Good day, and thank you for joining us. Welcome to Gentex's Fourth Quarter and Year-End 2023 Financial Results Conference Call. I will now turn it over to Josh O'Berski, Director of Investor Relations. Please proceed.

Thank you. Good morning, and welcome to the Gentex Corporation Fourth Quarter and Year-End 2023 Earnings Release Conference Call. I'm Josh O'Berski, Gentex' Director of Investor Relations. And I'm joined by Steve Downing, President and CEO; Neil Boehm, CTO; and Kevin Nash, Vice President of Finance and CFO. This call is live on the Internet and can be reached by going through the Gentex website and to ir.gentex.com. All contents of this conference call are the property of Gentex Corporation and may not be copied, published, reproduced, rebroadcast, retransmitted, transcribed or otherwise redistributed. Gentex Corporation will hold responsible and liable any party for any damages incurred by Gentex Corporation with respect to any unauthorized use of the contents of this conference call. This conference call contains forward-looking information within the meaning of the Gentex safe harbor statement included in the Gentex Reports Fourth Quarter and Year-End 2023 Financial Results press release from earlier this morning and, as always, shown on the Gentex website. Your participation in this conference call implies consent to these terms. Now I'll turn the call over to Steve Downing, who will get us started today. Steve?

Thank you, Josh. For the fourth quarter of 2023, the company reported net sales of $589.1 million, an increase of 19% compared to net sales of $493.6 million for the fourth quarter of last year. The fourth quarter of 2023 revenue included one-time cost recoveries of approximately $5 million. Light vehicle production increased by 6% quarter-over-quarter in the company's primary markets of North America, Europe, Japan and Korea, which equates to a 13% revenue outperformance versus the company's underlying markets. The gross margin in the fourth quarter of 2023 was 34.5% compared with a gross margin of 31.2% in the fourth quarter of last year. The increase in gross margin in the fourth quarter of 2023 was positively impacted by recurring price increases to customers and one-time cost recoveries, which together positively impacted the gross margins by approximately 100 basis points on a quarter-over-quarter basis. The additional improvements in gross margin came from the higher sales levels, improved leverage on overhead expenses, purchasing cost reductions, lower inbound freight expenses and improvements in overtime-related costs. The fourth quarter of 2023 produced significant year-over-year gross margin improvements as well as a sequential improvement in gross margin compared to the third quarter of this year. Our team has done an excellent job of working with our customers to execute both temporary and permanent price increases to help offset the inflationary cost environment that has negatively impacted Gentex over the last two years. I'm very pleased with the progress we have made in our gross margin recovery plan during 2023. And as we head into 2024, the next phase of our gross margin recovery plan will focus on bill of material reductions, throughput improvements and overtime and scrap cost reductions. The improvements we have made in 2023, combined with our targeted improvements for 2024, provide the roadmap of how we plan to achieve our target of a 35% to 36% gross margin by the end of the year. Operating expenses during the fourth quarter of 2023 were up 18% to $70.6 million compared to operating expenses of $59.7 million in the fourth quarter of 2022. Operating expenses increased quarter-over-quarter, primarily due to staffing and engineering-related professional fees. As we ramp up our development and launch capabilities, our planned R&D expenses are trending higher but remain in line with our expectations and continue to increase in line with our overall sales growth rates. We are focused on adding technical bandwidth across many different disciplines to help execute the significantly higher number of launches needed to accomplish our recent and forecasted growth. While launch activity has been driving an increase in R&D, we also continue to invest heavily in research activity focused on new products and technical capabilities while also ensuring that the technical team is in place to help drive product redesign that will optimize the cost structure of existing bills of material. We expect our R&D levels to be elevated throughout 2024 as the pace of innovation and launch of new products remains at the highest rate in company history. Income from operations for the fourth quarter of 2023 was $132.8 million compared to income from operations of $94.1 million for the fourth quarter of last year. During the fourth quarter of 2023, the company had an effective tax rate of 13.9%, which was driven by benefits from the foreign-derived intangible income deduction, discrete benefits from stock-based compensation as well as provision-to-return adjustments. In the fourth quarter of 2023, net income was $116.9 million compared to net income of $86.2 million in the fourth quarter of last year. Earnings per diluted share in the fourth quarter of 2023 were $0.50 compared with earnings per diluted share of $0.37 in the fourth quarter of last year. For calendar year 2023, the company's net sales were $2.3 billion, an increase of 20% compared to net sales of $1.92 billion in calendar year 2022, representing the highest annual sales in company history. Light vehicle production in 2023 increased by 12% compared to last year in the company's primary markets. The company's revenue outperformance in 2023 versus the underlying market was driven by growth in FDM and exterior auto-dimming mirror unit shipments as well as continued penetration of base interior auto-dimming mirrors. For calendar year 2023, the gross margin was 33.2% compared to a gross margin of 31.8% for calendar year 2022. Gross margin improved for the year by 140 basis points primarily due to price increases and cost recoveries, lower freight costs, product mix and improved overhead leverage created by the growth in revenue. For calendar year 2023, operating expenses increased 11% to $266.9 million compared to operating expenses of $239.8 million last year. For calendar year 2023, the company's effective tax rate was 15.2% compared to an effective tax rate of 13.8% for calendar year 2022. The increase in the tax rate in 2023 was primarily driven by a reduced benefit from the foreign-derived intangible income deduction compared to last year. Net income for calendar year 2023 was $428.4 million, up 34% compared to net income of $318.8 million last year. Earnings per diluted share for calendar year 2023 were $1.84 compared to earnings per diluted share of $1.36 last year. I'll now hand the call over to Kevin for some financial details.

Thanks, Steve. Automotive net sales during the fourth quarter of '23 were $578.7 million compared to $482 million in the fourth quarter of 2022. For calendar year '23, automotive net sales were $2.25 billion, which represents a 20% increase over '22. The increase in automotive net sales was driven primarily by a 45% increase in FDM unit shipments as well as a 21% year-over-year increase in exterior auto-dimming mirror unit shipments. Other net sales in the fourth quarter, which includes dimmable aircraft windows and fire protection products, were $10.5 million, a decrease of 2% compared to other net sales of $10.7 million in the fourth quarter of '22. Fire protection sales decreased by 44% and dimmable aircraft windows increased by 362% for the fourth quarter of '23 when compared to the fourth quarter of '22. Other net sales for calendar year '23 were $44.6 million compared with other net sales of $44.2 million in calendar year '22. Fire protection sales in '23 were down 32% year-over-year while dimmable aircraft window sales increased by 211% in '23 compared to last year. Share repurchases. The company repurchased 2.2 million shares of its common stock during the fourth quarter at an average price of $30.76 per share. For the year ended December 31 of '23, the company repurchased 4.93 million shares of its common stock at an average price of $29.61 per share for a total of $144.7 million. As of December 31 of '23, the company has 15.9 million shares remaining available for repurchase pursuant to its previously announced share repurchase plan. The company intends to continue to repurchase additional shares of its common stock in the future in support of the previously disclosed capital allocation strategy. But share repurchases may vary from time to time and will take into account macroeconomic issues, market trends and other factors the company deems appropriate. Shifting over to the balance sheet. The balance sheet comparisons mentioned today are as of December 31 of '23 as compared to December 31 of '22. Cash and cash equivalents were $226.4 million compared to $214.8 million. Short-term and long-term investments combined were $313.4 million, up from $225.3 million, which includes fixed income investments as well as the company's equity and cost method investments. Accounts receivable was $321.8 million, up from $276.5 million due to the increase in sales levels. Inventories were $402.4 million, down from $404.4 million, and accounts payable increased to $184.4 million, up from $151.7 million. Let's take a look at preliminary cash flow items for the quarter and year. Fourth quarter 2023 cash flow from operations was $169.6 million, which was an increase from $101.8 million in the fourth quarter of '22. The increase was due to increases in net income, shifts in working capital and deferred taxes. Year-to-date, cash flow from operations was $537.2 million, an increase from $338.2 million in 2022 due to increased net income and changes in working capital. CapEx for the fourth quarter was $62.3 million compared with $37.9 million for the fourth quarter of last year. And calendar year 2023 capital expenditures were $183.7 million compared with $146.4 million last year. And depreciation and amortization for the fourth quarter was $22.3 million compared with $23.3 million for the fourth quarter of last year. And calendar year '23 depreciation and amortization was $93.3 million compared with $96.6 million last year. I'll now hand the call over to Neil for a product update.

Thank you, Kevin. Earlier in January, Gentex participated in the 2024 Consumer Electronics Show. CES is one of the many tools we use to showcase our current and potential future product portfolio to customers and consumers. Our booth was designed to help automakers envision a path toward the autonomous age with scalable products and features ready for implementation on today's vehicles. This year, we had two different booths where we demonstrated Gentex technology. One of the booths, which was located in the North Hall, showcased our newly announced acquisition of eSight, the medical wearable for people with vision loss. This booth was set up to allow partners and consumers the ability to experience this great technology. And it showed Gentex' capability and experience in displays and cameras applied in a new market segment. Our primary booth was in the West Hall and was focused on our automotive, aerospace and consumer-facing products and technologies. This booth contained multiple vehicles and simulators, which were designed to demonstrate new features and technologies to visitors, enabling them to experience the firsthand benefits of our products right on the show floor. One of the unique demonstrators showcased a scalable yet holistic approach to driver and in-cabin monitoring. The driver monitoring system tracked the driver's head pose, eye gaze and other relevant movements to determine distraction, drowsiness, sudden sickness and readiness for the return of manual control in semi-autonomous vehicles. The system is easily expandable to include 2D or 3D cabin monitoring for detecting passengers, behaviors, objects and even presence of life. Our goal with this system is to provide solutions for today's vehicles and the transition to autonomous vehicles, which means engineering a comprehensive and scalable monitoring platform based on our competency in digital vision and sensor fusion techniques. A second demonstrator was set up to demonstrate the value and use cases for thermal imaging using long-wave infrared technology. Gentex previously announced our partnership with ADASKY, whose focus is on thermal imaging. At CES, we showcased a simulator that we developed together that highlighted the value that thermal imaging can bring to both forward and rearward vision systems in a vehicle. To demonstrate a forward-facing thermal imager, we showed how this information could be displayed in the center stack or any display in the dash of a vehicle to help a driver or passengers see under difficult conditions. For the rearward-facing thermal imager, we showcased how this information could be displayed in our Full Display Mirror in order to provide additional visibility benefits to the consumer in difficult driving conditions. Additionally, we demonstrated how a thermal imager can be utilized as an additional sensor input into ADAS systems for really difficult driving situations such as heavy fog, low light, very bright light, snow and rain. Also displayed at CES were our large-area dimmable devices, including sunroofs that darken on-demand or with system intelligence, and sun visors that fold down like a traditional visor but include a clear, dimmable panel that can darken on-demand or based on sunload sensors. With the dimmable visor we showed previously, the consumer would not have a vanity mirror on the visor due to the surface being all glass. So for CES this year, we had added an additional feature. With a press of a button, the see-through glass surface became a reflective surface and the lighting above the visor turned on, so the person could utilize the device like a traditional vanity mirror. This new technology feature was really well received by everyone that sat in the vehicle. The last area of focus at CES was the launch of our new residential smoke detector product that we announced and displayed at the show. Gentex is celebrating our 50th anniversary this year. It's interesting to reflect on the fact that Gentex began as a smoke-detecting company. And we are now using all of our background in detecting smoke for commercial applications to create an all-new product line of residential detectors called PLACE. PLACE has four different products that are designed for specific locations in the home. There's a product for the garage, the kitchen, the child's room and a general-use product. Each of these comes with some unique technology and capability to add value to the end consumer. For example, the child's room product has a nightlight feature, a white noise generator, audio and camera that will allow parents to check up on the child remotely. We're excited to launch this new product in 2024 and expect that this new product line will open many new opportunities as we expand into the consumer-facing market. Overall, CES 2024 was an excellent opportunity for us to demonstrate to our current customers, and hopefully some future ones as well, where our product strategy and development focus is heading over the next few years. In terms of launches for the fourth quarter of 2023, there were 10 net new nameplate launches of our interior and exterior auto-dimming mirrors and electronic features. For calendar year 2023, we experienced our greatest net launch rate since 2015. And we continue to see a strong pipeline of launches through 2024. Now for an update on Full Display Mirror. The fourth quarter of 2023 was another strong quarter for Full Display Mirror shipments. And we're excited to announce that for the calendar year 2023, we were able to exceed our unit shipment goal of 500,000 units over 2022 volume by shipping approximately 750,000 units more than 2022. This would bring our 2023 FDM unit shipments to approximately 2.44 million units. It's clear in looking at this growth that the product is being well received by our OEM customers and the end consumers. 2023 was a really strong year for Gentex products and technologies. The FDM growth was outstanding. We had an extremely heavy launch schedule. And late in the year, we had minimal component shortage issues to worry about. In 2024, while we continue to push the Gentex technology path that we showed at CES, we will also need to focus on the execution of our heavy launch backlog and the redesign work needed to achieve the cost-optimized designs necessary to recover from the increases we've seen over the past few years. I'll now hand the call back over to Steve for guidance and closing remarks.

Thanks, Neil. The company's current forecast for light vehicle production for calendar year 2024 and 2025 are based on the S&P Global Mobility mid-January 2024 forecast for light vehicle production in North America, Europe, Japan, Korea and China. Light vehicle production in these markets is expected to decrease by 1% in 2024 compared to calendar year 2023. The forecasted vehicle production volumes for calendar years 2024 and 2025 from S&P Global Mobility are shown in our press release from today. Based on this light vehicle production forecast, the company is providing full year guidance estimates for calendar year 2024 as follows. Revenue for 2024 is expected to be between $2.45 billion and $2.55 billion. Gross margins for the year should be between 34% and 35%. Operating expenses are expected to be between $295 million and $305 million. The estimated annual tax rate for the year is forecasted to be between 16% and 18%. Capital expenditures for calendar year 2024 are expected to be between $225 million and $250 million. Depreciation and amortization is expected to be between $95 million and $105 million. Additionally, based on the mid-January 2024 S&P Global Mobility light vehicle production forecast as well as the company's estimates for aerospace, medical and fire protection products, the company currently expects calendar year 2025 revenue to be between $2.65 billion and $2.75 billion. Calendar year 2023 turned out to be a remarkable year for the company and was the first time that Gentex has exceeded $2 billion in annual revenue. It is important to note that the growth the company has achieved over the last few years has been driven by our new technologies and innovative product roadmaps. From 2018 through 2023, the company's revenue has grown by over 26% while light vehicle production in our primary markets of Europe, North America, Japan and Korea has shrunk by over 11% during the same period. We believe this revenue outperformance versus the underlying market is evidence that our product strategy is effective and is creating our targeted results. Our revenue guidance for 2024 and 2025 shows that we remain confident in our ability to outperform the underlying market and revenue growth while we continue to focus on gross margin improvement. Gentex is poised to execute on our forecasted revenue growth while maintaining focus on cost control and gross margin improvement, which are necessary to accomplish the goal of achieving a gross margin profile of 35% to 36% by the end of 2024. These factors we believe will result in record revenue and profitability that should create the foundation for increased shareholder returns over the next several years. This completes our prepared comments for today, and we can now proceed to questions.

Our first question is from Luke Junk with Baird.

First, hoping we could start on the top line, especially incremental FDM units. Just wondering what's the framework that you're looking at updated this year. Is 500,000-plus units still a good number to be looking at incrementally in 2024? And then just how do you build up to that in terms of mix of new launches you're expecting this year, take rates? Anything else we should be considering?

Luke, you're absolutely right. I think we're targeting right now for 2024, about 0.5 million unit increase in FDM volume shipments for this year. In terms of the mix of where that's coming from, listen, 80% of it is going to come from existing OEMs and existing platforms but increased take rates and kind of just expansion amongst the existing OEMs. Probably that last 15% or 20% is going to be new targets, new launches. Several of those will be with new OEMs as well.

Got it. And then switching gears to margins, just curious, Steve, what initial feedback you're getting from Tier 2 suppliers as you've engaged with them going this year in January relative to, one, just their positioning around potential cracks in semi pricing and what you might need to do from a redesign standpoint this year. And if you are seeing opportunity, just how opportunistic can you be realistically pushing on the Tier 2 base?

We're in a strong position right now. Our purchasing team has effectively prepared for 2024 pricing with our suppliers. Many suppliers have collaborated with us to lower costs, not quite to pre-pandemic levels but certainly below what they were in 2023. This should provide some margin support in 2024, helping us achieve our targeted margin profile by the end of the year. The redesigns will play a bigger role as we finish up 2024 and move into 2025. The research and design work will take about 6 to 9 months, followed by several months for validation. We're optimistic that the combination of purchasing reductions and operational efficiencies will drive margin improvement in 2024. Additionally, our engineering efforts should help maintain or slightly improve margins in 2025 and beyond.

And our next question comes from the line of James Picariello with BNP Paribas.

This is Jake on for James. Can you guys just give us some color on FDM margins and how long it's going to take them to get back to that run rate of 40% to 45%? I know they've been under pressure for the last few quarters to a year.

Yes. Well, I think they're running probably in the low 30s right now corporately in terms of what that margin profile looks like, so below corporate average, primarily driven by the cost increases that we've encountered over the last couple of years. Our goal with these redesign efforts is really to get them back in line with corporate average. So I wouldn't predict that they're going to go to 40% or anything. But somewhere in that 35%, 36% is kind of our long-term goal where we believe we can get that product over time.

Awesome. And then exterior mirror shipments in the quarter came in very strong. Can you talk about some of the drivers there? And how should we think about that in 2024?

Yes, thank you for mentioning that. We are very pleased with our growth in outside mirror sales over the past couple of years, and the fourth quarter continued this trend with strong growth. Much of this success stems from our expansion efforts and improvements in our take rates. Additionally, the vehicle mix, particularly the types of vehicles being manufactured by OEMs during certain constraints, has been beneficial for us. This increase in volume does present some operational challenges, especially in quickly ramping up capacity. Our team has done an excellent job of maintaining good yields in response to the high demand. Looking ahead, many of our customers, including Tesla, have achieved very high take rates. Electric vehicles, particularly battery electric vehicles, have effectively adopted many advanced technologies and features, leading to higher take rates across other OEMs as well.

And our next question is going to come from the line of Josh Nichols with B. Riley.

Great to see the record results for 2023. Now I was just curious, I know historically 1Q, there's been like a 200 to 300 bps typically of like margin compression for some cost concessions. Just looking at the guide, is that like something that the company expects will happen this year and then you kind of rebound from there and get back to that 35% to 36% level in the back half of this year?

Yes, we typically experience a decline in the first quarter. However, I would suggest that this year's decline might not be as marked in terms of compression. Our current agreements with OEMs show a reduction compared to previous levels due to the various cost pressures facing the industry over the last couple of years. The anticipated 2% to 3% concessions to OEMs is not what we are aiming for this year; we expect it to be less. Nonetheless, we usually see the first quarter as the weakest margin quarter of the year. By the fourth quarter, we anticipate reaching the 35% to 36% margin range. This expectation is influenced by several factors, including the price reductions at OEMs in the first quarter and the ongoing depletion of inventory acquired under 2023 pricing. Consequently, the benefits from the supply chain will likely begin to materialize towards the end of the first quarter or into the second quarter.

Great. And then it was really encouraging and good to see all the company's cutting-edge technology at CES this year, whether it was the thermal imaging or dimmable glass or in-cabin monitoring and then the new direct-to-consumer offering. There's a number of things the company is working on here in terms of advanced technologies. But I guess, if we're thinking about what could be the next or nearest-term positive catalysts in terms of monetization and revenue growth, like how would you handicap some of the newer offerings in terms of which one is going to drive more revenue over the next like 12 to 36 months?

In the shorter term, driver monitoring will be our focus. We are currently collaborating with several OEMs, which will likely lead to significant revenue from the feature set showcased at CES. This is expected to generate revenue the soonest. Looking ahead, we believe that within the next 3 to 5 years, large-area devices will present substantial opportunities for revenue growth. Additionally, the visor project, which we've been presenting for about a year, has shown strong interest at CES. There is a clear understanding of its use case and potential consumer value among those we’ve demonstrated it to.

Just as a follow-up, I know that Europe is moving towards mandating this type of stuff for in-cabin monitoring. Like any way to quantify the impacts or just some color on what you're seeing there in terms of the demand uptick?

Yes, our first focus is on the European Union, where regulations are emerging that require certain assistive and alert notifications, particularly as we enter the era of semiautonomous vehicles. This has been the primary area for our business development efforts. Furthermore, we are seeing significant interest from existing domestic customers who are keen on this technology, exploring how we can seamlessly integrate it while keeping it discreet and focused on high-mounted centers within vehicles. Our location offers geographical advantages, and the technology we provide is highly valued. We are observing trends not only in regulatory demands but also in original equipment manufacturers wanting and needing these features.

And our next question is going to come from the line of John Murphy with Bank of America.

A couple of questions. I mean, you exited last year at 34.5% on gross. You called out 100 basis points benefit for pricing actions and then something that seems a small impact, one-time cost recoveries. And I'm just curious, I mean, you're exiting close to that 35% to 36% gross margin target you're talking about by the end of this year. What are kind of the big headwinds that would kind of dampen that out? Because I mean, you're getting pretty close to it already.

The primary challenge we face is the pricing concessions to OEMs that are occurring at the start of the year. Another concern is the uncertainty surrounding LVP, which is currently projected to decrease by 1% in our main markets. However, we believe our existing business will more than compensate for that decline. If sales do not meet our expectations, that could present a significant obstacle. As for the rest of our operations, we have most supply contracts secured, so we don't see that as a major risk this year. Additionally, the product mix will be important. If interest rates remain high, we need to consider the value of the vehicles consumers choose to buy and whether those vehicles will include our technology, as well as the amount of it. Our average selling prices are significantly influenced by the type and trim level of the vehicles consumers purchase.

Steve, as a follow-up to that, if I were to suggest that you should be forecasting at least a 2% increase for the global figure and a minimum of 5% for North American production, and that IHS is being overly cautious, how would that influence what you are conveying to us and, more importantly, how you are structuring the business? Could your current capacity and operational expenses manage this scenario? I believe the projections from IHS are too low and that we will see an increase, but the extent of that increase is the main question. The notion of a decline this year seems unrealistic. So, if we were to consider a situation where global production increases by at least 2% and North American production by at least 5%, are you prepared to accommodate that? What impact would that have on your communication in this outlook?

John, I appreciate your enthusiasm. It's been many years since I've felt this way. After facing numerous challenges, I think I've lost some of my optimism. However, if things were to change - and realistically, I believe that's what the OEMs are also aiming for regarding the numbers you mentioned - we would anticipate at least a direct improvement in our guidance. For example, if North America were up 200 basis points rather than down 100, we would expect to see at least a 200 to 300 point improvement in our own business, since we have significant exposure to the North American OEMs with strong content.

Okay. And then just lastly, do you see any inventory buffer in the channel? I mean, obviously, worldwide scared people quite a bit. I mean, are you seeing anything that you've built up in your inventories or maybe even forward-looking into your Tier 1 customers, Tier 1 supplier partners and then in the automakers? Or is that something you're just not seeing...

No. In fact, it's quite the opposite. We've experienced significant growth over the past two years, and it has taken longer than expected to secure capital. If you look at our capital expenditure, we continually project higher spending than what we can actually utilize. The past two years haven't seen cuts in expenditure; rather, the supply chain delays have made it challenging to obtain necessary resources. As a result, we've been operating below capacity relative to our production volumes. Currently, our finished goods inventory is lower than desired, and at times, we've been working six or seven days a week to meet demand. We would prefer not a slowdown but rather an opportunity for stable orders to help us catch up and restore our inventory levels. Fortunately, on the financial side, we haven't prebuilt or pre-shipped anything, so we don't anticipate any surplus inventory, either with customers or internally.

And our next question is going to come from the line of Mark Delaney with Goldman Sachs.

You started by discussing the topic John just mentioned regarding LVP for this year. You briefly covered how you perceive the regions, indicating that North America might be performing slightly better than what IHS is currently predicting based on your observations from OEM schedules. Could you elaborate further on all the regions globally and share any insights you may have regarding OEM schedules that align or differ from IHS's projections?

Yes, I think it's important to note that we are primarily relying on John's assumption that conditions will improve. I wouldn't necessarily say the company believes it's underestimated. Currently, making predictions about light vehicle production by region isn't something for which we receive compensation. Unless you're interested in my personal forecast, I can provide that if you'd like. However, my assessment is that the global production environment is likely to remain relatively stable. Looking at the regional dynamics, Japan and Korea have faced challenges lately, while Europe has fluctuated over the past five years. In North America, there is certainly some demand, but it's crucial to consider which manufacturers will succeed in the market. Moreover, some manufacturers are expanding their presence in North America, including those from Europe. Overall, I anticipate that the Chinese market may slow down, and if the primary markets of Europe, North America, and Japan/Korea see a pickup, that would be very beneficial for us, as our revenue and profitability are generally stronger in those regions.

Got it. And then the second question was on OpEx. And understandably, the company is taking OpEx up this year to support all of the different growth initiatives that you have as well as the revenue growth that you're seeing in the business. Maybe help us think a little bit beyond 2024, with the investments you're putting into place this year, is that a pretty good base of investment level and OpEx beyond '24 may grow more slowly? Or would you anticipate continued increases in OpEx that may be a little bit higher than the typical underlying economic inflation to support some of the longer-term efforts?

Yes. I believe that the guidance we provided for this year will likely remain within that range for the next couple of years. I wouldn't expect it to exceed the $225 million to $250 million range in 2025. If 2024 and 2025 turn out as we're discussing, we should be operating at capacity. I'm sorry, Kevin, what did you say?

I think he was asking on OpEx.

Oh, sorry about the confusion. I thought you were asking about capital expenditures. Let me finish that topic before moving on to operational expenses. Looking at the capital expenditure plan relative to our revenue levels, we'll need additional facilities in addition to equipment. Regarding operational expenses, if we achieve our targets by the end of the year—keeping in mind that finding the necessary talent is a significant challenge—we expect the growth rate of operational expenses to align with sales growth rates. This is our goal. While operational expenses may sometimes increase ahead of a surge in sales growth, we consistently aim to ensure that the long-term growth rate of operational expenses remains approximately in line with or slightly below sales growth rates, allowing for some leverage in the lower part of the income statement.

And our next question is going to come from the line of Ryan Brinkman with JPM.

Can you help us a little bit more with the addressable market of the consumer retail fire safety protection and talk about your strength in the commercial fire protection market and how that might translate over into retail, what sort of the early discussions have been around like go-to-market strategy for retail and any partners that you might have brought onboard or expect to bring onboard and how big this business ultimately could be over what time frame?

Sure. So thanks for asking that question. It was a very exciting part of the CES show was showing the new PLACE product. We have our first customer already onboard and is ready for the product once we have the engineering work completed hopefully mid this year. And so that will be kind of our SOP timing for that first customer. Beyond that, our next go-to-market philosophy is really focused on how do we get engaged with direct-to-builder. One of the things we know is the DIY market is interesting. However, we believe that the maximum upside of this product will be focused on trying to get it installed at construction or remodel. We believe, a, we know it's a lot easier of an install at that point in time. And it's easier to convince a homeowner of the significant benefits without having to rewire or redo electrical work. And our product is designed to be able to upscale. So once you have a base unit, it's easy to upgrade that unit into one of the more advanced featured rooms that Neil referenced in his prepared comments. So that's kind of the current plan for go-to-market. In terms of overall size estimates, it's a little early to kind of indicate that. Our targets, when we started developing this product, is we've got about a $20 million, $25 million book of business in the commercial side of fire protection currently. We believe that, that plus the new PLACE product, our goal is in the next 7- to 10-year period to have a $100 million-or-so book of business focused on residential fire protection.

And our next question is going to come from the line of David Whiston with Morningstar.

You called out in the press release three main drivers to get to the gross margin target by the year-end of reducing bill of materials, throughput and overtime scrap cost reductions. I'm just curious, what's the rough breakout among those three buckets for the contribution?

Probably 70% of it is bill of material reductions with an equal split with the other two items probably would be a fair assumption.

Okay. And on both the chip shortage and just general supply chain issues unrelated to chips, just how bad or good is everything right now? Is the chip shortage mostly behind you?

Yes, I think in general, the component shortages, you still have a component shortage pop up once in a while. But in general, the big constraints that we've seen and experienced are behind. And I think as we've kind of mentioned before, we're in the stage of redesign, kicking off redesigns to start pulling cost out of the bill of materials.

Our next question comes from Ron Jewsikow with Guggenheim Securities.

Just a follow-up on some of the next-generation product discussions. In '24/'25, how much of kind of the revenue growth is assumed to be coming from new products? I assume that's heavily weighted towards driver monitoring.

Yes, I would say it depends on whether you consider FDM growth as a new product or a legacy product.

Yes, I probably shouldn't call it legacy at this point. But this is more focused, I would say, on DMS and other stuff.

Yes, I would estimate that about half of the growth will be driven by new technology.

That includes FDM then though, right?

Yes, included in it, yes.

If we exclude FDM, is it closer to like 1% or just trying to...

No, I'd say about a quarter of it would be then from things outside of FDM that are new products.

Okay, that's helpful. And then on the '25 guide specifically, if we think about kind of the 8% year-over-year number that you guys are guiding towards at the midpoint, how should we think about FDM contribution, traditional electrochromics and other products? And then I guess, more importantly, what will be needed to drive revenue growth closer to the 10% year-over-year implied at the high end of the guidance?

Yes, I think what would be needed to get to the higher end would be some help on LVP and then obviously, stabilization in take rates, especially of FDM. Those would be the two big takeaways for '24, right? Those would be the things that would actually help us get to the high end of that range.

And then most of the LVP is growing in China in that 25% range, not North America or, right, Japan, Korea.

Okay. No, that's helpful color. And then just sneak one more in, a bit of a follow-up on kind of the cadence for this year. But I know in a normal year, you start getting better pricing from your supply base closer to midyear. Is that still a good way to think about this year? I know we're kind of not in a normal environment right now. Or are you already seeing better pricing from your Tier 2s?

Yes, I believe the pricing is fairly established. It's simply a matter of depleting our inventory, which typically takes about 2 to 3 months. So, as Steve mentioned earlier, our contracts are largely secured, and while I wouldn't say it's 100% certain, we feel confident about it. You will start to see the financial benefits beginning at the end of the first quarter and into the second quarter.

And I would now like to turn the conference back over to Josh O'Berski for closing remarks.

Thank you, everyone, for your time and questions today. As a reminder, Gentex will be hosting an Analyst and Investor Day on the morning of March 19, 2024, in New York at the Nasdaq building in Times Square. If you're interested in attending, please reach out to me directly, and we can follow up from there. Thanks again for the questions today, hope everyone has a great weekend.

This concludes today's conference call. Thank you for participating. You may now disconnect.