Gentex Corp (GNTX) 2012 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Gentex first quarter 2012 financial results conference call. Just a reminder, today's conference is being recorded. I would now like to turn the meeting over to Mr. Steve Dykman, Vice President of Finance and Chief Financial Officer. Please go ahead, Mr. Dykman.

Good morning and welcome to our first-quarter 2012 conference call. I will be coordinating the call this morning as Connie Hamblin is out sick with bronchitis. Joining me on the call this morning in Connie's absence is Mark Newton, our Senior Vice President. I will first cover a few housekeeping items and then I will make some remarks with respect to our first-quarter financial results.

This call is being broadcast live on the Internet via an icon on the home page of Gentex's Corporation's website at www.Gentex.com. The auto playback of the conference call is available on the website as well.

All contents of Gentex Corporation's conference call are the property of Gentex Corporation and may not be copied, published, reproduced, rebroadcast, retransmitted or otherwise redistributed without the express written consent of Gentex Corporation. Gentex Corporation alone holds such rights.

While we understand that there may be companies that transcribe and redistribute our conference calls, Gentex Corporation provides no authorization to do so and expressly disclaims any responsibility for any unauthorized use of the content. We advise that you should not rely on the content of any unauthorized transcript as Gentex Corporation will not be held liable for the content of any such transcript.

Gentex Corporation will hold responsible and liable any parties for any damages incurred by Gentex Corporation with respect to any such unauthorized use. Your participation implies consent to our taping and to the foregoing terms. Please drop off the line if you do not agree with these terms.

Before I begin, I would like to remind you of our forward-looking statements. Gentex Corporation will make forward-looking statements in this presentation related to its financial results for the first quarter and calendar year 2012 and beyond that are based on preliminary data and are subject to risks and uncertainties. These forward-looking statements are based on management's beliefs, assumptions, current expectations, estimates and projections about the global automotive industry, the economy, the ability to control and leverage fixed manufacturing overhead costs, unit shipments and net sales growth, product mix, the ability to control ER&D and SG&A expenses, gross margins and the Company itself.

All statements other than statements of historical fact are declarations that are or could be considered to be forward-looking statements and include such terms as anticipates, outlook, expectations, estimates, projects, forecasts and variations of such words and similar expressions. These statements do not guarantee future performance and involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, expense, likelihood and degree of occurrence and actual results may differ materially from those forward-looking statements.

The Company undertakes no obligation to update, amend or clarify forward-looking statements whether as a result of new information, future events or otherwise. We urge you to review the full Safe Harbor statement that is contained in the news release that is posted on our website.

At this time I will review the quarterly results and I am pleased to report an all-time record quarter in terms of net sales, operating income and net income despite a volatile automotive environment.

The Company reported record first-quarter 2012 net sales of $290.7 million, a 16% increase compared with net sales of $250.9 million in the first quarter of 2011. We also reported first-quarter 2012 operating income of $65.5 million, a 9% increase compared with operating income of $60.1 million in the first quarter of 2011.

We reported record first-quarter 2012 net income of $46.3 million, a 9% increase compared with net income of $42.3 million in the first quarter of 2011. We reported record first-quarter 2012 earnings per diluted share of $0.32 compared with $0.29 per share in the first quarter of 2011.

Next we will look at automotive net sales and auto dimming mirror unit shipments for the first quarter ended March 31. Total auto dimming mirror unit shipments increased by 16% in the first quarter of 2012 compared with the first quarter last year. Automotive net sales increased by 16% from $246.3 million in the first quarter of 2011 to $285.7 million in the first quarter of 2012. Auto dimming mirror unit shipments increased by 18% in North America in the first quarter of 2012 primarily as a result of increased mirror unit shipments to the Detroit 3 as well as Japanese and European transplant automakers.

North American light vehicle production increased by 16% in the first quarter of 2012 compared with the same prior-year period. Auto dimming mirror unit shipments to offshore customers increased by 14% in the first quarter of 2012 compared with the same quarter last year. The increase in unit shipments was primarily due to increased mirror unit shipments to certain European automakers. Light vehicle production in Europe decreased by approximately 4% in the first quarter of 2012 and increased by 33% in Japan and Korea in the first quarter of 2012 compared with the same quarter last year.

Other net sales for the Company increased by 8% to $5 million for the first quarter of 2012 compared with the same quarter last year primarily due to a 48% increase in dimmable aircraft window net sales. The increase in dimmable aircraft window net sales for the first quarter of 2012 was primarily due to increased shipments of dimmable windows for the Boeing 787 Dreamliner series of aircraft.

Fire protection net sales continue to be impacted by the relatively weak commercial construction market.

Next we will look at the average selling price for auto dimming mirror units which was $44.93 for the first quarter of 2012. The ASP of auto dimming rearview mirrors was down sequentially to $44.93 in the first quarter of 2012 compared with $46.39 in the fourth quarter of 2011 primarily due to the impact of higher mix of base and exterior auto dimming mirrors and annual customer price reductions.

The ASP increased on a year-over-year basis to $44.93 in the first quarter of 2012 compared with $44.83 in the first quarter of 2011 primarily due to the higher mix of mirrors with advanced electronic features mostly offset by annual customer price reductions. Based on IHS's March 2012 light vehicle production forecast, we currently expect the second quarter 2012 ASP to be in approximately the same range as the first quarter of 2012 based on anticipated product mix of base and featured mirrors in that forecast and annual customer price reduction. As usual there are uncertainties with the IHS production and sales forecast, customer orders and new product introductions.

Next we will look at the Company's gross profit margins. The gross profit margin was flat on a sequential basis at 34.7% in the first quarter of 2012 compared with the fourth quarter of 2011 primarily due to the impact of annual customer price reductions offset by purchasing and manufacturing cost reductions. The gross margin decreased on a year-over-year basis from 36% in the first quarter of 2011 to 34.7% in the first quarter of 2012 primarily due to the impact of annual customer price reductions partially offset by purchasing and manufacturing cost reductions.

The Company currently expects that its gross profit margin for the second quarter of 2012 will be approximately in the same range as the gross profit margin reported for the first quarter of 2012. The gross profit margin will continue to be impacted by annual customer price reductions, uncertain global automotive production levels, our ability to leverage our fixed overhead costs, purchasing, manufacturing and engineering cost reductions, supply chain constraints and manufacturing yields.

ER&D expenses increased by 23% in the first quarter of 2012 compared with the same 2011 period primarily due to additional hiring of employee and outside contract engineering and development services to support new product development projects and new program awards. ER&D expense is expected to increase by approximately 15% for the second quarter of 2012 compared with the second quarter of 2011 primarily due to additional hiring of employee and outside contract engineering development services.

Selling, general and administrative expense increased by 7% in the first quarter of 2012 compared with the same prior-year period primarily due to continued overseas office hiring to support overseas growth partially offset by the impact of favorable foreign exchange rates of approximately 5 percentage points. SG&A expense is currently expected to increase by approximately 10% to 15% for the second quarter of 2012 compared with the second quarter of 2011 primarily due to continued overseas office hiring to support our overseas growth. This estimate is based on a stable foreign exchange rate.

Now we will look at some additional details with respect to other income for the first quarter of 2011. Investment income was $596,000 compared to $499,000 in the first quarter of 2011. Other was $2.690 million in the first quarter 2012 compared to $2.865 million in the first quarter of 2011 and total other income was $3.286 million in the first quarter of 2012 compared to $3.364 million in the first quarter of 2011.

Now I will provide an update regarding certain balance sheet items as of March 31, 2012. Accounts receivable was $139.3 million; inventories were $200.8 million; patents and other assets $13.1 million; accounts payable $73 million; and accrued liabilities $57.1 million.

The Company's effective tax rate for the first quarter was a rate of 33% which vary from the statutory rate of 35% primarily due to the domestic manufacturing deduction. We currently expect that the tax rate for 2012 will be approximately 33% based on current tax laws primarily due to the domestic manufacturing deduction.

The Company's year to date cash flow from operations was $61.1 million.

Now I will provide an update on capital expenditures and depreciation expense for the first quarter. Capital expenditures were $39.8 million and depreciation for the first quarter was $12.7 million.

The Company continues to estimate that 2012 capital expenditures will be approximately $130 million to $140 million primarily due to increased production equipment purchases of approximately $60 million to $65 million and new facility cost of approximately $70 million to $75 million to increase production plant capacity.

2012 capital expenditures will be financed from current cash and cash equivalents on hand and the Company's depreciation expense for 2012 is currently estimated at approximately $48 million to $52 million.

Now an update on cash dividends. On April 20, 2012, the Company will pay a quarterly cash dividend of $0.13 per share to shareholders of record of the common stock at the close of business on April 5, 2012. This new quarterly dividend rate represents an 8% increase compared with the previous quarterly dividend rate of $0.12 per share. The Company's cash dividend policy was established based on a number of criteria including current US income tax laws that it be meaningful and sustainable and that the dividend rate would increase generally in line with the Company's earnings and operating cash flow over time.

At this time I will turn the call over to Mark Newton who will make some comments on smart beam and rear camera displays.

Good morning. Smart beam. For the 2011 calendar year, we shipped approximately 1 million smart beam units which was a 66% increase over smart beam unit shipments of 630,000 units in calendar year 2010. Based on the IHS March 2012 forecast, we continue to expect that smart beam unit shipments will increase by approximately 40% to 45% in calendar year 2012 compared with calendar year 2011.

The Company currently ships two versions of its smart beam camera based high beam assist feature today. The base high beam assist automates the process of turning the vehicle high beams on and off utilizing a CMOS image sensor.

We recently started shipping the far more complex smart beam dynamic forward lighting system for the BMW 3 series in Europe. That system consists of a CMOS image sensor combined with algorithmic decision-making to offer constant on glare free high beams. Specifically the system detects the presence of other headlamps and tail lamps and generates dynamic block out zones around vehicles that it is either tailing or moving towards. Special headlamps equipped with shutters block portions of the high beams to prevent blinding surrounding traffic while continuously optimizing forward lighting.

The vehicle high beams are always on resulting in significantly better forward vision during night time driving.

Now an update on rear camera display. Legislation; the Kids Transportation Safety Act and the pending requirements of all new vehicles in the United States will be required to be equipped with cameras and rear camera displays by September 2014 based on the December 3, 2010 notice of proposed rulemaking from the National Highway Traffic Safety Administration moved from the office of the Secretary of Transportation to the Office of Management and Budget on November 16, 2011. At that time, the final rule was targeted to be completed on December 30, 2011.

On January 10, 2012 Secretary of Transportation Ray LaHood, sent a letter to Congressman Fred Upton and other congressional leaders indicating that due to the many public comments and the complexity of that rule that he now believes that the rule could be finalized by February 29, 2012. Then on February 28, 2012 Mr. LaHood sent new letters to congressional leaders indicating that there would be an additional delay with the new estimated deadline set at December 31, 2012.

Given the recent announcements of the additional delay, there is a lot of uncertainty with automotive customers. The Company continues to believe that the market for camera displays in vehicles will be divided into two primary market segments. In addition, the Company believes that customers now have a multipronged location product offering approach for rear camera displays.

Segment one, the top 20% of the vehicle market will primarily offer the display for a rear camera in the navigation system with the option of purchasing a rear camera display mirror. Segment two the remaining portion of the market will offer the camera display in a number of different locations including the radio, instrument panel, console and rearview mirror. This is the segment of the market with the greatest and increasing competition.

The Company still believes that its cost competitive RCD mirror product is an optimum ergonomic easily adaptable method to display the image produced by the rearview camera for increased safety and automakers could utilize rear cameras with the display in an RCD mirror to satisfy the requirements of the legislation. The Company continues to believe that this will be a very competitive market as automotive customers consider different options for the location where that image from the camera can be displayed in the vehicle for example a navigation system or other radio or multipurpose displays.

As a result the additional significant delay and the uncertainty the continued delays are generating with customers, we currently believe that RCD mirror unit shipments will be approximately flat for the calendar year 2012 versus 2011.

Now I will provide an update on dimmable aircraft window programs. We currently are shipping dimmable windows for the 787 Dreamliner and each passenger aircraft has approximately 100 windows. The first Boeing 787 was purchased by -- on airways. Boeing has also expressed interest in utilizing dimmable windows for other aircraft.

Gentex is also shipping dimmable aircraft windows on the passenger cabin windows of the 2010 Beechcraft King Air 350i, the first aircraft in general and business aviation with dimmable windows. Each King Air 350i has approximately 15 windows. Other aircraft manufacturers continue to have interest in this technology and we are working on those potential programs with PPG Aerospace.

An update on our net sales estimate for the second quarter. The following projection for net sales in the second quarter of 2012 is based on IHS's March 2012 light vehicle production forecast.

Our estimate for net sales for the second quarter of 2012 is an increase of approximately 15% compared with the same quarter in 2011 based on IHS's March forecast for light vehicle production levels.

The second quarter of 2012 light vehicle production per IHS, the March forecast, North America, 3.7 million vehicle units compared with 3.1 million vehicle units in the second quarter of 2011 which is a 19% increase; Europe, 4.8 million vehicle units compared to 5.3 million vehicle units in the second quarter of 2011 which is a decline of 10%; Japan and Korea, 3.4 million vehicle units compared to 2.6 million vehicle units in the second quarter of 2011 which is a 31% increase.

For calendar year 2012, light vehicle production for North America is 14.6 million vehicles compared to 13.1 million in 2011 which is an 11% increase; Europe, 18.8 million vehicles compared to 20.2 million vehicles in 2011, a decline of 7%; Japan and Korea, 13.8 million vehicles compared to 12.5 million in 2011 and that is an increase of 10%.

A few closing comments and then we will open it up for questions. As a reminder to all listeners should note that this call is being recorded by Gentex. All content of Gentex Corporation's conference call are the property of Gentex Corporation, no such content may be copied, published, reproduced, rebroadcast, retransmitted or otherwise redistributed without the express written consent of Gentex Corporation. Gentex Corporation alone holds such right.

While we understand that there may be companies that transcribe and redistribute our conference calls, Gentex provides no authorization to do so and expressly disclaims any responsibility for unauthorized use of the content. We advise that you should not rely on the content of any unauthorized transcripts as Gentex will not be held liable for the content of such transcripts.

Gentex will hold responsible and liable any parties for any damages incurred by Gentex with respect to any such unauthorized use. Your participation implies consent to our taping to the foregoing terms. Please drop off the line if you do not agree to these terms.

At this time, we will open the call up for questions and answers. We respectfully request that you plan to ask one question at a time so everyone on the call who wants to ask a question has the opportunity to participate. We appreciate your cooperation.

(Operator Instructions). David Leiker, Robert W Baird.

I want to start and focus on margins and we have seen some stability here sequentially on the contribution margin. What do you think the pathway is going forward for the contribution margin to move back to normal levels timing wise and what the events are that drive that?

I think in the near term, like we have talked, it's going to be a little bit below the historical average as we have continued to add capacity and additional hiring but we also have the benefit that some of the supply chain constraint issues that we dealt with for the last couple of years are starting to subside as we talked about in the fourth quarter that had a negative impact of roughly 25 basis points. And it did sequentially improve and based on the current situation we feel we will be through that here by the end of the second quarter.

Obviously that is contingent on whether we will have any new supply chain related issues that come up but based on what we know right now that is an area that is improving and you will notice here in the first quarter that the purchasing cost reduction area is another benefit that is coming through. We talked about favorable PPV in the 2009 and in the 2010 timeframe and then that was overshadowed by a lot of the supply chain issues that we have had. So that is starting to come to light as the offsetting benefit to our margins right now.

So if you were to look out and I know it is a challenge to do this but adjusted for the supply chain issues and the inefficiencies because of the high capacity utilization, do you think between productivity and the purchase initiatives you are able to take cost down enough to offset your price downs?

That is our objective. I think here in the near term it is going to be a challenge.

Near-term defined as a quarter or two or as a year or two?

The next few quarters.

Okay, thank you.

Steve Dyer, Craig-Hallum.

Thanks. Good morning. I am wondering, Steve, if you are able to quantify how much idle capacity or maybe what drag that is on margins right now?

Well, I think when you look at our current capacity utilization, it is very high. We have four ongoing expansion projects that we talked about that are not up and running as of this point in time and some of them will start to come online here in the second quarter and a couple of more in the second half of the year. And specifically we have talked about our chemistry lab expansion and that is expected to be completed here by the end of the second quarter. Our expansion at our exterior mirror manufacturing facility is expected to be completed by the end of the second quarter. Our electronic assembly facility expansion in Holland is expected to be completed in mid-2012. And then a connecting building between two of our manufacturing facilities here on our Zeeland campus is expected to be completed by the end of the year.

So I think as they come online there will be a little bit of a drag but what we talked about in previous quarters is that the negative impact on margins is not expected to be as great as when we open a new facility like we did back in 2006 because these projects are expansions to existing facilities and we will avoid having to add a lot of new support functions as a result.

Okay. So your PP&E is up almost $100 million year-over-year and I'm just trying to get a sense for obviously that is some drag on margins and it sounds like that is hard to quantify.

I think the depreciation in and of itself on margins, the increase on a year-over-year basis is only going to be a couple of pennies.

Okay, I will hop back in the queue.

John Murphy, Bank of America Merrill Lynch.

Good morning, guys. I just wanted to touch on the ASPs and sort of the relative flatness there. I am just curious as you are looking at adding content you would assume those ASPs are going up but they are not going up that much. Are you seeing automakers pull some features out of your mirror or opt out of certain features on your mirror as more of those features are showing up in smartphones and the automakers are now focused a little bit more with the interconnection of that smartphone with their system as opposed to actually putting those features into mirrors or potentially even into the center stack electronic system?

We haven't really seen a shift of movement from advanced electronic features in our mirrors. Directionally we still feel the ASP will increase over time because of some of the additional feature content that we have within our product line. Whenever you look at things within a short period of time or within a quarter like we have here in this particular quarter it really boils down to our product mix. And within the first quarter, we had a higher mix of base mirrors as well as exterior mirrors.

And if you recall in our last conference call, we had talked about in the fourth quarter that some of our exterior mirror unit shipments declined versus our forecast because some of our Tier 1 exterior mirror customers were making inventory adjustments. And so in the first quarter that did bounce back a little bit more as a result which does impact the ASP because those have a lower average selling price.

Like we have said, our gross margins do not vary significantly by our product lines so the ASP decline is not really an indication of our impacts on margins.

Steve, I'm just trying to understand, it has really been two years where this number has been plus or minus $46 and I'm just curious it is not just a one quarter issue -- I mean this has been -- this is 10, 11, 12 quarters of these kinds of numbers, relatively flat and historically you have had pretty good growth in these ASPs. And we are talking about new content like smart beam and RCD ultimately being additive and I know when you are calculating numbers slightly differently than we are. But the ASP or the revenue per mirror all in is not really increasing. I am just trying to understand what is going on there because it is not just a one quarter issue.

Right. I think it depends a little bit as to what timeframe that you are looking at because over the last 3 plus years we have really increased from the low 40s into the mid-40s so it has increased.

Now when you look at it from any particular quarter there certainly is some fluctuation and again that boils down to the product mix and feature content. So again directionally, we feel the ASP over time will continue to increase because of some of the higher value add content that we have. I mean obviously for rear camera display, the growth rate is slowing due to the overall uncertainty with the ongoing delays so that does have a slight impact.

Okay, great. Thank you very much.

Adam Brooks, Sidoti & Company LLC.

Real quickly wanted to take a look at inventories crept higher again in 1Q and I know we touched on it last quarter that possibly you would hold a little higher inventories given supply chain issues. Can you talk about maybe how inventories are through the balance of the year if they get worked on or if we are just going to stay at this kind of new norm?

Yes, so if you look since December 31 through the first quarter, our inventory levels overall increased about 6%. The increases were primarily in the raw materials area. We do feel since we are on the tail end of our known supply chain constrained issues that those raw material inventory levels will start to decline a little bit. So we are expecting starting in the second quarter we are going to see some slight decreases in our raw materials inventory with a potential for some additional slight declines as we progress through the year. And again some of that is somewhat dependent on production levels and as any other supply chain constraints do arise.

And can you touch base, touch with us a little bit on exterior mirrors domestically up only about 4%. Was there any type of inventory adjustments there? Was it mix? What really drove the underperformance of the market?

Okay. With respect to exterior mirrors domestically if you think about it, many of the North American automakers really only have one exterior mirror where when you look at other regions in many cases they will have one or potentially two exterior mirror so that has something to do with it as well.

Okay, thank you. I will hop back in queue.

Brett Hoselton, KeyBanc.

Good morning, Mark. Steve, with Connie out, I thought you might relax the one question rule but --

We wouldn't want to disappoint Connie now would we?

I am sure she is listening in. RCD; you had provided guidance of up 10% to 15% in the first quarter and I didn't hear or see anywhere where you commented on the performance in the first quarter. Can you give us a sense of how you performed in the first quarter?

The first quarter, it was on the low end of the range.

Okay. So as I think about flat for the full year, it seems to imply that you are going to have declining RCD shipments throughout the remainder of the year which is surprising in part because production is increasing overall which you would think would just simply drive RCD shipments to begin with. And then of course you've got the customer price downs that you typically face which would suggest that in addition to lower shipments in the back half of the year let's say your sales are actually going to decline maybe incrementally a little bit further.

So is that the case? Are you expecting RCD shipments to actually start to decline as you move through the second, third and fourth quarter?

They are certainly leveling off and as we talked, there is a lot of uncertainty and there have not been any sourcing decisions that have made and so there are no new programs, it is based off from our forecast for the calendar year 2012 which has estimated take rates based on packaging assumptions and there is some fluctuation there.

The other thing to keep in mind that we mentioned last quarter is that there are some programs in production.

Is there the potential for some upside in the back half of the year or is the timing just too tight and really the year is kind of set in place at this point in time and you really have to look out into 2013 before you can see any new programs?

The variability, Brett, is going to be in the production forecast and that vehicle production within customers by platform for the vehicles we are on is what happens.

And then finally, how would you characterize the customers? Would you kind of say they are all just simply in a holding pattern or would you say that they are aggressively evaluating alternatives at this point in time or do you see them actually moving in some particular direction and then it is just simply delayed?

Brett, this is Mark. As to customers, they have always had opportunities and in this application space, there have always been multiple locations for potential rear camera display. That has not changed. There has not necessarily been an increase in difference in that area. What there has been now is continued consideration now with the delay in KTSA as one aspect of this to evaluate decisions for how they are going to apply this package in future models.

Thank you very much, gentlemen.

David Lim, Wells Fargo Securities.

Good morning, gentlemen. Just a quick question. Do you have any kind of exposure to this P8 12 resins? If so, how would that affect you guys or have you guys done any preliminary kind of analysis if there is any actual effect to Gentex?

Yes, we are currently evaluating that potential impact to specifically Gentex but we do not currently anticipate any significant impact to the Company. Now certainly that resin issue at that plant in Germany will likely impact the overall auto industry.

Got you. And then if I may follow-up when it comes to -- we are seeing your mirror delivery growth as well as production. Do you anticipate the spread between production and your mirror deliveries to maintain or is there some sort of slowdown that may occur this year because of RCD or other specific reasons?

Well, I think when you look and we have talked about it for the last few quarters that we have had a bit of a tailwind when you look at that delta between the vehicle production, growth in the regions in which we operate versus our unit growth. And up through the third quarter of last year that was a tailwind and a lot of that was driven by strength in Germany specifically with the luxury automakers and the strength in China. And so we talked how in the fourth quarter this is the case in the first quarter and expect it to be the case here for the near-term that some of that weakness in Europe and there is weakness in China. So it certainly has narrowed but we don't expect it to significantly change.

Got you. Thank you very much.

(Operator Instructions). Greg Halter, Great Lakes Review.

Good morning, guys. Given the decline in the share price to date down to about $22 or so and your cash position of about $4 a share, just wondered if you could revisit for us your thoughts on the share repurchase program. I think you had talked maybe you would be buyers around the $15 level. But correct me if I am wrong on that.

Well, we have about 2 million shares remaining on our existing share repurchase plan. We previously talked about some of the criteria the Company has utilized one being that we want our share repurchases to be significantly anti-dilutive. And when you look in our historical SEC filings, you will see that in the past we started to purchase around $17. Within our anti-dilutive calculation, we do use a normalized interest rate because obviously given the current interest rate environment that certainly could change the formula.

So it certainly is something that we evaluate on an ongoing basis and it is discussed at the Board and like you said, our share price has pulled back a bit so we continue to evaluate that.

All right, thank you.

David Leiker, Robert W Baird.

Hello again. One quick question and then a follow-up. How much of your revenue is priced in euro today?

For the first quarter and for the 2012 calendar year, about 91% of our revenues are denominated in dollars, so about 9% are in foreign currencies. So it is not that significant.

And of that foreign currency, assuming most if not all of it is euro?

The majority of it.

Okay. Great. And then as we look at this wait and see period that we are in as it relates to RCD, you made the comment that there haven't really been any meaningful bookings of new orders, has that carried over in terms of new product launches for auto dimming mirrors? Has that carried over into that space as well or is it just RCD related?

No, that is specific to RCD so we haven't seen any impact on our normal penetration in growth within the auto dimming feature.

And then one last quick one on the ER&D and the SG&A numbers, you lowered the growth rates there. Is that just a function of what the comps are versus last year or is there a concerted effort to lower the spending rates there?

It is twofold. Part of it is the year-over-year comps like you mentioned because we are working off a larger base but we are starting to see some gains in efficiencies within the ER&D area. And we previously talked to about there have been resources and time devoted within the ER&D group dealing with supply chain constraints and redesigning products and so as that area has subsided to some degree that is generating some efficiencies for us within that group.

Okay, great. Thank you very much.

Steve Dyer, Craig-Hallum.

Thanks. I was wondering on the RCD, you had talked about a couple of models or programs stopping or end of lifing. Has anybody actually removed or taken you guys out of that feature?

Not as a result of the KTSA delays and legislation, no.

But just in general. I am still wrestling with how production is up pretty significantly year-over-year in the back half really for you guys is down and I don't know if it is strictly a mix shift, a lot of down time for the T900, that sort of thing or if there is really kind of some kind of concerted thing where you are losing platforms here?

I think to some degree, it is mix shift and packaging and mix within vehicle production based on our forecast.

Okay. And then you guys have talked about a new product or a new feature offering this year along with a design win. When would we anticipate hearing about that?

I assume you are referring to the driver assist product that we have talked about before?

Yes.

We are still anticipating it would be in the first half of 2012.

Okay, thanks.

Adam Brooks, Sidoti & Company LLC.

Just wanted to touch real quickly on the first-quarter revenue. Guidance was up 15% to 20% and production came in considerably better than expected in North America and Europe. Can you maybe give us a sense of why you came in at the low end of the range? Was it really a function of your platforms not being better than expected or was there something else in there?

Okay. When you look at it from a revenue standpoint there is a couple of things. So one of them is mix so we touched on that with the ASP. There was a higher mix of base and exterior mirrors which had a little lower per unit revenue.

The other aspect which you were getting it is there was some lower than forecasted vehicle production volumes pertaining to some certain customers and platforms within those customers when you look at the beginning of the quarter to the end of the quarter.

And was that weakness a little bit in Japan and Korea?

Yes.

Okay, thank you.

Brett Hoselton, KeyBanc.

Gentlemen, two follow-on questions. First, just price downs in the past you have talked about down 3% to 5%. Recently you have talked about down 2% to 4%. Has there been any change in the general trend of price downs for you?

No. We have said now for like a year and a half they are in the 2% to 4% range and that is still currently accurate and that is the expectation for the 2012 calendar year.

And then as we think about the RCD even after the legislation was signed for a long period of time the thought was that NHTSA, the actual implementation of the law was going to exclude small cars. Possibly a lot of them to use sensors rather than cameras and so on and so forth. And everybody was surprised in the fall of 2010 when NHTSA said, hey, everybody needs to use a camera so 100% of all vehicles. And your stock obviously went up quite significantly.

My question is do you have any sense of whether NHTSA is considering the possibility of maybe altering the implementation, the ruling, such that they might allow small cars to be excluded in some way, shape or form?

We are not aware of that, no.

Okay. Thank you very much, gentlemen.

John Murphy, Bank of America Merrill Lynch.

Thanks for squeezing me in again here. Just on just to beat a dead horse here on these RCDs a little bit, as you are talking about your shipments being flat do you think the RCDs for the entire industry are going to be flat or do you see sort of the delivery through the NAV system actually increasing?

We are not 100% sure about NAV penetration but we are not seeing a significant shift of increased penetration within the NAV if that is your question.

So you think that the penetration of RCDs which is running in the low 20% range for the US industry for this year is going to see no incremental penetration, in fact, it is actually going to be going down because production is going up? That is the math.

Potentially. You are talking about all of the various alternatives, NAV and everything else so we are not seeing any significant increased penetration of NAV systems for rear camera display.

So what you are saying is for the industry in aggregate though the penetration is going to have to go down, is going down this year?

With vehicle production if it continues to improve that certainly would be a good conclusion.

Okay. Just lastly, as we look at this legislation, it seems like it just keeps getting delayed, delayed, delayed and it sounds like it just keeps getting pushed back on the docket because there's a lot of stuff going on in DC these days. Would it be better for you if this were not enacted and we just saw the consumer pull of these RCDs? Might that gives you better content or revenue per RCD sold and better margin?

This is Mark. Hi, John. I don't know that we could make that kind of claim. We have had good growth and success with the product without Kids Transportation Safety Act. With KTSA, automakers for the United States vehicles are evaluating carefully a multipronged option capability to satisfy customers if this does go into law. Right now we are being cautionary on where we are seeing this going at this point because of the continued delays I think is probably what we want to propose here. I don't know that we could say that without this would life would be better.

And then just one final question, how long ago was it that you sold your first RCD? I'm just trying to understand the penetration curve because it sounds like we are in the low 20s right now in the US. When was it zero? Was that three to five years ago?

We started shipping in 2007.

So we are almost five years in and we are at the low 20% range of penetration?

Yes.

Okay, great. Thank you very much.

Peter Nesvold, Jefferies.

Good morning. So clearly a lot of questions about RCD penetration and it seems like there are a lot of moving parts here. I mean you have the regulatory delays which are holding up some new platform awards, you had some platform retirements, you talk to about that. We have the T900 downtime and all of these things are getting thrown into the mix. Is there maybe another way of looking at it -- if you were to look just on an apples-to-apples basis products where this feature is offered today, what is the take rate today versus the take rate a year ago? Is that leveling off as well?

The take rates vary significantly depending on the customer and certain vehicle platforms but if the question is there any significant shift from maybe what a take rate is on a particular vehicle platform a year ago to today, we haven't experienced significant shifts.

Okay. And then my follow-up question, historically when I look at 1Q to 2Q typically earnings EPS are roughly flat plus or minus a penny. Last year was a little bit of an anomaly. This year when I kind of build up to the guidance I get to about $0.29 and that would be about a $0.03 decline sequentially from 1Q to 2Q. Is that primarily due to downtime by the T900 or is there something else that explains why sequentially EPS is down a little bit more this year seasonally than we normally would see?

Some of it is going to be the sequential decline of vehicle production in the regions in which we operate from Q1 to Q2 as well.

So what regions would be influencing that so much? Because it is about 10%?

If you think of Europe as down sequentially from Q1 to Q2, North America even though it is strong sequentially it is down a little bit as well as Japan and Korea.

Okay. So if I go sort of country by country I will see industrywide production being down sequentially more 1Q to 2Q for the industry, a little bit more so this year than in historical years?

Yes.

Okay. Thank you. I appreciate that color.

At this time I will turn it back to our speakers for any additional or closing remarks.

Great. Thank you for joining Mark and I on the call today for our first-quarter results. If you have any follow-up questions, you certainly can contact us and we will get back with you and answer your questions. Thank you.

That concludes today's conference. Thank you for your participation.