Earnings Call Transcript - GNTX Q2 2023

Operator, Operator

Good day, and thank you for standing by. Welcome to the Gentex's Second Quarter 2023 Financial Results Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, Josh O'Berski, Director of Investor Relations. Please go ahead.

Josh O'Berski, Director of Investor Relations

Thank you. Good morning, and welcome to the Gentex Corporation Second Quarter 2023 Earnings Release Conference Call. I'm Josh O'Berski, Gentex's 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 at ir.gentex.com. All contents of this conference call are the property of Gentex Corporation and may not be copied, published, reproduced, rebroadcasted, 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 second quarter 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 Downing, President and CEO

Thanks, Josh. For the second quarter of 2023, the company reported net sales of $583.5 million compared to net sales of $463.4 million in the second quarter of last year, a 26% quarter-over-quarter increase and a new quarterly sales record for the company. For the second quarter of 2023, global light vehicle production in North America, Europe, Japan, Korea, and China increased approximately 18% when compared to the second quarter of last year. So far, 2023 has proven to be the opposite of the last few years with year-to-date sales levels coming in higher than our beginning of the year forecast. As a result of the improvement in light vehicle production, fewer supply chain challenges and the continued strong demand for our products, this quarter resulted in an outperformance of 9% compared to our primary markets, which include North America, Europe, Japan, and Korea. The company's growth is being driven by penetration rates of our core electrochromic technology, continued growth in our Full Display Mirror product line, and adoption of other value-added features in the market. For the second quarter of 2023, the gross margin was 33.1% compared to a gross margin of 32% for the second quarter of last year. The second quarter of 2023 gross margin increased on a quarter-over-quarter basis as a result of the significantly higher sales levels, manufacturing improvements, cost recoveries from OEMs, and improvements in freight-related costs and product mix. Some of these improvements were partially offset by increased raw material and labor costs as compared to the second quarter of last year, but still resulted in a 110 basis point increase in gross margin on a year-over-year basis. When compared to the first quarter of 2023, the gross margin in the second quarter increased from 31.7% to 33.1% as a result of better overhead leverage from the higher sales levels, customer cost recoveries realized in the second quarter, and improvements in overtime costs, which helped to offset certain incremental raw material cost increases that took effect in the first half of 2023. Late last year, we formulated our plan for margin recovery that we estimated would take until the end of 2024 to complete. So far, I'm very pleased with our progress and believe we are well on our way to accomplishing the goal of achieving a gross margin of 35% to 36% by the end of next year. Operating expenses during the second quarter of 2023 increased by 5% to $65.8 million compared to operating expenses of $62.6 million in the second quarter of last year. Operating expenses increased quarter-over-quarter, primarily due to staffing and engineering-related professional fees, which were partially offset by lower outbound freight expenses. Our operating expenses started to ramp as expected during the second quarter and will continue to build throughout the rest of the calendar year as we add resources focused on new product research and development, new business awards, and VAVE initiatives for cost optimization of our bill of materials. Income from operations for the second quarter of 2023 was $127.3 million, a 48% increase when compared to income from operations of $85.8 million for the second quarter of last year. During the second quarter of 2023, the company had an effective tax rate of 15.1%, which was primarily driven by the benefit of the foreign-derived intangible income deduction. Net income for the second quarter of 2023 was $109.2 million compared to net income of $72.4 million for the second quarter of last year, which represents a 51% increase. The increase in net income was primarily the result of the quarter-over-quarter increases in net sales and operating profits. Earnings per diluted share for the second quarter of 2023 were $0.47, a 52% increase when compared to earnings per diluted share of $0.31 for the second quarter of 2022. I will now hand the call over to Kevin for some financial details.

Kevin Nash, Vice President of Finance and CFO

Thank you, Steve. Automotive net sales in the second quarter of '23 were $574.1 million, a 27% increase when compared to $452.9 million in the second quarter of '22. Auto-dimming mirror unit shipments increased by 21% during the second quarter compared to the second quarter of last year. Other net sales in the second quarter of '23, which includes dimmable aircraft windows and fire protection products, were $9.4 million compared to other net sales of $10.5 million in the second quarter of '22. Fire protection sales decreased by $3.6 million for the second quarter of '23 compared to the second quarter of '22. Dimmable aircraft window sales increased by $2.5 million for the second quarter of '23 compared to the second quarter of last year. During the second quarter of '23, the company repurchased 0.9 million shares of its common stock at an average price of $27.28 per share. As of June 30, '23, the company has approximately 18.8 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 will vary from time to time and will take into account macroeconomic issues, market trends, and other factors the company deems appropriate. Looking at the balance sheet, balance sheet comparisons mentioned today are as of June 30, '23 as compared to December 31, '22. Cash and cash equivalents were $237.7 million compared to $214.8 million. Short-term and long-term investments combined were $259.8 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 $350.4 million, up from $276.5 million due to the increase in sales levels. Inventories were $390 million, down from $404.4 million, and accounts payable increased to $168.5 million, up from $151.7 million. Looking at preliminary cash flow items for the quarter and year-to-date, second quarter '23 cash flow from operations was $120.9 million, which was an increase from $73.3 million in the second quarter of last year. The increase was due to increases in net income and shifts in working capital. Year-to-date cash flow from operations was $241.8 million, an increase from $189.3 million in '22, also due to increased net income and changes in working capital. Capital expenditures for the second quarter were $47.5 million compared with $34.1 million for the second quarter of '22. Year-to-date capital expenditures were $90.3 million compared with $58 million for year-to-date '22. Depreciation and amortization for the second quarter was $24.8 million compared with $25.3 million for the second quarter of '22. Year-to-date depreciation and amortization was $48.9 million compared with $50 million for year-to-date '22. I'll now hand the call over to Neil for a product update.

Neil Boehm, CTO

Thank you, Kevin. For today's product update, we're going to focus on three key areas: first, our launch rate for the quarter; second, Full Display Mirror volumes for the quarter and full year; and third, our focus on cost reduction now that supply constraints have improved. In regards to launch rates, in the second quarter of 2023, there were 35 net new nameplate launches of our interior and exterior auto-dimming mirrors and electronic features net of previously disclosed feature headwinds. The second quarter was an extremely heavy launch quarter and was very strong in advanced features. In the quarter, 60% of the net launches contained advanced features, with Full Display Mirror and HomeLink leading the way. Now for an update on Full Display Mirror. Full Display Mirror continues to maintain momentum with our customers through increased launches and with consumers that have helped to drive increased take rates and volumes. In the first quarter of 2023, we stated that we are expecting our 2023 unit volume to be at least 300,000 units higher than our 2022 volume. Based on the results of the first half of the year and our current forecast for the remainder of 2023, we now believe our Full Display Mirror unit growth will be approximately 500,000 units higher than our 2022 volume. We're excited to see this product continue to grow across so many different vehicle platforms globally. Throughout the second quarter of 2023, we've continued to see improvements in supply constraints that have been forcing us to execute a significant number of redesigns. With the majority of these challenges behind us, we can begin to evaluate our designs and component strategies from a cost perspective. Over the last two years, we've incurred significant cost increases due to the reactionary mode we needed to be in, but we're now turning our focus to the designs, the components, and the suppliers of the components in an effort to drive down our bill of material costs. Our strategy is very straightforward: work with our key supplier partners to find win-win situations that allow us both to have sustainable, profitable growth. Finally, I want to say thank you to the Gentex team. This team continues to do an incredible job working through issues and challenges, all while launching new products at the highest rate in company history. It has been truly impressive. I'll now hand the call back over to Steve for guidance and closing remarks.

Steve Downing, President and CEO

Thanks, Neil. The company's current forecast for light vehicle production for the third quarter of 2023 and full years 2023 and 2024 are based on the mid-July 2023 S&P Global Mobility Forecast for light vehicle production in North America, Europe, Japan, Korea, and China. Light vehicle production in these markets is expected to decrease 3% for the third quarter of 2023 as compared to light vehicle production for the third quarter of last year. For calendar year 2023, light vehicle production in these markets is forecasted to increase approximately 6% when compared to last year. It is important to note that these estimates do not include any estimated impact stemming from potential labor issues in the second half of this year. Based on this light vehicle production forecast, the company is updating certain guidance estimates for calendar year 2023. We are increasing our revenue estimates for the year, which is now expected to be between $2.2 billion and $2.3 billion. We are also raising the bottom end of the range for gross margins for the year as we are now expecting gross margins to be between 32.5% and 33% for the year. Operating expenses are still expected to be between $260 million and $270 million. We are lowering the high end of our estimated annual tax rate for the year, which is now forecasted to be between 15% and 16%. Capital expenditures are still expected to be between $200 million and $225 million. Our depreciation and amortization forecast remains unchanged and is expected to be between $100 million and $110 million for 2023. Additionally, based on the company's current forecast for light vehicle production for calendar year 2024, the company expects calendar year 2024 revenue to be between $2.45 billion and $2.55 billion. The second quarter of 2023 produced revenue levels that were both record-setting and better than our initial expectations. Additionally, the company continued to make progress on our path towards improved profitability, and we are now executing our next wave of cost improvement initiatives that are necessary for us to accomplish our goal of reaching the 35% to 36% gross margin range by the end of 2024. While the remainder of 2023 and 2024 have the potential to be impacted by industry challenges and macroeconomic issues, we continue to remain optimistic about our product portfolio, our growth estimates, and our ability to control costs. These factors should come together over the next 18 months to produce record revenue and profitability for the company. That completes our prepared comments for today, and we can now proceed to questions.

Operator, Operator

Our first question comes from the line of Luke Junk with Baird.

Luke Junk, Analyst

Steve, hoping to start with gross margin. Based on both the result this quarter and guidance moving higher, it appears that some elements of the gross margin improvement plan that you've laid out are progressing faster than expected. Can you just talk about where you're seeing upside leverage to gross margin sooner or all it's equal and the sustainability of those factors? And then with respect to the next wave of gross margin initiatives that you're moving to right now, are some of these coming sooner than you may have initially thought?

Steve Downing, President and CEO

Yes. No, thanks for that question. You're right on with the underlying principle. What's driving margins higher and faster than we had even anticipated was this really strong growth in revenue. What happens with this higher level of sales allows us to leverage the manufacturing overhead portion of the business quite well. And then as we mentioned before, we've had a lot of new hires over the last six months. So the folks getting onboarded and trained are starting to see improvements in labor. Obviously, labor costs themselves have gone up significantly, but the team has been able to show increased throughput, which has helped to offset some of those higher labor costs. Beyond that, the cost recoveries from OEMs have actually come in a little quicker than anticipated and, quite honestly, more meaningful than what our initial estimates were. With some of the slowdown in what's happening in the industry, there have been some significant improvements in freight costs. And so that's helped us on both the incoming side for bill of material costs with raw materials but also on the SG&A side as we've had lower expedited freight costs getting components to our customers. Looking at the next wave of those cost improvement initiatives, what we're focused on right now is continuing to get pricing adjusted, trying to slow down the cost increases from the supply base. As we move through the second half of this year and into next year, we're going to be focused, as Neil mentioned, on bill of material focus. A lot of components we had to go to based on availability were at higher BOM prices, not just the increases from the suppliers but also changing components to the ones that were available. We believe over the next couple of years, there will be a lot of opportunity for us to focus on that bill of material on the supply base to make sure we have cost-optimized designs.

Luke Junk, Analyst

For my follow-up, I just wanted to look at the updated 2024 view that you gave. It implies the company is going to be driving outgrowth above the ranges that you've historically targeted for a second consecutive year in quite a meaningful way. Just wondering, what's driving that? Are we seeing higher FDM executions reflected in that? I appreciate the update on 2023 that Neil gave. Should we think about that into 2024 as well? Or is there something else that's reflected in the expected outgrowth?

Steve Downing, President and CEO

Yes, there are several things. One of them is definitely continued growth in the FDM product portfolio expansion with more OEMs and new vehicles and take rates. The other one is we've been on a two-year run of significantly higher OEC volumes. We believe that will continue to show some strength in terms of outside mirror volume growth. We're expecting by the end of next year to start seeing some of the other new features starting to come online, things like DVR, some ITM volumes coming back, now that we can finally have components that we need to produce those. Additionally, there are other advanced features towards the end of next year that we believe we'll be launching as well that will start to show meaningful growth for the business.

Operator, Operator

Our next question comes from the line of Ron Jewsikow with Guggenheim Securities.

Ronald Jewsikow, Analyst

Just on ASPs, they really picked out this quarter to the upside. Maybe just a breakout of how much of that, I think it's almost 5% quarter-over-quarter growth, was pricing versus, I think, FDM probably normalizing supply chain to the upside helped as well. It didn't stick out given the exterior mirror growth this quarter being quite a bit stronger than interior, still seeing big ASP upside.

Steve Downing, President and CEO

Yes, I believe that most of the growth can be attributed to advanced features within the product, with FDM being a significant strength. Additionally, the performance of features like HomeLink was also positive. Our product mix, particularly with a slightly higher concentration in North America and Europe, has been favorable for both product mix and average selling price.

Ronald Jewsikow, Analyst

For pricing, just nothing sticks out on the retro side? I know you called out in the fourth quarter, there was some retroactive pricing, but pretty clean in terms of ongoing pricing this quarter.

Kevin Nash, Vice President of Finance and CFO

That was probably 75 basis points to 100 basis points on the top line from the one-time nature of pricing.

Steve Downing, President and CEO

Well, and recurring.

Ronald Jewsikow, Analyst

Okay. Unfortunately, that's still recurring, but it came through this quarter. And just one more quick point, reading between the lines a bit, Neil's prepared remarks did suggest that FDM take rates or OEM demand have been stronger than you expected. Could you clarify how much of that upside reflects the increase from 300,000 to 500,000 in light vehicle production compared to factors like supply chain take rates and customer demand?

Neil Boehm, CTO

Yes, great question. Looking at the information, we discussed this last year when we began launching with customers like Hyundai. There was a clear demand for a much higher take rate than we could support due to component availability. However, we have seen significant improvements as component availability has increased. We are now able to produce the parts that were requested, allowing us to catch up. Our production is set to rise from over 300,000 to approximately 500,000 this year, largely because we can meet the demands of our customers and consumers.

Steve Downing, President and CEO

What has been very interesting is that last year, as Neil mentioned, when we couldn't meet the higher volumes requested, the question was whether that demand would still exist once our capacity finally came online from the supply base. The good news is that our inability to deliver last year didn't seem to harm demand for that product. I'm excited to see the developments, and Neil pointed out that there have been several launches. Ron, you probably have a better handle on tracking those than anyone else and might know some of them before we do. You've likely noticed that some volume brands have emerged with that product, and the execution and take rates have exceeded our expectations.

Operator, Operator

Our next question comes from the line of John Murphy with Bank of America.

John Murphy, Analyst

Just a first question on the grosses. I mean, the back half number kind of implies something roughly 32.5% to 34% on gross potentially, which is kind of a wide range. I'm just curious if you can give us sort of how you're thinking about the low end and then the high end of the range? And is it really just due to operating leverage if volume is coming through better than expected? Or are there other big factors in there?

Steve Downing, President and CEO

Yes. To maintain that range, the lower end is particularly influenced by the possibility of more significant events occurring in the second half of this year, potentially stemming from labor disputes. We have experience from 2019 that illustrates the impact on lost revenue and overhead. While I don't anticipate those events causing a dramatic effect, there is always concern regarding product mix, which OEMs might be affected, and how that influences our overall product offerings and business. For the high end of the range, achieving that will require us to see continued cost recoveries and sustain revenue levels, as this is crucial for overhead management. Currently, our margin expansion is benefiting from improved throughput and better leverage in manufacturing overhead resulting from increased sales.

John Murphy, Analyst

I would like to follow up on the target of 35% to 36% by the end of 2024. If we finish this year at the high end of the implied 34% for the second half, the 35% to 36% target seems achievable, especially if the industry grows as anticipated or even outperforms those expectations. These targets appear potentially conservative when considering operating leverage. Reflecting on the cost actions and assuming we exit at a 34% rate, what specific cost strategies are you relying on for the 100 to 200 basis point growth? How much additional gross margin do you expect to gain from those cost measures? It might be useful to evaluate these factors separately from operating leverage and other raw and labor inflation costs.

Steve Downing, President and CEO

Yes. When you look at the exit velocity this year heading into next year, you're exactly right. I mean part of that gross margin expansion is going to be driven by the sales growth in the business. The same factors we just talked about for so far this year and the second half of this year, the higher level of revenue helps the manufacturing overhead. Internally, we've got some cost things we have to control better. So get with the newer employees and the rate we've been running, we can focus on scrap costs, overtime, yield, and throughput. Those are all opportunities that we've targeted and have in place as part of our goals for the back half of this year heading into next year. Neil's point, a lot of things we're working on the VAVE side to get the bill materials lower on a per product basis will be part of that growth and expansion in the gross margin for next year. Many of the bill materials initiatives that Neil is looking at are going to last beyond 2024 and really push into 2025 and beyond before we get the full benefit of product redesigns that are focused on cost savings instead of just trying to get redesigns done to be able to ship anything. We're really talking about it more than the end of 2024 trajectory. There may be some upside to those numbers if we hit all the things perfectly. I think the thing we're a little focused on, too, is that there will probably be some more headwinds that we haven't accounted for. So those estimates might be a little conservative. But we're also looking at a larger book of business and not everything inside that book of business, and some of the new features are going to be above average gross margins. We know that with expansion and growth in the business, there's going to be a natural headwind to some of those products and what the profitability of those products looks like.

John Murphy, Analyst

Okay. And just one last one. How many mirrors are you shipping into China right now on a maybe quarterly or annual basis?

Kevin Nash, Vice President of Finance and CFO

Well, on a revenue basis, it's about 9% of our total book of revenue. So, I mean, it's a little higher from a unit perspective because it's more base mirrors, but it still remains under 10% of our total revenue for the company.

Operator, Operator

Our next question comes from the line of David Whiston with Morningstar.

David Whiston, Analyst

Just curious with a really nice upward recovery in which I know you've been waiting for volume to come back for a long time, and it finally has, and that's great. But was there also any kind of more just like nonrecurring things that benefited this quarter that probably won't be as strong at all rest of the year?

Steve Downing, President and CEO

No. I mean on the margin side, you had 50 to 60 basis points of nonrecurring price recoveries, so onetime in nature, retroactive to help offset some of the costs that we incurred over the last 18 months. Other than that, everything else in the quarter should be recurring. There weren't any onetime pickups on sales, for instance, or any abnormal sales activity.

David Whiston, Analyst

Okay. And are there any geographies recovering faster or slower than the others? And in particular, I'm wondering if Japan really bounced back hard upward in the upper direction this quarter?

Steve Downing, President and CEO

Yes. Well, if you look at overall production, I mean, our primary markets being North America, Europe, Japan, and Korea, all those were actually very strong. Heading into Q3, global light vehicle production is going to be down 3%. But the reason why we're still optimistic about the back half of the year is that most of that impact on the negative side is coming from the China market in Q3. We continue to see quite a bit of recovery in the Japan and Korea markets, really, we think, not only in Q2 but through the rest of the year.

Operator, Operator

Our next question comes from the line of Charlie Sloan with Oak Family Advisors.

Charles Sloan, Analyst

And I have a question for Steve first, which is with the OEMs after the big adjustment with all the supply chain issues, has that relationship changed more durably to be more of a partnership if it wasn't before or not?

Steve Downing, President and CEO

That's a great question. Every OEMs actually handle this very differently. In certain situations with OEMs, that's absolutely the case where we've gotten more collaborative. One thing we're trying to do as a supplier is talk more candidly with OEMs about our future processing platforms and who our preferred partners are from a micro standpoint. This was an industry challenge and mistakes that we've all made together as we're working on new technology. Historically, most suppliers have gone off, picked their own platforms, started to engineer design, build proof of concepts, really without sharing much of that until they had a product ready. We're trying to be more proactive and make sure we're sharing that information with OEMs to ensure we're not designing around a platform that an OEM prefers to move away from. I think every OEM's handling that differently. Certain of our relationships are maturing as a supplier to try to be more proactive in that area. So we don't end up in that situation again.

Charles Sloan, Analyst

Okay. And then so we should expect still kind of cost reductions in the first quarter or price reductions in the first quarter of future years?

Steve Downing, President and CEO

Yes, it's going to be significantly less than what we've experienced in the past few years. One of our main initiatives with OEMs has focused on the need for assistance with the rising costs of materials that we have absorbed over the last two years. Some OEMs have been more supportive in this regard than others. For those who haven't helped, we're facing more challenging discussions about future productivity. We are treating each OEM as a unique relationship. There will be some progress starting in the first quarter, but it won't reach the levels we saw in previous years. We observed a 2% to 3% increase at the beginning of the year, but it will be much lower than that starting in 2024.

Kevin Nash, Vice President of Finance and CFO

Just $1 more.

Charles Sloan, Analyst

And so are there any acquisitions on the horizon that you could see that would use some of that cash that would help?

Steve Downing, President and CEO

Yes. We're always focused on looking for opportunities. I think one of the things that we've struggled with is the valuations of a lot of the acquisition targets just haven't made sense to us. One of the hurdle rates we look at is what is the return profile of share repurchases versus acquisitions. You have to look at those over a long period. So far, most of the acquisitions we've done have been smaller technology plays, startups, new tech instead of an existing income statement acquisition. We're not opposed to it, and we continue to look a lot. Unfortunately, over the last few years, valuations really haven't declined as much as we had hoped. I was pretty optimistic that given the higher interest rate market and some of the things that were happening that acquisitions and valuations were going to drop. It has, to some degree, but not to the extent that I had hoped and not to the extent to which we are ready to go acquire something that was a better return profile than share repurchases, investing in R&D, and small technology acquisitions.

Charles Sloan, Analyst

Right. And so maybe the question is just generally how much cash you need. But that's a separate question.

Kevin Nash, Vice President of Finance and CFO

Just $1 more.

Charles Sloan, Analyst

Well, it's a tale of two cities, right, from last year to this year, and it's wonderful to hear how strong you are on the operational side. So we just look forward to seeing more of that in the future. Hopefully, things will work out good for a change instead of getting some bad luck on the other side. Anyway, great quarter, and we'll look forward to seeing Gentex in the Federal Reserve minutes of companies that don't need more capital to raise.

Operator, Operator

Our next question comes from the line of James Picariello with BNP Paribas Exane.

James Picariello, Analyst

So as we think about the second half on a year-over-year basis, where are you seeing deflationary trends in the supply chain from a sourcing perspective, right? This would be separate from your cost recoveries progress on the net pricing front. Just curious where you're actually seeing costs come down in the back half?

Steve Downing, President and CEO

Yes. In the second half compared to last year, we are anticipating lower freight costs. We are beginning to notice some deflationary trends in metals, plastics, and precious metals, which had been at high levels for the past 18 months. We expect these costs to stabilize or improve. However, in electronics and glass, we are still experiencing inflationary pressures. We're optimistic that by making some supplier changes and engaging in co-development and engineering, we can offset these increases. This will require effort. Some of this can be achieved by expanding the business with our current suppliers, while consolidating suppliers may lead to potential savings. In other instances, we will need to change suppliers to meet our cost targets.

James Picariello, Analyst

Got it. No, that's super helpful. And then just on the net pricing recoveries front, what is the baked-in assumption in the guidance at this point? I mean, is it closer to neutral or trending toward that positive 100 basis points that was once discussed? Where are we in that for the guidance?

Kevin Nash, Vice President of Finance and CFO

Yes, we are nearing that 100 basis points. This reflects what's been realized so far, considering both temporary recoveries and permanent price increases. This is what we are monitoring and aiming for by the end of the year.

James Picariello, Analyst

Got it. Lastly, regarding the 2024 target, last quarter you projected over 10% revenue growth with a 3% global LVP. Now that our markets are growing by 10 points instead of 7, should we consider this 10 points of growth over the market as the correct perspective as we adjust for changes in global LVP for next year?

Steve Downing, President and CEO

I would say somewhere in that 7% to 10% is probably the right range. What we're looking at and the reason why you saw us take a little bit more aggressive stance is a lot of customer orders are starting to firm up now through the second half and into next year. We wouldn't expect massive changes in take rates, for instance, on FDM, lower than what they are currently. The strength in the first half of this year, especially in FDM volumes gave us the confidence to say we're not expecting any retrenchment in take rates on those technologies and features. The incremental business is really what we're looking at and estimating what that's going to look like. We feel pretty good about the second half of this year and where we're heading into next year from an overall revenue standpoint based on the product portfolio.

Operator, Operator

We have a follow-up question from the line of Ron Jewsikow with Guggenheim Securities.

Ronald Jewsikow, Analyst

Yes. Just real quick on the 2024 guide. Sounded like there was something in the new product side launching in the second half of next year. I understand it might be a bit early to talk about that. But just any update on either dimmable surfaces or driver monitoring, anything that could be driving the new product launch in the back half of next year?

Steve Downing, President and CEO

Yes. I think what we're really focused on right now is making sure on the large area device side, making sure we're working on the underlying tech. So it's not about LAD launch in the back half of next year, but some of the other features that we've been showing at CES have been getting traction over the last couple of years, and we're expecting a couple of those to hit the marketplace late next year.

Operator, Operator

That concludes today's question-and-answer session. I'd like to turn the call back to Josh O'Berski for closing remarks.

Josh O'Berski, Director of Investor Relations

Thank you, everyone, for your time and questions today. This concludes our conference call. Have a good weekend.

Operator, Operator

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