course. I did want to say
You got a good hole out from 155 yards.
I did. I had a decent day. I do want to say kudos to Yash for actually first time ever golfing. I think he had enough stones to actually come out there and do it with us. He only drove on the green once. We were able to offset that. It was
You mean with the golf cart?
With the golf cart, yeah, exactly. He drove the cart on the green. Later I was like, well, he probably was a little confused because everything is super green out where we golfed. Anyway, good job. Good job to Andrew as well. He actually lit it up on the back half, and I fell apart. All right. Quickly I am going to go through gross margins, talk about some of the headwinds that we have been experiencing so far. Talk a little bit about that and then transition a little bit to a little bit of a history lesson on kind of our financial profile. Yeah, as Steve said, everybody knows what we printed in Q2, 37% gross margins, up 280 basis points from last year, same time.
Obviously, a lot of that had to do with the benefits from the IEEPA refunds that we received. In total, we got a little over $38 million as refunds from previously paid IEEPA tariffs. About $18 million, $19 million of that came back through cost of goods sold reductions. The rest of that either reduced inventory or reserved against what we owe to customers, which was a pretty small amount. That was split pretty much evenly between Gentex and the PAC side. They had an outsized gross margin improvement because of the size of the business on the PAC side. The rest of that is really driven based on favorable product mix in our core markets. Not to belabor, but to support Steve's point about where the value is from our business continues to be in advanced features and new technology.
We have talked about it for the last couple of years as we have experienced headwinds in China, with that business being over $200 million of sales and this year ending somewhere closer to $100 million, that the margin profile of that business, because it is primarily base interior and exterior mirrors, was much, much lower than our advanced features. The case in point is, if you look at our gross margin up 50 basis points, even sequentially from Q1 to Q2, it is a continuation of that story of weak base-mirror shipments. Which on a headline does not look good from a volume perspective, but gross margin expanded by 50 basis points on sales in the automotive part of our business that were down 3%.
I would say over time, if you did that same play five years ago or six years ago, if we had that same thing happen to us on sales down 3%, margins would have been down; we would add a decremental margins of 40% to 50%. In this case, you saw margins expand. I think it is just a support of our strategy is we are not just taking business for market share's sake. We are looking at every business case, every economic situation of mirror growth and saying, "Do we want to accept that business at low margins, or is there other places that we can put our investments?" On the operational execution side, that really is driven by our internal teams. We have about 10%, maybe 15% less operational team than we did at the same time two years ago.
We have more throughput, more effective throughput, less scrap. A more seasoned workforce, which is what really has contributed to that. A continued financial discipline of spending appropriately for the size business that we are. On the next slide, I will talk a little bit about the offsets to that, the higher commodity costs, which we have been experiencing. For the last three years, we have really been pushing our annual customer price reductions down significantly. As you start to grow, as your book of business starts to grow, that stuff starts to come back, but it is still well below what our historical averages have been. When I talk about historical averages, our APR to our customer base has historically been 2%-3%, as high as 4%-5% in the mid 2000s, early 2000s.
In the last two or three years, it has been closer to zero and sometimes increase. Right now, we are still in that 100 basis point range, 100-150 basis points. As I already mentioned, lower revenue from our core automotive business. We are not trying to make you tariff experts, but just trying to give you a little bit of a scope, and we wish we were not tariff experts either. There are several different tariffs, Section 232s, IEEPA were in play. Once IEEPA were ruled illegal, which was odd, we stopped expensing them, but immediately after that, there were these temporary Section 122 tariffs, which effectively were exactly the same rate as the IEEPA tariffs that were in place. Those really took place from end of February till end of July.
During that same time, the government was working on these, what we are calling "flip tariffs," which is forced labor investigations on Southeast Asian countries, basically every country on the planet, to then eventually replace the temporary tariffs, which only lasted 150 days. As of now, maybe something happened this morning, I am not sure, but the flip Section 301 tariffs have taken place, and those are in the similar range of 10%-12.5%, but there are more countries involved than there were in the Section 122 tariffs. That is why there is a little bit of an impact to us. The rates are a couple percentage points, but the broadening of the region. There is really nowhere to hide as it relates to moving from China to Vietnam or Vietnam to Malaysia. There are tariffs everywhere. It is just a matter of where your volume is coming from.
Based on all that, we are seeing about a $5 million-$10 million impact on increase in tariffs. If you were to annualize that on a full year of 2027, we will have an incremental call it $5 million-$10 million of tariff impact on our book. To put that also in perspective, we have about, since the beginning of tariffs in 2018 and then the change again in 2020, we are carrying about $60 million-$70 million worth of annual tariff expense through our cost of sales today. Some of that is getting paid by customers, through the government programs of getting reimbursed through CBP directly or our increased piece price. Some of that, we are still bearing the cost of. As Steve mentioned on the PAC side, they have been able to raise prices and not see an overwhelming reduction of demand.
But regardless, we are still paying a lot of those tariffs. As these things start to ramp, these conversations, unfortunately, we have seasoned ourselves on how to get through them and recover them, but it is a lengthy process, and it takes a good portion of our commercial teams' negotiation and discussions to get some of that money back. Precious metals. This is another one that I am not trying to make you experts in how we make glass elements, but this has been a real headwind, really starting in the first part of this year. We always battle a little bit of headwinds historically on our ruthenium, as that is a precious metal that there is not an infinite supply of.
And so you can see on the charts, it is a little hard to read, but if you look at silver, gold, and ruthenium, if I look at the scale of what we use, we use more silver than any of it. So the escalation of silver prices from late last year to around $20 a troy ounce to as high as over $100 a troy ounce caused a significant headwind basically overnight for us. The ruthenium has been more of a slow death by a thousand cuts. We have been using ruthenium in our coating stacks since the early 2000s, and we went to that as a result of a prior chem.
Rhodium
Rhodium. Thank you, Steve. That had escalated to over $6,000 a troy ounce at the time. So we had a benefit of that savings back in the 2000s, but this has continued to escalate as first hard drives started to use them. Then now with the data centers and all the electronics in there, that has created a scarcity issue on ruthenium. So with that all being said, at one point during the first quarter, we were staring at a $40 million headwind in the face. So our teams obviously went to work. It was one of those things like with oil prices at $50 a barrel, no one is interested in drilling in North America, but when it is $100 a barrel, everybody is interested.
So our teams scrambled, started working on what are ways to reduce our exposure to both silver, ruthenium and, to a lesser extent, gold, because we do not use nearly as much gold. But a lot of our competition does not use this similar stack-up. We have the best-in-class reflectivity, and it is because of how we do this. So they have been really working to, one, use less of it, find ways to reclaim it; and, over time, figure out how much of some of these precious metals we actually need in our stack to still be competitive in the market and have the best. So what I can say today is through a little bit of about a third of that reduction from a $40 million exposure to the has been because of those initiatives.
Some of the rest of it is because silver and gold have retrenched from their high prices of the year, and we still are actively working on another $10 million to $15 million on an annual basis to reduce the cost. This is a significant headwind that is kind of embedded in that margin still expanding. Sorry, I said a lot. "Electronics"—that's the word of the day for everybody. Obviously, everybody knows that with the data center usage, electronics are under pressure from both on a supply side basis, the scarcity issue, but then the cost side. We are going through this right now. People are starting to push to change commodity costs as we are going through lifetime. Most of the time, we settle up annual contracts with our supply base. With the electronic side, they are pushing for cost increases now.
Nothing to share on exact economics. Once again, this is similar to the 2022, 2023 situations, where we are going to quantify the costs. We expect to pass these costs through to our customers. Whatever cost it is, we plan to get paid back. However, from a timing perspective, usually there is a little bit of lumpiness, meaning you have to secure supply, we have to buy components, then we go through the work with our commercial teams to quantify that to our customer base, then they argue and whine and roll around on the floor, then they do not want to pay. Ultimately, that's their job and that's our job is to get that reimbursed back.
There is going to be some timing differences as we start to have some of these cost increases impact us in the back half of the year and into 2027, then the revenue that we would get back over time. We will get a little more clarity as some of these things come to fruition. Enough about the mechanical side. This is kind of that history lesson that I wanted to point out and talk about from a valuation perspective. The thing that's really never changed for Gentex is our cash generation. If I just quickly look at, start from the top chart, revenue, I picked 2020 just because it was a good point; otherwise, it would be way too busy. Revenue in 2020 was about $1.7 billion. If I look at our gross margins there, it was peak margins as well.
Then if I look at EBITDA and operating cash flow, we were a little over $500 million in EBITDA, about $450 million in operating cash flow. If you trail down from an earnings per share basis, we were at about a $1.41 EPS. At the time, the stock was trading at $34 a share. This is where that valuation starts to come in. On an EBITDA or even a PE basis, if you look at that, we were trading at almost 17 times EBITDA and about 25 times on a PE basis. What we have done since then is grow from a sales perspective. This year, if you look at a trailing 12 months, $2.6 billion in sales. As we alluded to, our guidance shows $265 million to $275 million from an annual basis this year.
We are going to land somewhere in that $2.7 billion range. EBITDA on a trailing 12-month basis over $600 million, $620 million. We estimate that we are going to land somewhere in that $650 million from an EBITDA, maybe a little better than that. Then operating cash flow is right around $600 million. We have very little differences between our EBITDA and our cash flow just based on depreciation and CapEx cycle. Then EPS on a trailing basis of almost $2. This year we expect it to be around $2. What that ends up being is the stock price has traded down. Obviously, everybody is here, not to belabor it again, to $24. We are trading at half the multiple that we were even five years ago and probably at the lowest that the company has seen in some time.
What that lends itself to, and we will get to the next slide, is what do we do with all that? This is a busy chart, and we talked about it, we show it in our investor presentations. To put this into perspective, that 10-year run on operating cash flow is $5.2 billion. This slide represents $4.2 billion of it. Over 80% of our operating cash flow, we return to shareholders through dividends and share repurchases. Obviously we prefer from our vantage point, the dividend has been in place since 2003. It is when it was more tax efficient to do so. At one point, it was almost 50% of our operating cash flow, and now it represents less than 20%, and we like that.
But we also are, as net income does grow on a pure net income basis from our high, we are dedicated to looking at that from a, do we increase that? But right now, given the stock price, the yield is actually quite attractive. Over 80% return to shareholders in a 10-year period. I should add a little bit more color to that. This really took off here. There is a point in time prior to this, Steve was the CFO, Chief Operating Officer, a list of 27 different titles, but he didn't really have reins over the capital allocation philosophy at the time. Since 2018, when he took over, this was part of breathing for us. This is how we operated.
We knew that we needed to return excess capital to the shareholders because if you go back to this 2013 timeframe, we were sitting on over $600 million worth of liquidity on the size of sales we were. We didn't really have a strategic way to articulate what we were doing with our capital. It wasn't a very straightforward policy. Since Steve has taken over the reins and we have had this leadership team, it has been core to what we do as part of our strategy from a growth perspective. I already mentioned it, but our priorities—we don't talk about it in this list, but research and development obviously runs through the income statement.
It's not part of our capital allocation per se, but running R&D at twice really what any other automotive supplier is to continue to feed that funnel for growth into the future is one of the main priorities. Capital expenditures to support those new products. We have talked about it before, and I think when we start talking about some of the new business ideas, EC mirrors and LAD and SAD and all the things and the new products that were visors, they are very capital intense. We end up spending anywhere from $75 million to $150 million a year in capital to support the growth that we have. Dividends, as I already mentioned. Then M&A. We are few and far between on M&A targets. We look at things that are of value. The VOXX acquisition was a perfect acquisition.
We paid for it with the own book value of its assets, and we are starting to see the return from that. We like things with shorter return periods so that we can start to actually make money on our investment sooner. Then share repurchases. I already touched on all of it, $4.3 billion of returned capital. Then we still have about 30 million shares left in our available plan that we plan to spend over the next two and half years. What does that translate to? As we start to go into next year in 2028, 2029, 2030, and we start to see sales growth that is in that 500 to 700 basis points above market or getting high single-digit growth pure.
With our financial discipline, meaning if we can hold margins or expand gross margins and we can hold our operating expense growth to below sales growth, which has been our target all along, you start to bring that net income growth to call it , mid- to high single digits. At this rate, 30 million shares over two and half years is a 5.5% reduction in share count per year. Now we have about a 1% a year of dilution from our equity plans. Call it 5%, 4.5% to 5%. If we can print 6.5% or 7% net income growth every year, 4% to 5% EPS growth, we are talking about double-digit earnings per share growth. That is the formula that we have been talking about for 10 years and everybody yawns about. Regardless, it is the repeatability of it.
We continue to present high levels of cash flow, and we return that 80% of that back to the shareholder base. That is part of the story, is we are going to continue to do this over and over and over again. Then as we start to print higher revenue, we think that there is a turning point from the stock price perspective. With that, I am going to hand it over to Neil to talk about what is going to make that happen. Thank you.
Right. Good morning. Everybody still awake? All right. Outstanding. I get to talk about the fun stuff. We had a little bit of discussion around cost increases, components, ruthenium, other materials you've probably never heard of or don't care about. One of the areas that we target a lot, unfortunately, we learned this five years ago, is component shortages. Costs go through the roof. We learned how to get really efficient at doing redesigns or finding ways to pull that cost out. What you'll see here is the areas that we're really focused on. Kevin hit precious metals. We have a lot of work going into how do we use precious metals. We never thought about silver as a problem. Silver at $20 a troy ounce was inexpensive. As that quadruples, we had to find ways to get rid of it, eliminate it. The team's done a phenomenal job.
We're a quarter of the way to where we need to be. But we've got plans on how we're going to get that cost out, which even as silver comes down, will still benefit us in many ways. Some of the other areas, how we memory. This is one of my favorite ones. DDR. You can see the space, what's changed in the market. We've got some really cool products coming out, FDM 4, I'll talk about a little bit, that has no DDR. For the other ones, we've got multiple supply channels that we're working on. There's the big one we use today. Their costs are going to go up continuously. We kicked off 50 weeks ago, an alternate supplier. Another 70 weeks from now, another one comes on board.
We have plans on how to design out and drive ultimate sources to mitigate the cost but also keep the supply chain moving forward. We've got a lot of activity in here. We're doing this all within the current R&D teams, research teams. It's just more of who we are today, based on the last five years of evolution. Again, unfortunately, but it is what it is. We've got a lot of cool products. Innovation is lifeblood for us. The charts showed you earlier, volume's decreasing, the revenue side's increasing; it's all about product. It's product and content. Full Display Mirror: again, we've talked a lot about that. Significant launches. One of the things we're pointing out here is we're actually now on the F-250 at Ford. It started as more of an accessory. We've been working with Ford for a few years on that.
We're currently on the Transit Connect at Ford. This is in the Bronco. This is kind of the first expansion for Ford into more of their high volume. We're really excited about that. We see some great growth potential there. But FDM continues to expand even beyond where we thought it would initially. We talked a little bit about its growth curve. I think you'll see as we talk about other features like visor, how we see the potential for those products as we go forward as well. Driver monitoring—we talked about this in the last quarterly call. Hyundai, Kia, BMW, initial vehicles are launched. The thing hopefully you've seen with us from Full Display Mirror and other technology platforms, it's not just one vehicle. We don't do a technology that goes on a car and never deploys on other vehicles for that customer.
It's usually a rollout strategy not just driven by us but driven by the customer. These products are architecture-driven. You can't just add it really simply because you've got cabling; you've got communication to the vehicle itself. So it's got to be a planned strategy. As we see these, and Steve showed the chart on driver monitoring growth this year and next, you'll see the continued deployment of the four platforms that we've executed over the next couple of years. One other thing that I'm super excited about. This is all about innovation. It's about technology. We're a finalist for the Automotive News PACE Award, which is an automotive award for technology and what's driving technology. We're one of 32. You're going to see this line today. It's not running full production because we're in the early stages.
Our product goes to market at the end of 2027, will be our first launch. But you'll see that we've got the capital in place. We've got one last piece of equipment that comes in December. Otherwise, that line is ready to run and build product. We'll be validating in the first part of the year, and we'll be ready to ship production at the end of the year. But really excited about where this technology is. The interest in Dimmable Visor, and again, we'll show you a chart when Steve wraps up, the interest in this has exceeded what we thought it would be. It started off slow, got some initial interest, but once we got the product at CES and people started seeing it in cars and we started demonstrating the actual use case and the value proposition, the interest really increased.
We're excited to get that first one deployed late next year. We expect a couple more customers within the next two to three quarters that we can get on board. Premium Audio Company. So that's our automotive side. We also talk a lot about non-auto. These guys have been doing a great job executing new product strategy. Since last year when we acquired the company, a lot of investment, a lot of support and capital to do new product lines, conversion of products to refresh the brand, hiring of resources to make this a successful execution. Just great execution by this team, and you've seen it in the charts on the growth side of it. Launches. I'm not going to read through them, but this is very different space from our standard automotive.
It's actually a space we're excited about because it creates a very different channel, like Steve said, a different product portfolio. But from a development side, we're learning a lot on how consumer products are executed that actually can help drive on how we execute faster in the automotive side. Speed is becoming extremely important, right? We're really good at it when it gets into VAVE, component shortages, execution there where customers pushed or forced to execute quickly. You learn a whole different channel when you start working in the consumer side, and that's really helping us to reevaluate how we execute to become more efficient. We have to get faster in all parts of our business. Another part, and you're going to see some tours today, just a couple of pieces on machinery and equipment.
As we work on how we automate and bring products back to the U.S. in manufacturing, we will talk about this a little bit from electrical manufacturing, even with our core technology manufacturing here in West Michigan, automation is a key part. Labor rates are not going down, right? We need to be thinking that 24/7 manufacturing capability to leverage the capital that gets put in place. We will walk you through again on the tour. You will see some of our large-area dimmable devices, visor processes, and infrastructure we put in place. We will walk you through our wet coater, which makes films for large-area dimmable devices. We will show you what we put in place and why. We are doing a big move right now as we get ready for the electrical manufacturing process that we want to implement, right? Contract manufacturing.
We are combining a couple of our mirror final assembly plants to free up some space but also to optimize shifts. We have a lot of plants working in first shift, second shift. We are doing a big consolidation here in the next six months to try to leverage first, second, and third more so that as we implement automation and material handling robots, we can leverage that capital greater in one facility than trying to do it in multiple at the same time. And again, multiple automation processes and mobile robots. I have got a little video here for you that I will talk to as it is playing. This is one of the things on VAVE or value add value engineering. What you are seeing here is we used to buy small pieces of glass from a supplier. They were pre-cut for us to handle.
We now buy large sheets and put robots in place to cut them down. That was a significant cost savings for us on raw glass. These are some of our robots doing some of our glass and element products. This is the material handling robots. Normally, we would have people pushing these carts down the aisles. So what we have got is a system where these robots are connected. They know where to go in the warehouse, what rack to pick up, which line to take it to, and it reduces the, one, amount of people that are pushing carts, but two, it actually puts those people back into the warehouse where they are getting material ready versus walking material out to the line.
It is really simple automation, and as I mentioned, bringing these final lines into a single facility, leveraging those robots, and setting up the plant to be more automated will be a key to the success of how we execute that. It is kind of cool. Sorry, it is a really quick video, so I am going to play it again just because it is kind of fun. But this is the large sheets. Again, pulling large sheets. It is a strip cutter. It cuts it. Great cost savings on bringing in raw glass, plus opened up our supply base for glass because most suppliers have been providing big sheets. These are, again, robots we use in all of our automation processes for glass processing, cutting, grinding, polishing. Then there is the automated robots, material-handling robots, moving material around the plant.
All right. Fun. That is the best part, right? That is cool. That is cool stuff because at the end, automation is really important to be competitive. If we can automate, we can compete against anybody. Morocco, I want to touch on this. We talked about this in our last call. This model, if you are familiar with our Gentex (Shanghai) Electronics Technology facility and how we set that up to be a final assembly operation back many years ago, this will be a very similar process we will do here. Leasing a building, setting it up to do final assembly glass elements. Our core part of our business will still be produced here in West Michigan and then shipped to Morocco to be assembled into final mirrors of various technology levels.
The big part about Morocco is they have some great relationships with the EU, and based on content, the amount of content you add, you can actually change country of origin to be Morocco instead of being stateside. That is critical for two reasons. One reason we are doing this is we had a lot of customers in the European side that as we talk tariffs and geopolitical stuff, they are not excited about all manufacturing being in the U.S., not knowing what tomorrow is going to bring, what new tariff is going to happen, what type of conflict is going to be created. So in order to get it up on the top of some of the first RFQs, we needed to have a footprint in that market to support that business.
Morocco was chosen after a long search and looking into Eastern Europe and other parts of where did we think we could set it up, support, supply product to, supply product from, and get the greatest benefit of for the smallest amount of capital investment. We talk here, it is about $10 million-$15 million to get started. Again, leasing a building. We have capital here from final assembly lines that we will refurbish and that we will be actually providing and sending over to support the buildup of various products. Everything from our lowest-end base mirrors to the potential of although we going up to a full-display mirror to support that market. A couple of really fun things that we do. Steve was a big driver of these next couple items. This one here was driven by COVID.
Come out of COVID, 2020, 2021, lack of resources, lack of labor, couldn't find people to work. In West Michigan, we have a large Hispanic community, and part of it, the problem when getting them into the workforce is they are not comfortable with English. We started a program called Limited English Proficiency, where the drive was to find people that wanted to work but maybe struggled or weren't comfortable speaking English. So we set up a whole program around Spanish speaking. Ultimately added up to 200 people in this process where we changed the lines and the work instructions to be in Spanish to help them be comfortable to execute their job. We put managers over them that were bilingual, that could help them bridge the process. This was a phenomenal project and success for us, and it is still strong today.
74, 75 people were actually really good at speaking English, just weren't comfortable. Once they got into the process and learned, we actually were able to move them into other parts of the organization to be able to fill their spots with others that weren't comfortable. This has been a really great program for us. It really was driven out of necessity to find bodies, but what we've got in the benefit of it was far exceeding that. Another one is our preschool. Again, coming out of COVID, hard part is finding workers; s ingle moms, single parents, single families had an issue in finding daycare. Or daycare was so expensive that they couldn't go to work. It was cheaper to stay home than pay daycare. We actually worked with a local company to do an outdoor learning-based, nature-based preschool of sorts, where we built the facilities.
We offer it to our employees. This other business runs it for us, and it's a great benefit for our team. It helps put people into daycare situations for our employees, which actually helps the community even more because it frees up daycare positions in other parts of West Michigan. Summary. We are a product and innovation company. We touched on it just briefly, and hopefully, as we do the tours, you'll get a better feel for how we drive that innovation. Our innovation is what's driving our growth. As volumes are dropping, mere volume drops, you are seeing sales and profitability growth because of the technology and the features that we've invested in the last five years. We don't see that changing. That's our philosophy. That's who we are, and we're going to continue to do that. Q2 is our highest level of non-automotive revenue.
14% of our revenue was driven by non-auto. Obviously, Premium Audio was a big portion of that. But we see that separation as a big part of our strategy as well. Steve will touch on this more as we see the overall pie of our business grow. We see how that separates out, and that non-auto is an important part for us to keep some good balance. The last one is we see our business growing in automotive. It's not that we're going to give up on automotive. It's not that we're pushing it aside. Automotive's going to grow. We're going to drive growth through innovation and technology in automotive. We're also going to grow in our non-auto. The overall pie of our business is going to continue to evolve and grow.
With that, trying to get us a little bit closer on time here, I'm going to hand it over to Steve.
I felt that jab.
Semi-subtle.
Exactly. Just to make it worse that I am backing up.
No.
I showed this at the PACE conference because they were trying to figure out who we are, their customers. You start talking about the culture of the company. I pride myself very much on being financially, fiscally conservative organization. If you look at the bottom half of our income statement, we have a very thin executive team, very thin management team. Very proud of that fact. This is one of the few times in my career I got scope creep. If we are going to go over to what we call our North Riley Campus, a couple hundred yards past the building you are going to be in is where this is located. This is wild. Not very many things want me to go back and have kids again, but this is pretty cool.
But each one of these play areas that you see here are designed around a one-year gap. Zero to one to two to three. They are separated. They have their own play areas. My son actually went to this before we built ours, and their whole concept is you are outside all the time. Kevin, you are on the board there. If you are above 20 degrees, I think you are outside. Rain, snow, whatever, you are outside. Out here, there are paths through the woods. Just outside of this area you cannot see, there are fishing ponds. This is a greenhouse where the kids grow plants, vegetables, their own stuff.
So each of these are separated for these kids. This is pretty funny. These are outdoor learning areas. They are little blocks of wood basically built into an outdoor environment where all the kids can sit, teachers can teach them. Inside learning areas, obviously.
Play areas that are age-specific. This is funny about this. It is like you go out there to the one to two years; there are little stools. The picnic tables are all this size. It is kind of hilarious. What is really cool in the center part, on really bad weather days, there is actually a big interior building with a rock formation and a live stream. Kids are inside now in a replicated outside environment. We offer this all at a discount to our employees. We help cover the cost of daycare for the employee base.
Kind of interesting; when we were having the labor shortage, we announced this. In Michigan, you have EGLE, Environmental Group, and they always slow things down drastically. But we had a lot of employees leave their jobs to come work for us just because they wanted first access to this when it did come online.
Really cool. It is a world-class facility. Little on the expensive side, but honestly, it is worth it. The one thing I think that was incredibly innovative—I do not know of anybody in the state or region that actually did this. When we started down this path, though, we were adamant that it was going to be offered on two shifts. We offer both our first- and second-shift employees childcare. The question you always get, which is a fair one, which is, okay, walk us through how do we get from 2026 to 2027 and the revenue guidance that you have suggested. We cover this a lot in conference calls, so I am not going to belabor it too much.
But if you break the world down into the three biggest buckets that are going to help us get there, $50 million in FDM growth, $50 million in DMS growth, and $50 million in growth from other areas. That is kind of the baseline. If you look at those numbers, there are some puts and takes inside of each of those, obviously, but we are still bullish on FDM opportunities. We think we have the track record and the forecast from our customer base that supports that level of growth. This is in spite of some of the volume challenges. We talk about the second half of this year, really starting in Q2; there are some volume challenges on the base EC side.
2027 is going to have some continual declines in total unit volumes, but it is still going to produce a net growth year based on the dollar content associated with electronic features. Then obviously at the very end, Neil mentioned this: at the end of 2027, we will be launching our first visor application. As I flip to this next slide, this is the type of data you have not seen out of Gentex before, right? I always joke we are pretty Midwestern, elbows in tight. We tend not to talk about the products. We tend not to put a vision out there too much. We want to do a better job today, especially of talking about where we have been over the last few years.
I think Kevin's slide, if you look at that, on pretty much every financial metric, we feel like we've hit our targets and accomplished what we meant to. There's no doubt the industry has had its challenges, but we've persevered in pretty much every area despite that. I always joke; I was talking to a couple guys last night, and one of our philosophies in life is this is not a football game. There is no end zone in this world. It's a treadmill forever. One of the things I think the last seven years have taught us is that the challenges we've learned, and Neil talked about a skill set that, God forbid, we actually had to learn, which was how do you deal when there are no components, when there are no people, when there are nonstop tariffs or other challenges.
Unfortunately, we've developed a skill set that none of us thought we needed seven years ago, and unfortunately, it becomes just like anything else. It does define you as a core competency at some point, saying we're actually good at dealing with chaos. I would love to see what we could do if there were no chaos, but the harsh reality is this is the world we live in. It's not going away. One of the things we're looking at, and we talk about this chart, and I talk about this. Think of this as an n plus chart. N is the year at SOPs. For visors, in this case, 2027 would be N. Then you start talking about, okay, what does a 10-year growth trajectory of visors look like?
We're trying to book in here a low-end case and a high-end case of what we think visors will look like over this next 10-year period. I say it this way because I was talking about a 10-year vision that started 2022. It was going through 2032. This is different. This is like once you SOP a new product, what could that growth look like? We modeled a couple different scenarios here. For visors, you're looking at $100-$150 each if you're talking about baseline visor. You'll see that. Neil and I are driving the same truck, and I do that for a safety reason; just in case somebody gets mad at me and there's a 50/50 odds they think it's me and they get Neil instead.
He and I have been driving visors in our trucks, and I would tell you, one of the things—the concept of this product years ago—I loved. I was not sure the efficacy and how valuable it would be to a consumer. We've been driving it for—is that nine months now or so? I don't know when they installed that. I would tell you in my pickup, I leave it down all the time, day and night, whether it's sunny or not. It is a really, really cool product, and once you get comfortable with it, the concept when I jump in another car when it doesn't have one, I'm like, "Man, this stinks. I miss my visor." We believe the value here could be very similar and growth very similar to what we experienced over the last 10 years with FDM.
We wanted to book in that. What does that mean? The baseline visor, the one Neil and I are driving, is actually a higher-end version. A baseline visor is just dimmable. You can control the light aperture of it. You can manually control what state it is in, how clear to how dark. The one Neil and I have is actually the one that also includes the embedded mirror, which is a polarized reflector. We first year at CES, we showed this. One of the things we love about CES is you get this kind of feedback, which the engineering side of us goes absolutely berserk over. All the customers are like, "Well, what about the vanity mirror?" We are like, "Who gives a rip about a vanity mirror? You have a phone. If you want to look at yourself, take a selfie, for God's sakes.
What are we doing here? " We bring it back. The engineering team comes up with a new concept. The polarized reflector is really cool. Literally, with the push of a button, it is another layer and chemical technology stack that goes into the visor. Push of a button, the entire surface actually turns into a mirror. That one obviously is a different price point. You will see the different when we talk about these different price points, $100-$150 each, or $200-$300 per set. Down here, you will see a high-end version, what about a $200 ASP? That is if you want the vanity mirror application. Our first launch in 2027 is just visor without the vanity mirror. We see a lot of interest, and as we refine that technology, we believe there is customer interest in that as well.
If you walk this through, we talk about 2 million units. Think about this as 1 million cars. There is an outside chance that somebody choose to do just the driver's side. We think from an aesthetic standpoint, though, it is probably unlikely. Just from a symmetry and a design philosophy standpoint, most OEMs are probably either going to do two or do zero, right? That is kind of the way they think of the design of the car. But you start looking at what could that mean. 2 million units at $125 ASP kind of paints you around the bottom end. The high end, you start looking at some of these potentials, right? $200-$300 per set, the same type of volume. There is no doubt in our mind that typical, it is probably slightly above Gentex corporate average margin profile on that type of revenue. Pretty exciting business opportunity.
LAD. When we are talking LAD, we are primarily talking about sunroof execution. One of the things that Josh points out on this slide is we are not talking about side windows right now. That is a separate opportunity. We are really talking about overhead, and what could that look like from an LAD standpoint? If we model out, same thing, we are talking N plus 10 here. We do not have the N yet. We thought we would be there by next year, late this year or next year. We did have a customer delay in terms of wanting to launch, and we are working, and you are going to see where we are at in that process today. What you are going to see is this is not just R&D.
When we go on this tour, I think we moved that to this afternoon, but when you see that tour, you are going to see not 100% production -ready but way closer to production-ready process than probably what you are expecting. A lot of the work in R&D and capital that we have spent over the last three and a half years has been focused in this space. We believe this creates a growth opportunity that even is far superior overall longer period of time because of the time it takes to integrate this with multiple tier ones. The total growth opportunity of this is actually far larger than visor. When you look at the numbers associated with it becomes very exciting.
If you think about the modeling of this, typically on the substrate, the reason why we are talking substrate, what you are going to see today out of manufacturing is us making an entire sunroof. Our first program or two are going to be low-volume executions where we are going to do the glass lamination. We want to sell literally an entire sunroof because we know with our technology and what we want to do with it eventually, which is sell you a roll of film that different integrators can then take, guys who are already making sunroofs can buy that from us, laminate it into their product, and then we do not have the capital footprint associated with molding, forming glass all over the world. Instead, we can send rolls of our chemical substrate to them and work with them on how to integrate it.
The problem is you can destroy our product very easily, as we found many ways. We want to perfect that integration here first on those first couple low-volume programs. That way we know how to train, teach, and also work with other tier ones so we do not have to have that capital footprint associated with making sunroofs in all the geographies all over the world. What the economics we are talking about here is not what you are going to see today from a full sunroof standpoint. It is saying, what are the economics of us selling a roll of our electrochromic substrate? From a technology standpoint, the reason why this is taking a long time is we actually have a dual path, different forms of technology, but there is a couple different factors we had to drive.
Why visor is quicker is it is a solution-phase electrochromics like what we have used in mirrors and what we used in aerospace windows for the last decade. We still had to create some new chemistry and some new coating stacks, but it is far easier than getting to what we are doing in a large-area device. Large area device was our first time, and the reason why electrochromics have always been on glass is because it is not oxygen-permeable and it keeps out humidity. We know the concept had to be we had to be able to sell this on a plastic substrate in order to work with the forming and what needs to happen in the industry. Imagine the entire history of us doing electrochromics. It has always been encapsulated in glass. It has always been solution phase.
Now we need a thin film coating version of this that can exist on plastic and won't get destroyed by oxygen or moisture right away once it's encapsulated. The other part of this that's incredibly difficult and one that I think we all probably underestimated a little bit was one of the beautiful parts of why our chemistry works in aerospace so easily is it's only darkened when it's accepting power. If you remove power, it defaults to clear, which is a perfect safety feature for aerospace. The problem is in automotive; one of the desires from the customer was to stay in the darkened state even when the car is off. You park at an airport, you want it to stay dark, hopefully to prevent sun loading into the vehicle while you're away. Obviously, our chemistry has never done that.
Not only are we trying to get the chemistry and having to reinvent it to get it onto plastic, but we've also been having to recreate a technology that would include what we call memory or memory EC so that it would stay in a given state without any power consumption once it reaches that state. These are all chemistry and applied materials problems, and I would say we're not 100% of the way through, but we're probably 85% of the way through the engineering and invention phase and moving on, and what you're going to see here shortly is how do we actually vertically integrate. Our process throughout this entire time because it's chemical coating process is something brand new for us. We've been using third-party toll coaters.
Part of our R&D expense that you've seen over the last several years is us flying our chemistry down to these locations, taking time and renting time on their machines with our team to try these coatings out, to try to perfect that process, and then obviously the testing side. The one thing I will point out, when you start testing these types of products, what's wild about it, you're talking about 2,000-2,500 hours of thermal cycling to verify that it's robust. You can do the math on 2,000 hours. Our first products would fail within a couple hours. That was at least nice in that you knew right away you had a problem and you go to work. As we advanced this technology over the last couple years, you're 1,500 hours into cycling before you even know you have a problem.
Now you have a failure; now you have to go try to solve it, fix it, reinvent something, and then unfortunately throw it back into thermal cycling for another 1,500 hours to see if it gets through that gate. I think we're up to most of our stuff is getting close to the 2,000-hour magic number, where it's an advanced cycling; it's a very rigorous process. We're getting really close to what we think an OEM would require in order to have something that we believe would be production ready. Now, the upside. You start looking at this: $100-$300 per square meter of a substrate is what we think the market can absorb. You start talking about what this means from a high-end standpoint, 2 million units; you're talking about anywhere from $200 million to $500 million is potential revenue just off of that volumes.
One of the things you are looking at here is we're talking about fairly small versions of this right now. As you start thinking about panoramic roofs and you start talking about side windows, this number explodes in terms of potential. One of the interesting factors here is the initial interest was driven by EV. The reason for that is batteries going underneath the car, the seats move up, the headliner moves up. Now suddenly your range drops from an EV standpoint, especially when you start talking about everyone has movable shades and things to try to get to a real dark environment.
What our product offered was the ability to remove sliding shades and then save an inch or so of headroom out of that vehicle, meaning you could drop the roof line of the whole car by an inch so that you could have a fully clear, fully dark environment, which is what the consumer was after. That was the initial drive. Well, obviously with the slowdown in EV execution, the new transition, though, is driven by autonomous. The concept of what this creates, a greenhouse effect where you in a fully autonomous vehicle, regardless of powertrain, will have the ability to control what is light aperture into that space. If you want it fully clear, you can have it. If you want it fully dark, you can have that as well or any state in between.
We believe this rollout ties really well with both the EV space and the fully autonomous space. In the near term, the motion is driven purely by sunroof and side window execution. In this model, we're not talking about side windows at all. It's purely just the traditional sunroof execution. So a lot of growth opportunity. You've heard us talk about it a lot. We want to show you today that we're closer than ever and feel really comfortable where we're at from a getting this ready for, I always call it the big time, but getting it ready for showtime as it relates to full deployment with our customers. So you heard us talk about this a lot. I'm going to fast-forward real quick. I'm going to show you a quick video. It's really just showing you what do we do.
We build a lot of circuit boards. We've always done this. Today, we're not going to spend a lot of time walking through it. We're going to show you this video instead. If you really want to see it, at the end of this hallway is one of our three EA facilities. This video does a quick, I didn't know you guys did this, which is funny, but a drone flyover inside of the facility, which I don't know, hopefully you weren't driving that, Josh. No, I didn't because I know you think you're a gamer, but we already build over 40 million PCBs. Obviously, the first step in this, with some of the reduction in volumes, we do have some capacity that's been opened up because of the reduction in volumes. More importantly, there's a huge drive from several OEMs and other industries to look at onshoring electronics manufacturing.
It just so happens we have and are committed to a capital footprint in the U.S., especially, not just North America, but especially in the U.S. One of the big conversations is the risk factors around USMCA and where does that all go and end. There is a lot of attention, not only on the national security side, but also on just a de-risking of electronic supply to have that in the U.S. market. Then number two is the tariff situation actually creates a little bit of an offset to some of what you are seeing. Typical industry, you got 20%-30% markups over bill of material. That is the value-add portion of doing electronics assembly. If you are doing that at a value add in the U.S., obviously, you do not pay tariff on that incremental 20%-30% of value add you are creating.
You might have the same tariff exposure on the raw components, but at least you save the tariff on that portion that you are doing value add in the U.S. market. So this is a quick video. Is this a double click, Josh? Sure. So this is one of our three facilities doing EA work. When we talk about the contract manufacturing piece, and you will see on that back wall, there is a lot of the, not all of them, but a lot of our customers' flags. This is what we are looking at right now as taking advantage of and executing in the space. We believe in the Q3 conference call, we will be ready to announce that first program award and have that one locked and loaded. There is a lot of interest in the space right now. So we are excited about what this is.
This has been a core competency of the company for a long time, and we are looking to expand that. So roll it all together. What do we see? We paint this out, like what do the next 10 years look like for us? As a business, this is what we believe we can accomplish. I always like to joke, like you will see on the bottom end of that is probably a little too Midwestern of us. But at the high end, what you will see is really what we believe the potential of this company truly is. Honestly, it could be even higher than that, but we are in Silicon Valley. We are sitting in nowhere, Michigan. So this is kind of our approach to life.
But if you look at this $2.5 billion-$3 billion core automotive business, I believe that PCB business will be $1 billion-$2 billion without breaking a sweat. The thermal visors, large-area dimmable devices that we already covered. We also believe there is a great growth opportunity for the PAC team. Having been underfunded and underdeveloped for a lot of years, we believe there is a lot of brand opportunities. The Klipsch and Onkyo brands are very powerful. The Integra brand is extremely powerful on the commercial application side. We think there is a lot more opportunities ahead for the PAC team. Then this other category that Neil spent some time on, aerospace, fire protection, biometrics, consumer. This is not an overly egregious or outlandish estimate of where we think we can go.
If you look at where we are at already, we are, I would say, 40% of the way there with our current product lineup. We believe there is a lot more opportunities outside what we are doing today to be a more consumer electronics-focused company as well. Roll it all together: $4.5 billion to $7 billion. You start to de-emphasize; even though we are doubling down in the automotive space, you start to see exposure into other industries that will hopefully drive a more appropriate manufacturer tech company type valuation. I am going to end quickly with just a video that we put together for the PAC presentation. There is that one slide real quick that I am going to finish with, and this is regardless of that 10-year-out and plus-10 stuff. When we built that 10-year plan in 2022, what we identified, we thought, was achievable was this.
With the products we have in place, the launches we are executing on right now, the financial discipline, and the cash generation, we believe 2032, our goal is always to be a $10 billion enterprise value. Obviously, if you look at what has happened the last couple of years and a lack of interest in anything automotive, we understand that. The harsh reality is we are going to provide the revenue, the cash flow, the cash generation. By any form of multiple that you value us by, this is what we wake up every day chasing. That is why you see us very aggressive on share repurchases right now, and we will continue to be, because anything that is not even remotely in that state, we view as a huge buying opportunity. One of the things you will see is about this team.
We believe we have the best innovative team in automotive right now. The harsh reality is when we are wrong about the strategic direction of a product or how the market response will be, we talk about our values internally, and one of them is grind, grit, determination. Even when we are wrong, we will force it to become true, whether that is through just brute force or changing direction and then working twice as hard to get there. I think, Josh, with that, you were going to moderate the Q&A or
Yep. I am just checking right now to see what we have got. If we can start with questions in the room.
You want us to sit at the Spanish Inquisition table?
I think the Spanish Inquisition can wait. No one ever expects it. If you want to head straight to Q&A side of things. Mark, you want to open us up?
Yeah. Thank you for the presentation and thanks for doing the bridge to 2027. You hit on a lot of the key themes and the growth drivers pretty specifically around FDM, DMS, et cetera. Could you talk a little bit more around potential headwinds you are also going to face? You spoke a little bit on the earnings call, and you alluded to lower LVP, but are there other risk factors investors should be thinking of? Other things you may be doing in that bridge to overcome some of those, like some of the challenges in Europe and just what potentially more challenges to LVP next year?
Sure. If you talk about 2027 specifically, they are pretty well-known headwinds, right? If you look at them, we walked away from a Volkswagen piece of business that, on a volume standpoint, really is about 30%-40% of the volume drop that we are showing. We have a little bit more of that that will bleed into 2027 just as those programs annualize and some of those losses. That was primarily around the technology that Volkswagen launched around driver monitoring with Magna. At the price point they were at, we did not believe it was a profitable product at all, and there was no path to profitability. We chose, at that point, not to take business that would lose money. The other third of that business drop, or the headwinds that we are seeing is continuation of the low-end side of the European market.
If you look at the high-end vehicle side, content's actually holding up there just fine, especially with some of our launches on DMS and FDM we are seeing in the Europeans market. The base auto-dimming with the lower-cost manufacturers will continue to be challenged. The last third of that is really just kind of the China roll-on of the continual decline in the China market of our ability to compete there. It is really not about cost or pricing. It is much more about nationalism and Chinese domestics' desire to buy from other Chinese customers.
Okay. Where are the bridge of those? Because I think you grow $150 million or so to the midpoint. You talked about $50 million of additions. Where are those headwinds accounted for in the bridge?
Yeah, you are talking about probably, I guess, 1.5 million to 2 million units of headwind total at sub $20 ASP.
Okay.
You are really only talking $30 million, $40 million roughly, in base EC headwinds. The $150 million is really the net growth rate. Some of those are
Gross are more than that, but they are netted against a couple losses at the same time. That would be the net growth rate of that 50/50/50 that we showed.
All right, thanks.
Sorry.
No, go ahead.
Yep. Hey, Kevin, can you just help us out on the gross margin a little bit? I think on the slide you said 34%-35% is sustainable. But some of the commentary you talked about lags and recoveries on electronics and some other things. How do you think about gross margins going into next year? Then, I guess on top of that, how do we think about longer-term gross margins given the EMS business comes on at lower gross margins as well?
Yeah, as I mentioned, some of that is going to be a little bit lumpy as it relates to timing of reimbursement. So it is really about what kind of cost increases do you have in the first quarter versus what is your reimbursement cadence. So I think you may have a little bit of lumpiness, but I think we are trying to characterize our overall business on a steady state of with the addition of the PAC business, the VOXX entities. We had previously talked about 35%, 36% as our margin. Now we are blending it all together, and we still feel very comfortable that certain parts of our business are going to run at a higher gross margin.
And we feel like we have the ability to offset those things. So, I think inside of a specific quarter, I think you are going to see some lumpiness as it relates to timing. But that growth profile of the core auto business, we feel very comfortable with. But on the contract manufacturing, maybe Steve can focus a little bit. You can talk transition to EMS and what that might look like.
Well, the good news is that is not going to impact margins till 2029. And then the plan there is we are talking segment reporting. And so you will be able to break out Gentex's core business from the contract manufacturing piece and be able to value both of those separately, because that is ultimately what it comes down to, right? They all operate under different valuation models, and so we are going to do a much better job at trying to make sure you have insight into both those pieces. And so the blended, yes, will come down, especially as contract manufacturing grows, but you will be able to see what is happened to the core Gentex business, which we continue to believe will be in that 34%, 35% range on core Gentex-designed products. And you know how that contract manufacturing space works.
Anywhere from 8%-12% gross margins typically is what that industry pays. It is way capital-light in comparison to our core business. The amount of revenue we can drive off a much smaller capital footprint in the contract manufacturing space is very different than what, for instance, if we were going to get $1 billion in EC business; then you are talking probably $1 billion in capital investment to make that happen. If you look at just the basis of where we are at today and what we have invested in the business, if you start talking about contract manufacturing, as long as you have a building, you are probably, to drive $1 billion; you are probably $150 million in CapEx to get it in this contract manufacturing space.
Got it. I guess just to 2027, I know you gave a sales guide for 2027, but no gross margin. Should we think about that as some of those headwinds, you finding offsets to those headwinds for next year? Or I think midpoint this year is 35%. Should we think about maybe could gross margins be down next year? How do we conceptualize?
Yeah, I think it depends on the impact or the magnitude of the electronics piece and how quickly we can get those offsets. I think that's where the lumpiness and timing is. When do these things start to impact us from an electronics price increase perspective, and how quickly can we get some of that back? If it's all contained within a year, then I'd say you would have the better opportunity. But one thing to be mindful of is if we have a $10 price increase on electronics, the goal is to get $10 back. So there's zero margin on that. So you may see some dilution in the margin in the short term.
Quarter to quarter, it's going to be lumpy. There's no doubt.
Yeah.
Because you're going to get a price increase on the electronic side, it's going to be immediate, and you won't even get your customer to respond to you inside of that quarter.
Yeah.
You could have a quarter or two where you see a huge headwind on electronics or on a precious metals increase that you just haven't had a chance to negotiate yet. What you've seen over the last three years, though, is as we've battled through those, there's some lumpiness, there's no doubt, and you see a little bit of pressure early on in a quarter when you experience it, and you haven't gotten reimbursed yet. Then you see the tailwinds come on later, where the offsets start to happen. That's why we try not to ever talk quarter to quarter because this market has just become impossible to predict. We have electronics guys just emailing us last week with demands for price increases like for tomorrow.
They come with several threats and other things that are probably not for public consumption, but it's part of the industry now. We start to inform our customers that "Hey, we'll help you in the short term, but we're not going to keep doing this. So if you want to guarantee supply, then we've got to shake hands on a deal, or you got to go secure components on your own." We've gotten, unfortunately, better at having that rough conversation with our customer base.
Gotcha. Thank you.
Can you remind us what's the size of Gentex's BOM costs as it relates to semis? Then for the 35% gross margins this year, that does include 65 basis points of the IEEPA refund last quarter. Just thinking about next year, should we think gross margins, can we get to 35%? Because that would be, I'm sorry, 35%, because we're 65 basis points benefit this year that doesn't repeat.
Yeah. You want. I think, yeah, you have-
What is the total buy? Are you talking-
Yeah, it is around 60%. I think we alluded to it on the slide. A total electronics buy is around 60% of our bill of material, right? Not every commodity inside of there is going the wrong direction. We still have some reductions in some of the content, especially on VAVE side. The cost increases from the precious metals are leveling off.
You are probably at what, $800 million electronics buy right now?
Yes. I think that that's where, so without tariffs, yeah, your low 34s—that's where growth in FDM continues to come. The DMS piece, while not necessarily at corporate average, is replacing base mirror business that's below corporate average.
As we start to see some of the foreign markets, base mirrors continue to fall off; that's where some of that commentary of like the margins on that base business has deteriorated over time. So I think that's where you get the incremental positive margin or contribution margin to help you potentially get to that higher end. Now, I am not committing to that at this point, but I think that's where the opportunity exists. Those product categories that are growing tend to lead to the tailwinds of margin.
Go ahead.
Do you have a second part of that question?
Well, I am just going to ask about CapEx, how we should think about CapEx over the next few years.
If you look at it, we came into this, so we lowered our CapEx budget for this year. If you take our beginning of the year CapEx estimate, that what was it? $135 million, $145 million, I think. That is what our way too early top 25 college football poll would say for next year is probably in that range for CapEx in 2027. That will support all the products you have seen and start be the first wave of getting ready for that contract manufacturing piece. Honestly, the next two, three years, I think we will probably be very close to that.
The only exception I throw out to that is if something goes crazy on LAD, like in a positive way, then obviously we would be more than happy to sit in this room and talk about, hey, we are going to have to expand that or accelerate it. That comes with good news only. If you look at maintenance CapEx plus our planned launches right now, we feel really comfortable in that CapEx range that we can continue to develop these products, support them in pre-launch, and get the manufacturing footprint in place. Yes.
Stock is very cheap today. You have laid out a very attractive growth story. What is stopping you from turbocharging buybacks even to the point of an ASR or taking on debt?
Yeah, I would say, honestly, it's a conversation we have pretty much every quarter at the board level now, and it's something I. Unfortunately, this is what I wake up to every night at 3:00 A.M. running in the back of my head is this financial model isn't rocket science. It's really easy. It's simple math. The only real hesitancy is a couple of things. Number one is if you do this, you're saying no to every other opportunity over the next couple of years. By that, I mean a strategic acquisition or some other opportunity. Then the concept of saying, "Hey, how do you make sure you're not just chasing good money after bad instead of taking advantage of the timing?" That's the second argument, right?
Instead of doing the ASR right now, what if this paranoia gets worse just slightly, and what if you could have bought even better? Our dollar cost averaging strategy that we use right now has worked fairly well. Fairly well from a buying standpoint, not necessarily from a market response standpoint. Quite frankly, I've learned a lot from several of you last night that I joke internally that at times automotive seems like it's largely uninvestable. At least a portion of the Street tends to feel that way, and I think that's what we've seen too. If you look at interest in the space and if you look at, quite frankly, credit terms, they're very similar.
In other words, seven, 10 years ago, the amount of turns you could get from a borrowing standpoint in this space were very different than the type of leverage you can get now. I think those are both symptomatic of fear and trepidation around what happens in this space. We look at it and say we feel very comfortable that we've been through downturns and we've been through upswings, and we probably better than most tend to handle consistent financial returns in both of those markets. I believe it's because of our size and how we respond to problems and how we manage differently. It is something that I will tell you, we have our. Let's just say we've modeled it very often and frequently, and we understand the type of returns it can produce very quickly without even going crazy.
You could do a billion-dollar ASR, and you can model very quickly the impact on EPS. The harsh reality is one of the things we talk about is like, well, is it still going to be a big yawn? Other than getting a lot of shares very quickly at a very fair price, does it actually improve the stock price and return anything to shareholders other than what we're doing? Because at this point, one of the things we've seen is with the anti-dilutive effect of our share repurchases, we've taken 80 million shares out of the marketplace, and market cap hasn't rebounded the way we thought it would. Spending a billion dollars on more without it really bringing value to shareholders, we want to make sure that we try to maximize that return to shareholders in the best way possible.
That may be additional growth drivers instead of just share repurchases. We love the concept that we can do it slowly throughout the year and still pull back if there's a better opportunity. But we don't take it off the table ever, that's for sure.
James.
Yeah, thanks.
One coming from online. How do we think about China competition globally within a 10-year market opportunity plan?
Well, it's very clear. Our long-term plan is we're trying to look at the China market as saying we think there's continued headwinds, and there may be little to no opportunity from us in the long term. On the flip side of that, we're not passing on the market opportunity. We're saying that in this model, we're suggesting that that goes to basically zero in that time period. Anything positive that we can accomplish in that market is upside to the model we just put forward. But based on what we're seeing from a nationalism standpoint and our reaction from our customer base, our presumption is we have to plan on very little, if any, business and exports into the China market. Any upside we get during that time period would only further improve the financial modeling that we presented today.
Sorry.
Go ahead, James.
Yeah, it's okay. Just following up on that ASR question. Part of that would be having some powder to be able to use for some sort of strategic opportunity, maybe in future. What directionally would that look like? Would you look to go maybe into another adjacency like you did with the VOXX acquisition? Or would it maybe more of a focus on core automotive? Just any thoughts on that. What are you missing, I guess?
Yeah. I'd say, if you're looking at opportunities, one of the things I would look at is say, if there was a strategic opportunity, one of the things we'll talk through about philosophy first when we look at acquisitions. One of the reasons why we haven't been more aggressive in the automotive space in the last seven, 10 years is primarily because we look at everything from a technology standpoint. If we're going to pay, when you think about it, I mean, the multiples aren't lost on us. I always joke, one of the things you always have to check your ego at when you're looking at acquisitions is if you're talking 12 or 13 times, you're talking about a 13, 14, 15-year payback period.
The fundamental question we always ask is if you are looking at a 15-year payback period net of tax, is that tech still relevant in 15 years? The one that has always failed the threshold for us with a lot of automotive acquisition opportunities is that I do not know that the tech is going to be real in that time period, and therefore buying it is way more risk than saying reinvesting in the company itself. That is kind of our overall philosophy. I always like to outline that because I think at times, if you are a CEO or executive team and you are looking at three years and you are saying, "Hey, I am going to be done in three years," look around the room. That is not what we are managing to, right? We are managing to 10, 15 years from now.
At times, that comes with temporary pain from a market reaction standpoint, but I believe it is the best thing for the shareholders in a very long period of time is that you have this long-term focus. We are not looking for a pump and dump, or more importantly, not trying to look pretty for three years and then a gracious exit, or not so gracious, depending on your perspective. With those philosophies in mind, one of the things we look at and say, "Okay, over a 10 or 15-year period, what produces the most value?" Historically, what we have looked at is if you look at our ROIC, for instance, versus other stuff in the marketplace, rebuying the stock we believe is the best return. We are more confident in our strategy and our execution than we are acquiring someone else's.
Once in a while, there is a proper value out there. VOXX is a good example, right? The basis was not on a growth strategy or on a multiple of profitability. It was saying, "Getting it for asset value, now can you make the business better?" We felt comfortable with that. HomeLink was a similar one. We knew that business. We knew there was opportunity that had not been captured yet, and we thought there was a financial motivation, and that proved to be the case. These are rare. They are hard to find. At least we think so. Instead, if we were going to think about acquisitions right now, I would say probably outside of automotive into part of that 10-year philosophy we started five years ago, would probably be around that.
Adjacencies outside of automotive where we can leverage our core competencies and grow in the consumer space or other medical, for instance. The other one that is a very real possibility is that as we expand this electronics business, there may be something become available on the electronics manufacturing side that could be interesting, especially as it relates to the ability to get out of traditional automotive. You think about some of the markets that are expanding right now, whether it is military or aerospace opportunities, businesses that are a little more stable, a little more long run, but they definitely have a lot of energy right now.
Uniquely for Gentex, what we offer is this manufacturing footprint being domiciled in the U.S. does start to separate you from your competition versus the rest of the world, and where they put their capital on the ground does become a prohibiting factor for them to be attractive to certain of these customers. I would say those kind of areas are the ones we look at, probably the most probable. I do not know if you have one of the other ones we have done over time too, we have never really taken huge advantage of, is we have made some small acquisitions on the supply side to help with vertical integration primarily. But as you see us start to look at our core competencies and say, "How do I become a tier X supplier in other industries?" Those become interesting too. Something on the equipment side or processing side.
All these are opportunities, I think, to help get us away from you do not have to invent just the product itself. We reference 3M a lot internally. If you actually look at our business model, it is not wildly dissimilar. You do not have to invent everything yourself. Sometimes you just take someone else's product and make it a little better, or you add to it, or you use an enabling technology to create a finished product that someone else is responsible for. We are trying to get better about not thinking of ourselves in any one industry or one fashion, but how do we use these core competencies and skills to grow inside of automotive, but also outside.
The one time series targeted trajectory chart that we did not get was for the circuit board manufacturing.
Yeah.
What could that look like?
I will go back to this. Personally, in this 10-year horizon, for sure, if it is not at least at that low end, and I say 10 years, that low end should be well before 10 years from now. We cap it at two, like I said, because I hate blue ocean type commentary in the meeting like this. Internally, yeah, when we sit around and talk about if we do this right, what could it be? It gets pretty wild pretty quick.
A billion dollars at the low end associated CapEx potentially?
Probably for that one, 150 million total. That is where the cash generation of this type of business is very interesting. If you look at it is pretty low labor. The margins are thin. If you look at it from an R&D and SG&A standpoint, we are not inventing the product. At this point in time, you are taking someone else's design, their engineering, their manufacturing plan, and you are executing that for them. Is there some? Sure. But it is not like our business today where you are talking of 13%, 14%, 15% OPEX to make that business happen. This is very low single digits type OPEX to bring that business home. The cash generation of this, and you can pull guys that are publicly traded that do this type of work. We believe personally that we can be at least that good.
Yeah. The market seems to appreciate this mid-single-digit profitability for that space because they trade it 10x to 20x EBITDA.
Right. Which is crazy to me. But yeah. If we're good at it, which I think we have more than enough proof to make that case that we're good at it, and we're certified. Think about our certifications. What's interesting about this from a compelling standpoint, we're certified in automotive, aerospace, and med to make the circuit boards for all those industries already. This isn't like we're talking about skill set we need to go acquire. This is something we do all day, every day, and have for a long period of time. How do we capture more value with that skill set?
The boards that we're making aren't just automotive. We do the boards for the controllers for the aerospace modules as well.
Yeah. And we make them in med tech today, too.
Yep.
Right. Yeah.
Again, on the printed circuit board assembly business. I appreciate what you said in terms of the strategic points in that. Can you speak to kind of where the ROICs could be on that and where it sits in kind of priority for your platforms?
Yeah. First of all, the way we approach capital allocation, especially when it comes to equipment, we basically run it like a VC. You have the customer commitments that you made. Those have to happen because you have already sold the business, you are committed, so you got to do that. Everything after that, inside of the budget that we create that we feel like we need to operate in, is basically a VC mindset. Best idea wins. Just because your project may not get chosen this year does not mean next year it will not be the first project chosen.
We tend to operate under this philosophy that. The only exception to that is if somebody walks in with a crazy idea on a robotics automation plan and it has less than a one-year payback period, I will happily come to you guys and talk about the fact that I blew my budget. Because then the return profile is such that there is no excuse to say no to that. But for the most part, we treat everything with that best idea wins kind of mindset. If you look at ROIC on this business, I will just do the math in my head real quick because I have not thought about ROIC on that business by itself. But you are talking about a return profile which should be high single digits on the return profile.
So if it was $1 billion and you were high single digits on the return side, you would be talking about-
80 million, 70 million.
Yeah, 70, 80 million in EBIT. Let's say it was $150 million over a 10-year AM. You'd be $15 million on the capital side. You'd be pretty good there.
On a percentage basis.
What is that year? Let's call it 80. What's that, 80?
Only a one-time $150, it is more like a $60.
Well, that is what I said, but over a 10 year. But if you are $150 million on a 10 year AM, you would be $15 million a year in amortization. Not the typical Gentex high teens, often approaching closer to 20. But definitely high single digits at least. Yeah.
Just one on the Morocco plan. Can you give us a little more details on the location decision process? Why Morocco and not a EU member country?
Yeah, sure. We started with the world of how do you get parts into Europe to make your customers happy. Make no mistake about it, started with a defensive, "Okay, we have been ignoring this for a long time." I would not say ignoring it, but historically, every time we get this push, we negotiate with our customers, say, "Can we talk about the reality? Is it actually that you want me there, or is it just about money?" Then ultimately, after arguing for a few months, you realize it is just about money. We always negotiate a deal where it minimizes the work and the output and how much work we have to put into it. It is sometimes easier just to negotiate your way out. The problem is with the tariff situation, and this local conversation is happening all over the world.
It started in China, now it is spread globally. This is crazy. We are like, we have a huge piece of business in Europe. We need to protect that customer base. We finally reached a conclusion that we could not negotiate our way out. We are going to have to do this one. Then it starts with the whole EU, and you start looking at, okay, what would qualify, meet the customer's demands, make the most sense for us? Quite frankly, geopolitically, given everything that has happened in the last few years, we eliminated most of Eastern Europe, which is where everyone went 15 years ago, and there was a lot of reasons for that. You start at the top line. There is obviously a lot of risk on the geopolitical side of what is happening in and around that area. Secondly, you look at the economics.
Wages have increased drastically in the last 15 years in Eastern Europe. A lot of the efficiencies that OEMs and tiers saw went by moving there have been eroded over time. Lastly, you are the last guy into a very saturated market. We did not feel like we would have the pool there that we were looking for, and then the energy independent side was very concerning for us. Then we started looking around and quite frankly, I joke with people all the time and I am like, "Man, call me a village idiot on this, but I did not know the trade deals that Morocco had negotiated with the EU." Once we found out about this and started hearing about it, we investigated further, and what became clear was you could get in for a low cost of capital.
It stood up very quickly, and there was a lot of preferential treatment. In other words, if you can get to the 50% value add mark for localization in Morocco, you can do what you cannot. We have not been able to find another place on the planet where you can do this. When we make the glass element here right away, your country of origin is the U.S. even if you do 80% value add in other countries, because the mirror portion, and it is always going to be a mirror, is made in the U.S., it is always a U.S. product. In Morocco, if you get to the value add portion, you could actually do a country shift and country of origin, and it will become a Moroccan product, meaning we could import it in the EU duty-free as long as we hit the value add requirements.
There is a ton of incentives in that space. Morocco has put a ton of capital into their own infrastructure, both power generation and their ports are world-class. Obviously, just based on the simple geography of it is actually a shorter transit than even the expense associated with ground transit out of Eastern Europe. We felt really comfortable with the customer base and their plan. At that point, we started floating it before we even committed to see if this would work. In typical Gentex fashion, we had a couple of deals we half negotiated with OEMs saying, "If you shake my hand on this new program award, I will do the deal." Until we had those kind of eye to eye, like, you got to commit to me if I commit to this type of situation, at that point it became a no-brainer.
Once the OEMs are looking in the eye saying, "Yeah, do it. If you do it, I'll source you your next piece," it was like, "Okay, we got to go." The key is, and the interesting part of that $10 million-$15 million we referenced, a good portion of that is going to be an ERP implementation. Which quite frankly, if geography had to change, the ERP implementation would move. It could move to another place. That's what's beautiful about the ERP. The instance is you're setting up something that's not inside of one of your normal systems that you're going to have to have this instance created in. If something were to happen other than the language, you could move that ERP implementation to another location if we needed to.
I think we've got time for about one more question just to keep us roughly on time.
But we'll be walking with you, too.
Yeah.
If you have questions, I guess we're doing tours. We're going to be there and Yeah.
I think at your last analyst day, you mentioned raising the dividend when you hit record net income levels. I think this year you are actually on track to hit those record net income levels. You talked a lot about capital allocation, talked about share repurchases. How do you think about the dividend going forward? Is this, are you thinking about raising dividend when you hit those record net income levels, or is that something that you are not really considering anymore?
Well, I will tell you first and foremost, absolutely. The philosophy has not changed. Our commitment was always, once we hit that level, that is going to be a real conversation we are going to have. Quite frankly, I think that for me at least, this is one I would love to hear from you because obviously we are terrible at predicting or helping shareholders see value right now. Quite frankly, that conversation around, we have never been a dividend play per se, but as we grow and mature, that may become a more compelling factor. As Kevin mentioned initially, the reason why the company started it initially was it was a tax-friendly way to get money back to people. That has been diluted a little bit over time. We are still open to that concept.
My primary purpose has always been to minimize the percentage of free cash flow that goes to that because it is not helping grow a business or it does not give you that multiplying effect as you increase net income longer term. We definitely realized that it is a component of an investment philosophy, and certain investment groups will not invest in you if you do not have one. We did not want to become over-dependent on dividend as an investment thesis. I am excited as I will get out to actually get to the point, I thought this would have happened a few years ago, quite frankly, to get to that record net income level so we can have that debate internally again as well.
Honestly, I would love your feedback, too. What are you hearing from the people you interface with, does it change their investment thesis, if that dividend increases?
Thanks, Steve. Thanks, everybody. Excuse me. Thanks, everyone, for your questions. This will conclude the Q&A and presentation portion. We are going to go into the tours. Tyler will close it off here, and then, we will hit bathrooms and then out to the bus to keep us roughly on time. If you are departing early, bring your bag. If you are not departing early and you are sticking around through lunch or later, you can leave all your stuff here. We will keep everything in this room. So no need to pack everything up. We have got security that will be on site, so your stuff will be safe. Anything else we need to hit on?
It's your world. I'm just living in it.
Beautiful. Well, thank you again, everyone. We'll talk soon.