Good day and thank you for standing by. Welcome to the Gentex Report's Fourth Quarter and Year End 2024 Financial Results. At this time all participants are in a listen-only mode. After the speakers presentation there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Josh O'Berski, Director of Investor Relations. Please go ahead.

Thank you. Good morning and thank you for joining us today for our fourth quarter 2024 earnings conference call. I am Josh O'Berski, Gentex’s Director of Investor Relations, and with me today are Steve Downing, President and CEO, Neil Boehm, COO and CTO, and Kevin Nash, Vice President of Finance and CFO. Please note that a replay of this conference call webcast and edited transcripts will be available after the call in the investor section of our website located at ir.gentex.com. As a reminder, many of our comments today contain forward-looking statements based on current expectations. These forward-looking statements are subject to known and unknown risks, including those set forth in our fourth quarter 2024 earnings press release and our annual report on Form 10-K for the year ended December 31, 2023, as well as other general economic factors. Should one or more of these risks or uncertainties materialize or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those that we expressed today. I'll now hand the call over to Steve Downing for our prepared remarks.

Thank you, Josh. For the fourth quarter of 2024, the company reported net sales of $541.6 million, a decrease of 8% compared to net sales of $589.1 million for the fourth quarter of last year. Light vehicle production decreased by 6% quarter-over-quarter in the company's primary markets of North America, Europe, and Japan and Korea. Compared to the beginning of the quarter forecast, production weakness in the company's primary markets combined with a weak vehicle build mix that resulted in revenue being much lower than we initially anticipated for the quarter. The combination of these two factors resulted in a revenue shortfall of approximately $45 million to $50 million versus the company's beginning of quarter forecast. During the fourth quarter, there was significant weakness in our primary markets that impacted both light vehicle production volumes and product mix during the quarter. We believe that a number of our OEM and tier one customers looked to improve their incoming inventory levels during the quarter and built a weaker mix of vehicles versus the trends we have seen over the last several quarters. As an example, approximately one-half of our revenue shortfall in the fourth quarter came from lower than expected full display mirror unit shipments. Unfortunately, these changes all occurred within the quarter, causing a significant variance from our beginning of quarter forecast, with most of the change happening in November and December. The gross margin in the fourth quarter of 2024 was 32.5% compared with the gross margin of 34.5% in the fourth quarter of last year. The decrease in gross margin in the fourth quarter was primarily due to the lower than expected sales levels, weaker product mix, and the inability to leverage overhead costs. These factors more than offset the positive tailwinds from purchasing cost reductions that were achieved throughout calendar year 2024. The gross margin during the fourth quarter was significantly lower than our anticipated margin performance for the quarter. But when we model the gross margin impact from the lower than forecasted revenue due to the lower vehicle production and the lower full display mirror shipments, we would have had a quarter very similar to the margin in the fourth quarter of last year. Operating expenses during the fourth quarter of 2024 were up 22% to $86.5 million due to staffing and engineering-related professional fees, with total operating expenses for the quarter also impacted by intangible asset impairment charges of $8.9 million related to a technology acquired in 2020. Our operating expenses for the fourth quarter and full year 2024 have been elevated as we expand our engineering capability to focus on the many new product launches currently underway and to help support the R&D activity necessary to execute our product roadmaps. It is worth noting that operating expenses, net of the impairment charges for the quarter, grew at the lowest rate of the year. Income from operations for the fourth quarter of 2024 was $89.8 million compared to income from operations of $132.8 million for the fourth quarter of last year. During the fourth quarter of 2024, the company had an effective tax rate of 10.3%, which was driven by the foreign-derived intangible income deduction, provision to return adjustments, and other discrete benefits. In the fourth quarter of 2024, net income was $87.7 million compared to net income of $116.9 million in the fourth quarter of last year. Earnings per diluted share in the fourth quarter of 2024 were $0.39 compared with earnings per diluted share of $0.50 in the fourth quarter of last year. For calendar year 2024, the company's net sales were $2.31 billion, an increase of 1% compared to net sales of $2.3 billion last year, representing the highest annual sales in company history despite light vehicle production that decreased this year by more than 4% in the company's primary markets. The company's revenue outperformance versus the underlying market was driven primarily by growth in FDM unit shipments. For calendar year 2024, the gross margin was 33.3% compared to a gross margin of 33.2% last year. Gross margin improvements were primarily the result of supplier cost reductions and lower freight costs. Though these benefits were largely offset by weaker than expected product mix, higher labor costs, and the inability to leverage fixed overhead costs due to the lower than forecasted revenue for the year. Despite the many headwinds that impacted revenue and gross margins this year, we were able to continue to make improvements to the gross margin profile of the company. The improvements made this year, combined with our targeted improvements for 2025, provide a roadmap and plan to achieve a target of approximately 35% gross margin by the end of 2025. For calendar year 2024, operating expenses increased 17% to $311.4 million compared to operating expenses of $266.9 million last year. Net of the impairment charges discussed previously, the total operating expense for the year was in line with our forecasted operating expenses. The company has been investing heavily in engineering capability over the last few years in order to support the elevated rate of launches driven by customer awards, to accelerate our research and development activity necessary to execute the new technologies and product roadmap showcased at CES, and to fund R&D activity required to achieve product redesigns in support of our cost improvement initiatives. The plan for 2025 is based on a much lower growth rate in operating expenses for the year, as we believe the new baseline of engineering spend is sufficient to support our current engineering initiatives. For calendar year 2024, the company's effective tax rate was 14.3% compared to an effective tax rate of 15.2% last year. The decrease in the tax rate in 2024 was primarily driven by an increased benefit from the foreign-derived intangible income deduction and R&D tax credits compared to last year. Net income for calendar year 2024 was $404.5 million compared to net income of $428.4 million last year. Earnings per diluted share for calendar year 2024 were $1.76 compared to earnings per diluted share of $1.84 last year. Thank you. And I'll now hand the call over to Kevin for some further financial details.

Thank you, Steve. Automotive net sales during the fourth quarter of '24 were $531.3 million compared to $578.7 million in the fourth quarter of '23. And for calendar year 2024, automotive net sales were $2.26 billion compared to $2.25 billion in '23. For the year, FDM shipments increased 21% to 2.96 million units, which more than offset a 6% decrease in automotive mirror unit shipments compared to the '23. Other net sales in the fourth quarter of '24, which includes dimmable aircraft windows, fire protection products, and medical products, were $10.3 million, a decrease of 2% compared to other net sales of $10.5 million in the fourth quarter of '23. Fire protection sales increased by 5%. Dimmable aircraft windows decreased by 23% for the fourth quarter of '24 when compared to the fourth quarter of '23, and medical product sales were $0.6 million in the fourth quarter of '24 for the e-Sight product that launched in the third quarter of '24. Other net sales for calendar year 2024 were $48.6 million compared to other net sales of $44.6 million in calendar '23. Fire protection sales increased 4% year-over-year while dimmable aircraft windows increased by 9% in '24 compared to '23. And medical product sales were $1.4 million for calendar year 2024. Share repurchases. The company repurchased 604,000 shares of its common stock during the fourth quarter at an average of $30.54 per share. And for the year ended December 31 of '24, the company repurchased 6.4 million shares of its common stock at an average price of $32.20 per share for a total of $206.1 million. And as of December 31 of '24, the company has 9.4 million shares remaining available for repurchase from the previously announced plan. Shifting over to the balance sheet, the balance sheet comparisons mentioned today are as of December 31 of '24 compared to December 31 of '23. Cash and cash equivalents were $233.3 million compared to $226.4 million. Short-term and long-term investments combined were $361.9 million, up from $299.1 million, which includes fixed income investments as well as the company's equity and cost method investments. Accounts receivable was $295.3 million, down from $321.8 million due to the size and timing of sales during the fourth quarter. Inventories were $436.5 million, up from $402.5 million. And accounts payable decreased to $168.3 million, a decrease from $184.4 million. Preliminary cash flow items. Fourth quarter 2024 cash flow from operations was $154.4 million compared to $169.6 million in the fourth quarter of last year. And calendar year 2024 cash flow from operations was $498.2 million compared to $537.2 million in calendar year '23. Capital expenditures for the fourth quarter were $41.7 million compared with $62.3 million for the fourth quarter of last year. And calendar year 2024 expenditures were $144.7 million compared to $183.7 million compared to calendar year '23. And lastly, depreciation and amortization for the fourth quarter was $23.8 million compared with $22.3 million for the fourth quarter of '23. And year-to-date depreciation and amortization was $94.7 million compared with $93.3 million for year-to-date 2023. I'll now hand the call over to Neil for a product update.

Thank you, Kevin. Earlier in January, Gentex participated in the 2025 Consumer Electronics Show. This show is about innovation and technology, and it's a great place for us to showcase our current and future technologies and products to customers and consumers. It's a chance for us to get our roadmap of the company in front of people to help them see where we're headed. This year, we had three different booths supporting Gentex Technologies. At the Venetian Expo Center, we had two booths. One booth was supporting and demonstrating our medical wearable, e-Sight, and the second booth was demonstrating our connected smoke detector product lineup that we've named PLACE. These satellite booths were in the middle of the relevant technology areas and provided us with some great customer and consumer insight and feedback. The main Gentex booth was located at the West Hall of the Las Vegas Convention Center. At this booth, we demonstrated products and technologies for all of our major verticals of automotive, aerospace, medical, and consumer-facing products. Again this year, like in past years, we had multiple vehicles and product demonstrators at the booth to help people get a real feel for our product strategy and direction. There were several new demonstrators and properties for CES 2025. The large area device demonstrator stood in the middle of the booth space and helped to demonstrate the functionality of large dimming films. This allowed people to see for the first time our dimming technology on a plastic substrate in sunroof-sized parts. Next to the large area device property, there was a new demonstrator showing our partner Solace and their wireless power and data technology in an automotive use case. The demonstrator was a door of a vehicle that displayed how power and data could be delivered to the door wirelessly. With no wire harness or connectors, power was delivered to activate the window movement and dimming of the window. A wireless connection to the outside mirror demonstrated how a camera could be powered and the video transmitted by this exciting new technology. Also at the booth, we had a complete in-vehicle demonstration of the next generation home link uniting the connected car and the smart home. This vehicle allowed for the demonstration of multiple device activation methods of RF, long-range Bluetooth, and cloud-based. It also helped us to show the different levels of vehicle integration like hard buttons, soft buttons, or through Apple CarPlay and Android Auto. The all-new app has improved device training and scene creation, while the new API solutions allow for control of the garage door from the car or phone app. We're truly excited about the opportunities this new generation of home link can bring to Gentex. To demonstrate our improvements in strategy with driver monitoring systems, we showed an updated simulator and a product panel that displayed the different hardware and software combinations we've been sourced by four different OEMs. Between these two properties, we were able to show how we can compete today with different technical solutions to meet each OEM's needs. The last update for CES is about other dimming products. At the show, we demonstrated for the first time a dimming visor with an integrated display and small dimming glasses. The visor with display was a concept we used at the show to gauge interest in the technology and to talk with customers about what type of information would make sense to be positioned in this area. Overall, this concept was very well received and we'll continue to work on refining the details of the product going forward. In regards to the dimming glasses, this was a great concept that allowed us to show how our dimming technology could be applied in different use cases beyond mirrors, windows, sunroofs, and visors. Now for a quick update on launches and full display mirror. In the fourth quarter of 2024, we had another busy launch quarter with over 60% of our launches being advanced features. Homelink and Full Display Mirror were the biggest drivers of these launches. We're excited to announce that in the fourth quarter of 2024, we began shipping Full Display Mirror on the Renault Master and Volkswagen Transporter. Both Renault and Volkswagen are new OEM customers for Full Display Mirror. In addition to these two nameplates, there were seven additional nameplates with previous OEMs, bringing our total launch nameplates to 133. Even though a Full Display Mirror units came in lower than forecasted for the fourth quarter of 2024, as was mentioned earlier, we had an incredible growth year and shipped 2.96 million units in calendar year '24 and achieved our goal of shipping at least 500,000 units more than 2023. This product continues to gain interest from luxury brands to volume brands around the world and we're well-positioned to keep this technology moving. Gentex is an excellent innovation and technology company. And we've done a great job improving our product portfolio and getting projects to market. As we enter 2025, we need to keep our focus on innovation, but it's clear that we need to increase our focus on building material reductions and improvements in efficiency that can have an immediate impact on our financial performance. This increased focus has begun and the teams are driving to get improvements in place to help get our margins back in line with our goals. 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 2025 and 2026 are based on the S&P Global Mobility mid-January '25 forecast for light vehicle production in North America, Europe, Japan, Korea, and China and are detailed in our press release. Light vehicle production in these markets is expected to decrease by approximately 1% for calendar year 2025 versus last year, while light vehicle production in our primary markets of North America, Europe, Japan, and Korea is expected to be down over 2%. For calendar year 2026, light vehicle production in North America, Europe, Japan, Korea, and China is forecasted to grow by approximately 2% compared to light vehicle production estimates for 2025. The company's guidance excludes any impact from the company's pending acquisition of VOXX International Corporation, which remains subject to certain regulatory and VOXX shareholder approvals. Based on this light vehicle production forecast and our estimates for aerospace, fire protection, and medical sales, the company is providing guidance for calendar year 2025 as follows. Revenue for the year is expected to be between $2.4 billion and $2.45 billion. Gross margins for the year are expected to be between 33.5% and 34.5%. Operating expenses are expected to be between $310 million and $320 million. Our estimated annual tax rate is forecasted to be between 15% and 17%. Capital expenditures are expected to be between $125 million and $150 million. And depreciation and amortization is now forecasted to be between $85 million and $90 million. Additionally, based on the mid-January 2025 S&P Global Mobility Light Vehicle Production Forecast, as well as the company's estimates for aerospace, fire protection, and medical sales, the company currently expects calendar year 2026 revenue to be between $2.55 billion and $2.65 billion. Despite the industry's optimism at the beginning of the year, calendar year 2024 brought a challenging operating environment for much of the year, driven by lower than expected light vehicle production in our primary markets. Despite these challenges, the company has been able to continue outperforming the underlying market and create year-over-year growth. These headwinds significantly impacted our overall revenue estimates, which makes margin expansion very difficult. Despite this, the team's work and focus on margin improvement allowed us to make a modest year-over-year improvement in gross margin as well. As we look into 2025, light vehicle production estimates indicate that our largest markets are poised to shrink even more. However, even in the face of a smaller end market, we are forecasting revenue growth in 2025 that at midpoint of revenue guidance suggests a 7% outgrowth versus our primary markets. This growth can only be accomplished by launching and new products and technology. The commitment we have made to invest in and develop engineering capabilities and new technologies is beginning to provide the signs of what we hope to be a long-term, sustainable outperformance versus the underlying market that can generate shareholder returns for long into the future. That completes our prepared comments for today. We can now proceed to questions.

Thank you. Our first question will come from the line of Luke Junk from Baird. Your line is open.

Good morning. Thanks for taking the question. Steve, maybe to start with, if we could double click on the vehicle mix impacts in the quarter. Looking at this, you gave guidance in late October and the last couple months of the year had that shortfall, like you said, of around $45 million to $50 million. Did you just diagnose what happened in the quarter? How do you delineate between impacts that are maybe more tied to year-end inventory rebalancing, both base mirror and maybe some FDM impacts in there as well, versus vehicle mix factors that might linger into '25? And based on what you're seeing in January, any changes in the business that can maybe better answer that question as well? Thank you.

Yes, thanks, Luke. That's a good question. I think if you look at the primary portion of the myth, I would say probably about half of that we think is inventory adjustments that won't go into next year. And the reason why we believe that is, to your point, when we look at the first few weeks of shipment in '25 and what we're seeing for the rest of the quarter, it would indicate that this portion of that problem won't be lingering. There is probably a $20 million-$25 million reduction in our Q1 estimates that we're seeing that's based on a little bit of us being conservative about product mix issues. Typically, this time at this point in the cycle is you have a combination of factors, a lower production, lower sales based on economic conditions, but then the one that's harder to calculate because it's data like this isn't really tracked in the North American market really well is what is the average sale price of a vehicle? And so, we're just starting to dig in and get some data around that area. But one of the things we're definitely seeing is that the highest end of the vehicles, I mean, for the last two years, really, 70% of vehicles that were sold in North America were very high content featured, and we're starting to see a little bit of weakness on that side, and that's probably the other half of the revenue loss that we saw on the quarter was really driven by that. Just content on a per vehicle basis wasn't the same as what we've seen the last two years.

Got it. And then switching to how that filters through the P&L, obviously mix has impacts on gross margin, but you mentioned in the release that if not for mix and where volume should go in the quarter, that you would have been probably more flat on a year-over-year basis for gross margin, and just trying to square that with the '25 gross margin guidance on a seasonal basis, especially in the near term, given that the first quarter usually sees some sequential gross margin pressures as price downs and whatnot come in with recovery thereafter. Any reason to think that maybe that would be a little flatter trajectory to start the year given just the weight that was on the 4Q comp specifically for gross margin? Thanks.

Yes, I would say the normal cyclical nature of the gross margin performance throughout the year will still be the case next year, but we're expecting the overall margin in Q1 to step up versus Q4 because the sales level should be better. If you look at what our Q1 guidance is, and really for the rest of the year, that full-year guidance basically implies that Q1 has to be significantly better than what Q4 was from a pure revenue standpoint, and so that's really what the margin recovery will be focused on. If you look at $50 million, roughly, and you say, hey, contribution margin of at least 40% on those levels of sales, you can kind of model what you would see Q1 to be, even if it just hit what we thought Q4 was going to be from an overall revenue perspective. That was really the headwind that hit the hardest on the margin performance. There really wasn't anything underlying in the business that we would say was structurally wrong that caused that margin deterioration, other than just the lack of sales.

Understood, and then just last question for me. Not sure how much you can say right now, but VOXX, still pending closure of that deal, of course, but I don't know if you can speak to just a high-level, maybe a couple of strategic comparatives once you close the deal, just in terms of key action items investors should expect here in 2025?

Yes, right now, what we're tentatively looking at, just based on the timing of both regulatory approvals and then VOXX shareholder approvals, we're probably looking at towards the end of Q1 as a target close date. So as we move through the next couple months, we'll obviously be submitting more information and communicating with shareholders about how we're coming on that schedule and timeline, and then obviously, once the close happens, we'll be talking about other disclosures that we'll be making about the future of that business, what it looks like, and what estimates we have for what revenue impact that will have for us going forward. Thank you, Luke.

One moment for our next question. Our next question comes from Joseph Spak from UBS. Your line is open.

Good morning, everyone. Want to touch on, again, some of the content and maybe some of what you're seeing in the quarter and really how you're thinking about this going forward, because obviously, FDM and content was a big part of the growth story here. So your '25, '26 guide, if I'm looking at it correctly, kind of implies some slowing content growth the further you go out. And I just want to understand what you're assuming. Are you assuming that vehicle mix doesn't recover or degrades, and is that because of vehicle affordability? And maybe even like what an FDM target for '25 and '26 is embedded in your outlook?

Yes, if you look at really what we're focused on and really what's impacted and kind of slowing that growth outperformance versus the underlying market, that's really as evidenced in the last couple quarters when you see both base auto-dimming inside and outside mirrors actually shrunk in the last two quarters, and a lot of that has to do with weakness in the China market and some of our other major OEMs pulling back on overall production levels. And so those headwinds, FDM, HomeLink, and some of the other growth we've seen on advanced features are more than offsetting those. But as we go forward, like to your point, some of the growth rates in those advanced features may not be enough to offset them to the extent to which we're able to outperform by, say, 8% or 9% versus the underlying market. That kind of 6% to 7% though we look at over the next couple years and believe that is very achievable from an outperformance versus the underlying market. If you look at FDM in particular, our forecast right now for '25 would suggest probably 300,000 or so unit growth in FDM for this year, and so that's kind of what we're building our capacity and financial model around.

Okay, thank you, that's helpful. And I guess just maybe diving even a little bit deeper to '25, you got a production down one, I think you just said outgrowth of that seven points would suggest, if I'm doing the quick math right, seems like you're assuming like a 1% FX headwind, is that about right?

I think when you look at it, it's really, when we talk about the outperformance, it's in our primary market, so you're looking at Europe, North America, and the Japan-Korea market, because that still makes up a large portion of our revenue. And so when you look at those markets, those are really down over 2%. And so when you do the math, that's where the 7% outperformance comes from.

Okay, so is the FX headwind included in the sales guidance?

Most of our stuff is denominated in U.S. dollars. Less than 10% of our sales are denominated in foreign currencies. I mean, in China, it's about 9% to 10% of sales, and that is the stuff that is denominated in RMB, so there may be a little bit of headwind there as well.

Okay. So then maybe, can you just help us understand, like for that seven points of growth, let's say for '25, if we can, like, one, is it possible to sort of understand, I guess, how customer mix plays within that, or I guess relative to the minus one, industry vehicle production, and then also, like, of the outgrowth component, what stays the mix between just three units and content or product mix?

Yes, well, first I'd say, first, before we get into the customer mix, I'd talk about geographic mix. And so if you look at the markets that have been most impacted over the last 12 months, it's really Europe and North America and Japan. Korea have been very severely impacted. If you go forward into '25, you start to see some lingering effects of that. There's not a natural recovery, especially in the European market, to the extent to which to get back to where they used to be, and so those obviously create some headwinds for us. We have to get content on a per vehicle basis to offset those overall lower levels of production that those three primary markets have gone through the last few years. In addition to that, though, your point about certain OEMs is absolutely right. Obviously, there's some OEMs that are very much struggling. Some of those have been great customers of ours for a while, and so those have had a disproportionate impact on the negative side of our ability to grow. As those customers have struggled with their product lineup and favorability, obviously there's been a huge impact on the profitability of certain OEMs as they've committed to EV executions that have not been accepted by the marketplace the way they expected. That's definitely caused some headwinds for us, too, both in our anticipated launches of what we were going to get with those growth opportunities, but also now on the backside of that, which is causing cost pressure as those OEMs try to offset the investments that they've made and aren't obviously being rewarded in the marketplace for those investments.

Okay. Thanks so much.

Thank you.

One moment for our next question. Our next question comes from the line of Mark Delaney from Goldman Sachs. Your line is open.

Yes, good morning. Thank you very much for taking the questions. Maybe first to pick up on your comments about CES and all the products you had there. I know you're meeting with a number of your customers. Now that you've had some time to potentially get more feedback from those customers and continue to engage. Can you share a bit more on any areas you're gaining particular momentum in, especially if you could talk to you around the large, dimmable devices. You're making some progress being able to work on the technology there, so we'd be especially interested on that product, too?

Okay, great, thank you. Yes, the show is really good for us from an overall product strategy and direction, and getting multiple customers, obviously global customers, to see the different technologies and how we're showing them was, again, really successful. I would say a couple of the areas that were some of the highlights are the ones that I touched on. The large, dimming demonstrator showing plastic substrate films with the dimming technology laminated between glass was really positively seen. It helped to demonstrate how the technologies evolved from just being between glass like a standard mirror to actually being on a plastic substrate, so that one was really successful, and I think we're gaining some momentum on larger devices coming out of that. Another one was Solace, our partner Solace and the wireless power. The ability to, in some situations, to not have connectors and harnesses that go through openings, but wirelessly power data and, well, wirelessly do power and data was actually really well received, and a lot of interest gaining in different use cases in automotive as well. Those would be the two that really stepped up. Obviously, we've got a lot of other ones, like our HomeLink product, the next-gen system that I talked about. A lot of customers interested in that, again, depending regionally, I would say some of our Asian-based customers had a lot of interest in that and the evolution of the HomeLink product as we look forward gained a lot of momentum too.

Yes, and just in terms of the customer engagements, do you feel like you're close with new bookings for some of those products?

Yes, a couple of them, yes. I think some of those concepts, keep in mind that we're demonstrating the idea of the concept to gauge interest as well. I would say on larger devices, I think we've got a couple projects that we're moving forward with from a development side that, within the next couple years, we're looking to bring those to market. On dimming visors, we're getting close. I think that's probably another 12 to 24 months to really get that into an execution phase and get that moving in vehicles. Solace, the wireless power is a little too early. First time demonstrating and showing concepts. I think there's some interest in it. We're obviously working with them to promote it, but there's a little more, the sales cycle and that's still in process.

On the other side, on the DMS, driver monitoring and cabin monitoring side, what was nice to be able to show there was we actually showed the four unique OEM executions that we're currently launching. One just started into production. The other three will be launching over the next 12 to 18 months. So it was kind of cool to be able to show not only the state that you have some awards with OEMs, but it'll actually show the physical product and what those will look like.

Yes. Okay, no, thank you guys for that. In terms of the financials, maybe you could detail a little bit more of your expectations, not only for your own cost downs, but pricing assumptions this year with customers and suppliers relative to some of the typical levels. And could you talk about how far you are with the negotiations on that front and securing what you need to in order to hit that 35% gross margin target exiting this year? Thank you.

Yes, on the pricing to our customer side, we're modeling about 100 to 150 basis point of headwinds from pricing to OEMs. We believe we can offset that or more than offset that on the supplier side based on the contracts that we have negotiated. I think we talked about this just a little earlier on the last question, but there's a timing impact of that. We don't see that until Q2, just given the level of inventory and role that we carry. But obviously the difference between those two hits harder in Q1, but then as we start to get those supplier cost downs to roll through our financials in Q2 and beyond is when we start to feel the positive impact of that. Beyond that, the higher sales levels will obviously help. And then to Neil's comments that he made in his prepared section, we're a lot of focus on bill of material reduction based on engineering work to help lower those bill of materials and then operational efficiency internally. We know that labor has gotten more expensive over the last several years. And so we have some very specific plans on how to make sure we're raising throughput to help offset that higher labor cost.

Thank you.

Thanks, Mark.

One moment for our next question. Our next question will come from line of Ron Jewsikow from Guggenheim Securities. Your line is open.

Yes, good morning and thanks for taking my questions. On the mix issues cited for the fourth quarter, at least on the surface level, interior mirror shipments were quite a bit weaker than the next year mirror shipments relative to the third quarter. And implied ASPs were also pretty healthy, which suggests I think FDM was probably pretty stable as a percentage of the mix. I guess, were there mix issues within the mirror shipments or was it more related to HomeLink or something else, because the split of mirror shipments doesn't really scream like mix was a material headwind, at least based on the exterior versus interior splits?

Yes, well, the bigger mix issue there was just the fact that they were down. The significance of the drop in overall mirror shipments hurt and especially if you look at the loss on OEC sales, that obviously hurts disproportionately on the margin side. And so if you look at those, that's really when we talk about mix. The mix of FDM was solid. There was, to your point though, as North America weekends, you do see some of the North American specific features, things like Compass and HomeLink and other features that start to get negatively impacted because of weakness in the North American market. What's unique about FDM is it's not geographically biased as much as some of our other feature sets. So you can produce solid growth profile between Europe, North America, Japan or Korea in that space. The other aspect of mix that was negative was geographical mix associated with our China business. So there was quite a bit of a weakness in the China market. We continue to expect there to be a lot of cost pressures and weakness in that space in terms of overall volumes. And then lastly, I think when you look at some of the growth opportunities and what we were expecting from an overall outside mirror shipment, Tesla volumes didn't come close to where we thought they were at the beginning of the year, especially in Q4, and so that definitely had a negative impact on our overall OEC shipments as well.

Okay, that's helpful. And then on the commentary that FDM was the size of what you might have said half of the revenue shortfall this quarter. I guess based on implied ASPs again, that they were pretty stable versus the third quarter. Does that imply your base expectation was that FDM contribution to the business was expected to accelerate in the fourth quarter and either because of channel dynamics or mix that didn't really play out?

Yes, that's correct. We were expecting a higher growth rate in Q4 on FDM. Neil mentioned a couple of the launches, but then there were a couple existing OEMs too that were talking about deploying at higher take rates and just given some of the struggles they were facing, they either slowed down or pushed out those increased take rates.

Okay, and then if I could just sneak in one more. On the 2025 guide, I know you tend to, you and your team tend to like to take a conservative stance relative to the S&P global mobility on production. Is that still the case or do you think expectations now as they're set are a bit more reasonable?

No, I think they finally came to grips a little bit more like what we, back to our a little more pessimistic position on especially Europe and North America at the time. We continue to think that there's still going to be some struggles and weakness in those three markets. I think unfortunately a lot of the growth that the industry's seen over the last few years has really been strictly driven by the China production environment. And we have obviously a much lower exposure to China than we do the rest of the world from a production standpoint. And so we continue to have a little bit more of a pessimistic take on light vehicle production in North America, Europe, and Japan, Korea.

Okay, I appreciate it. Thanks for taking my question.

All right, thanks, Rob.

One moment for a question. The next question will come from the line of James Picariello from BNP Paribas. Your line is open.

Hey, good morning, everybody.

Good morning.

I just want to revisit the dynamics that drove the fourth quarter downside, mainly driven by the lower OEM builds mix and the key customer underperformance. And I know this has already been asked, but how are you bridging two? We're thinking about that six points of outgrowth now embedded in the 2025 guide. It does sound as though FDM remains a key driver of that outperformance. If your key customers, similar to the fourth quarter, have lower builds mix or maybe slightly lower take rates for FDM, I assume you have visibility into new customers or customers that recently launched on FDM that you'll be growing substantially with this year. Can you kind of just provide some color on that with respect to the six points of outgrowth? Thanks.

Yes, thank you, James. You're correct in noting the overall growth. Continued growth in FDM will be a key contributor to our performance in 2025. Neil pointed out the two new OEMs we are launching with, and we also have several other OEMs from 2023 and 2024 that are continuing to roll out new vehicles, which will support growth in that product lineup. We anticipate some growth later in 2025 with the launches of DMS and in-cabin monitoring systems, which will further boost our performance. Overall, we hope to see some positive trends in the OEC side of the business in 2025, in contrast to the challenges we faced throughout much of 2024. Some individual OEM customers had a difficult time in 2024, so we expect to see recoveries in both their performance and the volume of products they purchase from us. The comments we made in the prepared section highlight that much of the growth we are targeting for 2025 and 2026 will be driven by increased content. We do not anticipate significant support from total light vehicle production and will need to manage various headwinds in that area. While certain OEMs have struggled or performed well, we believe there will be more stable performance among them compared to their historical trends. However, the majority of our growth is expected to come from content growth in our main markets.

Got it. That's very helpful. And just apologies if I missed this, but any thoughts on seasonality for the year, particularly just to start the year in the first quarter, given the choppiness that we obviously saw in the fourth quarter, just high level, how to think about maybe the first quarter or first half. And when, as we consider the VOXX acquisition, is that still expected to close at some point within the first quarter? And just any thoughts you'd be willing to share on the $40 million to $50 million cost synergy, cost improvement for that business, the timing of that? Thank you.

Yes, I'll start with the VOXX close. We're targeting end of Q1 as kind of the tentative timeline we have right now based on waiting on regulatory approvals and VOXX shareholder approval, and just the normal timing of when that can be accomplished. So that's kind of what our target is right now. If you look at your first part of your question, James?

Seasonality impacts.

Oh, seasonality. I would say, yes, I think the first half of the year from a seasonality standpoint is going to be really unique, but I think that one’s going to be mainly tied to what is happening with North American trade agreements. There's obviously a lot of our customers that build cars both in Canada and Mexico, and what impact would tariffs or the threat of tariffs have on overall vehicle production in those countries. And so that one I think is going to cause a little bit of chaos here in the first half of the year, which is to be understood. I don't think that other than that, I don't think there's going to be a ton of abnormal seasonality that we're expecting for '25. I think it's going to be a pretty normal year in terms of cadence. And then you had a third question.

The last one on the $40 million to $50 million in cost savings, really the first part of the acquisition is really getting to know the team, looking at duplicate costs where we have both being a public company. I mean, some of those costs go away right away, things like insurance and SCCs and auditors and those things. And then beyond that, it's really looking at the strategic parts of their business and leveraging our spend. We're a bigger company, bigger electronic spend. They buy a lot of electronics. And then longer term, looking at strategic places where we can become a manufacturer of some of the stuff that they make. That's really some of the larger points, but that's going to take 18 to 24 months to kind of get through a lot of that.

Understood. Thanks, guys.

Thanks, James.

One moment for our next question. Our next question will come from Josh Nichols from B. Riley. Your line is open.

Yes, thanks. Seems like most of the questions about the near term stuff have probably been tackled. Thinking a little bit further ahead, so I think '26 sales up a little bit over 7%, 500 to 600 bps of outperformance relative to the light vehicle production estimates. One, is there much built into that in terms of the new technology offerings, dimmable glass, what you've also been doing for driver and cabin monitoring, or have you been pretty conservative on the expectations for that, because those are newer technologies that aren't really generating much revenue today?

Yes. Part of the '26 growth is going to be continued to be driven by Full Display Mirror and driver monitoring and in-cabin monitoring launches along with kind of our existing portfolio products. There's really not much in there from a revenue standpoint from large area devices.

Got it. Historically, if you look back some number of years, the company was able to do. I think you touched on it earlier, like 800 to 1,000 basis points of growth relative to light vehicle production. And I know you've talked about, there's some headwinds, so you're still able to do 500 to 600 bps, but do you think that there's a path to getting back to that high single-digit percentage outperformance? And like, what is that going to be? Is it going to be driver monitoring or it will be when you have driver monitoring, but you're also layering in some large area dimmable devices. And I'm just curious your longer-term thoughts about the opportunity that you see with some of these new technologies that you had on display at CES?

Yes, I think you're exactly right. I think you'd be looking out several years before that type of outgrowth becomes a possibility, just given the market dynamics and conditions that we're experiencing right now. But to your point, once you start launching driver monitoring and in-cabin monitoring, and then you start talking about large area devices at full scale, those start to drive the potential for higher growth rates.

Appreciate it, thanks.

Thanks Josh.

One moment for next question. Our next question will come from Ryan Brinkman from JP Morgan. Your line is open.

Hi, thanks for taking my question. It seems like the customers which underperformed the industry production in 4Q might've just happened to have been those that disproportionately order your full display mirrors. Is that the right way to look at it that these were actions that the customers took across their lineup? I just wanted to check that it wasn't also maybe like a customer mix, like a segment mix phenomenon, as opposed to a customer. Because we've also been hearing that maybe automakers are finding customers are more interested in more affordable vehicles, like a Chevy Trax as opposed to a Traverse or maybe lower spec models within a given vehicle, like a base versus more lowest version. I just have to ask given, you know, FDM's greater prevalence on higher spec and EV vehicles?

Yes. No, there was absolutely both of those factors playing and there's no doubt if you look at, especially the Europe market, I believe, and portions of the North American market where D and E segment vehicles were disproportionately lower. You know, A, B and parts of C segment in some of these markets actually did okay. But the painful part was really around C, D and E in our primary markets. And so to your point, yes, there was definitely more volume going into lower level vehicles, not only lower segment vehicles, but lower cost vehicles even inside of some of those segments. So, like I said, it's difficult in the North American market to get your hands on good data on ASP or what the average sale price of a vehicle is, but what the data we're seeing is that there definitely was a trend towards less expensive vehicles in the quarter.

Okay, thanks. And I'd love to get your perspective on the extent to which you think that might continue into 2025, and then just overall, when you think about that 300,000 unit increase in FDM shipments that you referenced earlier, how important might the customer or segment mix of production be versus contributing to that number, the overall change in industry production, or maybe most importantly, I would imagine, the launch activity that you have planned for FDM in 2025?

Yes. No, it becomes very important, there's no doubt. If you look at the cost of that product, how it's packaged on vehicles, and then also which OEMs are you participating on, trying to make, the more we launch, the better we are able to handle the mix issue between OEMs. And what I mean there is that at the beginning of this process when we first started creating this product, we were only exposed to two or three OEMs, meaning if those OEMs didn't do well, we were in trouble from a product launch standpoint. As we start to roll out into more volume brands, you start to get a little bit more protection as it relates to which OEMs are winning in the marketplace, and how does this product have growth opportunities beyond just the luxury segment. As we launch and continue to increase the number of OEMs we're supporting with this product, that actually helps secure the downside of the business a little bit, and gives you multiple ways to be able to win or at least compete in the space. But there's no doubt if the trend were to continue of lower cost vehicles, it would definitely hurt that forecast. What we're seeing is, we tend to take a pretty conservative approach, we feel like that 300,000 units is achievable given our customer mix, it's not an overly aggressive target by any stretch, but we are mindful of the fact that there's a lot of economic factors happening right now, especially in our primary markets.

Okay, that's helpful. Thanks. And then just lastly, how should we think about capital allocation following the VOXX acquisition, particularly with regard to the amount or cadence of buyback?

Yes, I think as we roll through and hopefully as the close happens it will definitely impact a little bit our capital allocation strategy and how much cash we're diverting towards share repurchases. But given the size of the acquisition, we don't think that'll really slow us down for a long period of time. We look at the business and what our plans are to help improve profitability. Our goal is as we, like Kevin mentioned, in the 18 to 24 month window, as we digest that acquisition and start making improvements to that underlying business, we should be able to get back to that level of share repurchases probably even before that time period. But then more importantly, if we're successful in the integration, it'll actually provide additional capital that we can use towards our capital allocation strategy.

Very helpful, thank you.

Thank you. One moment for our next question. Our next question will come from the line of David Whiston from Morningstar. Your line is open.

Good morning, everyone. I wanted to approach the topic of buybacks from a different angle. Your stock seems to be very undervalued right now, especially given today's situation. With the potential for weak production in 2025, does that make you more cautious, or does it actually encourage you to pursue buybacks more aggressively since the stock is at such low levels?

Well, thanks for pointing that one out, David. No, it's a very fair point though. I mean, one of the things, from our perspective, we look at a long-term horizon of how the company is positioned, our growth trajectory, what we think our profitability will look like over a three, four, five year period. And this price is disproportionately low than what we think. I mean, yes, we get the quarter, we understand it wasn't great, but the market does tend to overreact. That tends to put us in a position that we would tend to want to get more aggressive, not less. So when we look at this, we fast forward and say, take a quarter out of it, even '25 performance if we hit these numbers is going to be back to a level of cash generation that's very good given the underlying market conditions and '26 would be even better. So as a general rule, we look at these downturns as opportunities to buy typically. Like we did mention though, we do have the VOXX acquisition that's still pending. And so it'll be a balance between how do we fund the VOXX acquisition at the same time as take advantage of market conditions like these, because we don't feel like this price point is indicative of what our growth and profitability trajectory looks like.

Okay. And then going back to the tariff comment made earlier, when you talked about the downstream impact, what about upstream? Are a lot of your raw materials really not coming from Canada, Mexico? Does they're coming from Asia with due to technology components? And then related, does your guidance have any tariff impact in it?

So our guidance right now had, there were some tariffs that were effective for one, but that was only a couple of million dollars. Most of our raw material imports are from Asia, but there is some exposure to Mexico in that I'll say $5 to $10 million range. Worst case scenario, if there is a 25% tariff on Mexico, its Mexico primarily, there's not really anything from Canada, but there's nothing in our guidance for that yet to be determined tariff that is not in effect yet.

The one that was effective on January 1 though is in our numbers.

Okay, all right. Thanks guys.

Thanks, David.

Thanks, David.

Thank you. I'm not showing any further questions at this time. I would now like to turn it back over to Josh for any closing remarks.

Thank you everyone for your time today. Appreciate the questions and follow-ups. If there's anything else that you need, please don't hesitate to reach out, but otherwise have a great weekend.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.