Gentex Corp (GNTX) 2014 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Gentex fourth quarter earnings conference call. Today's conference is being recorded.

I would now like to turn the meeting over to Mr. Mark Newton, Senior Vice President. Please go ahead, Mr. Newton.

Thank you very much. Good morning, and welcome to the Gentex 2014 fourth quarter and 2014 calendar year earnings release conference call. Also here is Steve Downing, Chief Financial Officer and Kevin Nash, Chief Accounting Officer.

This call is live on the internet by way of an icon on the Gentex website at www.Gentex.com. All contents of this conference call are the property of Gentex Corporation and may not be copied, published, reproduced, rebroadcast, retransmitted, transcribed or otherwise redistributed. Gentex Corporation will hold responsible and liable any party for any damages incurred by Gentex Corporation with respect to any unauthorized use of the contents of this conference call.

This conference call contains forward-looking information within the meaning of the Gentex Safe Harbor statement included in the Gentex reports fourth quarter and year-end 2014 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, to Steve Downing for the financial summary.

Thank you, Mark. For the fourth quarter of 2014, the Company reported net sales of $350.4 million which were up 7% compared to net sales of $326.8 million for the fourth quarter of 2013. The sales level in the fourth quarter was behind our beginning of the quarter forecast, primarily due to end of year inventory adjustments at certain Tier 1 customers that is not expected to continue. For calendar year 2014, the Company's net sales increased 17% to $1.38 billion compared to $1.17 billion for calendar year 2013.

The gross profit margin in the fourth quarter of 2014 was 38.4% compared with a gross profit margin of 39.4% in the fourth quarter of 2013, primarily due to higher than expected manufacturing costs related to new technology launches, the Company's inability to leverage fixed overhead costs because of the lower than anticipated sales levels and annual customer price reductions which were not fully offset by favorable purchasing cost reductions and improvements in product mix.

The gross profit margin for calendar year 2014 was 39.2% compared with a gross profit margin of 36.8% for calendar year 2013, primarily due to favorable shifts in product mix, the impact of the HomeLink acquisition and purchasing cost reductions which were partially offset by annual customer price reductions.

Net income for the fourth quarter of 2014 was $71 million, up 2% compared with net income of $69.9 million in the fourth quarter of 2013. Net income in calendar year 2014 was $288.6 million, up 29% compared with net income of $222.9 million in calendar year 2013.

After adjusting for the stock split, earnings per diluted share in the fourth quarter of 2014 were $0.24, which is unchanged from the fourth quarter of 2013. Earnings per diluted share were $0.98 for calendar year 2014 compared with $0.77 for calendar year 2013.

Automotive electric chromic mirror unit shipments in the fourth quarter of 2014 increased 9% compared with the fourth quarter of 2013, primarily due to increased unit shipments of both the Company's interior and exterior auto dimming rear view mirrors in all of the Company's primary markets. Automotive net sales in the fourth quarter of 2014 were $342.4 million, up 7% compared with automotive net sales of $320.3 million in the fourth quarter of 2013.

Automotive electrochromic mirror unit shipments for calendar year 2014 increased 11% compared to calendar year 2013. As a result, automotive net sales for calendar year 2014 were $1.34 billion, up 17% compared with automotive net sales of $1.14 billion in calendar year 2013. Other net sales, which include dimmable aircraft windows and fire protection products, were $8 million in the fourth quarter of 2014, up 24% compared with $6.5 million in the fourth quarter of 2013 and for calendar year 2014 were $35.4 million, up 27% compared with $27.9 million in calendar year 2013.

In December 2014, the Company completed a two-for-one stock split affected in the form of a 100% common stock dividend entitling each shareholder of record to receive one additional share of common stock for each outstanding share of the Company's common stock par value $0.06 per share. This stock dividend was issued on December 31, 2014 to shareholders of record at the close of business on December 17, 2014. All share and per share items represented in this conference call reflect the two-for-one split.

During the fourth quarter of 2014, the Company repurchased 1.1 million shares of its common stock at a cost of approximately $20 million. For the year ended December 31, 2014, the Company repurchased 1.8 million shares of its common stock at a cost of approximately $30 million. The Company may in the future repurchase additional shares of its common stock depending on macroeconomic issues, market trends and other factors that the Company deems appropriate with the shares that remain available from our previously announced share repurchase plan.

Now to Kevin Nash with some of the Q4 2014 details.

Thank you, Steve.

ER&D expense for the fourth quarter of 2014 increased 10% to $21.8 million compared to the fourth quarter of 2013 and also increased 10% for calendar year 2014 to $84.2 million compared with $76.5 million for calendar year 2013. The primary driver for both the quarter and full year was increased staffing levels which continue to support growth and development of new business.

SG&A expense for the fourth quarter of 2014 increased 8% to $14.3 million compared to $13.2 million in the fourth quarter of 2013 due to increased staffing and benefits, as well as promotional and advertising costs. SG&A expenses for calendar year 2014 increased by 13% to $55.9 million when compared to $49.5 million for calendar year 2013, primarily due to amortization expense related to the HomeLink acquisition.

Other income for the fourth quarter of 2014 was $5.4 million, down from $8.5 million in the fourth quarter of 2013, primarily due to lower realized gains on sales of equity investments. For the calendar year 2014, other income was $16.5 million, which was also down from $23.3 million in calendar year 2013, also primarily due to lower realized gains on sale of equity investments during the year.

The effective tax rate for the fourth quarter of 2014 was 31.8%, which varied from the statutory rate of 35%, primarily due to the domestic manufacturing deduction and the full year of estimated research and development tax credits of approximately $3 million which was passed into law in date December 2014. For the full year, the effective tax rate was 30.5%, which also varied from the statutory rate due to the domestic manufacturing deduction and incremental research and development tax credits related to amended tax return filings for calendar years 2010 through 2012 of $5.5 million, as well as incremental benefits realized as part of the original 2013 tax return filing of approximately $1.8 million, plus the previously mentioned $3 million for 2014 for a total benefit of $10.3 million in the calendar year.

Now, to a few balance sheet items. Cash and cash equivalents were $497.4 million, up from $309.6 million as of December 31, 2013, primarily due to cash flow from our operations which for the fourth quarter was $99.8 million compared to $93.7 million in the fourth quarter of 2013 driven by increases in net income and change in working capital. Year-to-date cash flow from operations was $327.2 million versus $317.3 million in 2013, also driven by increased net income and changes in working capital.

Accounts receivable was $168 million as of December 31, 2014, up from approximately $143 million as of December 31, 2013, primarily due to higher sequential sales level as well as the timing of sales within the quarter. Inventories were 148 -- $141.8 million, up from $120.1 million as of December 31, 2013, primarily due to increases in raw materials inventory in support of increased sales levels. Long term investments were $114.6 million versus $107 million as of December 31, 2013. Accrued liabilities were $62 million versus $63.5 million as of December 31, 2013.

Capital expenditures for the fourth quarter were $22.5 million compared with $17.4 million in the fourth quarter of 2013, and capital expenditures for the year were $72.5 million versus $55.4 million in 2013. Depreciation and amortization expense for the fourth quarter was $17.6 million and $77.4 million for the full year. And lastly, on January 20 the Company paid a quarterly cash dividend of $0.08 per share to shareholders of record of the common stock at the close of the business on January 7.

And now, to Mark Newton for a product update.

Thanks, Kevin. Steve and Kevin and I have been communicating with analysts and investors for a little over a year now in an intentional effort to learn how to better address the important questions that you have. In that effort, we have worked to provide more detail on all of our products. The history of those products and their product development and how all of these products affect our business and our growth opportunities.

In this communication with analysts and investors, we have learned that the most common request is for Gentex to provide a longer view on products and how they affect growth, and we heard you. So, in response to this, starting now, we will provide annual product guidance in an effort to give a better understanding of where our growth comes from in the next year.

2015 production in sales includes the largest launch of new products in our Company history. First product, frameless.

In 2015, new frameless interior mirrors with advanced styling to diminish the front bezel have volume launch and production with multiple customers. Frameless interior mirrors allow for advances in electronics and displays, consistent with what you see on the latest smartphones, tablet devises and computers. Our recently announced full display mirror is just one example of a new frameless application.

Frameless is an entire product upgrade for our interior mirrors, bringing with it new applications for mirrors in the market. Frameless interior mirrors grow to almost one-third of Gentex inside mirror unit production by 2017.

Next, outside mirrors. Outside mirrors have been a leading contributor to our growth in recent years, and they will continue to be in 2015. Gentex outside auto dimming mirrors work by interfacing with our inside auto dimming mirrors.

The global average application rate for Gentex inside mirrors is 25% of vehicles produced. The global average application rate for Gentex outside mirrors is 7%. Everywhere we have an inside auto dimming mirror is there for a potential for our outside mirrors to be applied. As such, we have been and will continue to emphasize a sales focus on outside auto dimming mirrors.

HomeLink advanced electronic applications represent over half of our sales. Our largest advanced electronic application is HomeLink, HomeLink in the mirror and HomeLink modules outside the mirror in consoles and advisors. In 2015, HomeLink will again be our largest advanced electronic feature with a long-term product plan that should result in growth opportunities for this product over the next several years. Many of these new HomeLink applications in 2015 are also part of a Gentex frameless interior mirror product.

HomeLink is a vehicle to home automation feature consisting of vehicle integrated programmable buttons that can operate garage doors, security gates, home lighting and other radio frequency control devises. In 2015 we also begin shipping HomeLink to new market applications, expanding beyond traditional automotive to new vehicles including all-terrain, off road, agricultural, construction, and a wide variety of other vehicles.

SmartBeam. Our second largest advanced electronic application is SmartBeam and in 2015, it will continue to be, growing at a faster rate than our overall corporate average. This is due to SmartBeam generation four which fully rolls out in 2015 on multiple vehicles, replacing our SmartBeam generation three application and also growing on to new vehicles that have not previously had SmartBeam. These SmartBeam generation four applications are also part of the Gentex frameless interior mirror product launch.

For over a decade we have been shipping SmartBeam, with nearly 7 million systems shipped detecting lights, detecting road conditions, and detecting objects as part of a vehicle driver system. Gentex generation four is a family of SmartBeam products with features that include high beam assist, dynamic forward lighting with high beams constantly on, LED matrix beam and such aiding functions as lane detection, object detection and collision detection.

Gentex has long been integrating its SmartBeam camera products into vehicles, including optimizing performance by fusing with multiple vehicle electronic systems including radar, navigation, steering, and related modules provided by other industry leading automotive electronic suppliers. This enables Gentex to provide its auto maker customers with a highly customizable solution that meets their unique needs and specifications.

Full display mirror. A new advanced electronic application for Gentex is the full display mirror. The full display mirror begins production in the fourth quarter of 2015. When it comes to driving safety, seeing what's behind you in the rear view mirror is critical.

Current design trends, however, are yielding vehicles with smaller rear windows that are often further obstructed by head rests, passengers, and roof support pillars. These factors can significantly hinder the mirror's rear view. The Gentex full display mirror is an intelligent rear vision system that uses a custom externally mounted video camera and a mirror integrated video display to optimize a vehicle's rearward view. This new Gentex rear vision system consists of a hybrid full display mirror and a custom Gentex design camera, engineered specifically for automotive vision.

The mirror offers bimodal functionality. In mirror mode, the product functions as a standard electrochromic rear view mirror. During nighttime driving, digital light sensors talk to one another by way of a micro processor to automatically darken the mirror when glare is detected. But with the flip of a switch, the mirror enters display mode and a clear, bright LCD display appears through the mirror's reflective surface providing a wide, unobstructed rearward view.

The two modes are essential because should the camera or display become non-operational, the product can operate as a standard mirror. The driver can also switch between modes to accommodate usage preferences for various weather and lighting conditions and driving tasks.

Video cameras. Another new advanced electronic application for Gentex is video camera with a full display mirror. Automotive video for rear vision requires a camera with high dynamic range which is the ratio between the brightest and darkest areas of a given scene. The challenge is to display the details in the darkest and brightest areas of the given scene simultaneously without causing the display to wash out due to bright light sources.

The new Gentex video camera system meets this challenge in a unique way with a Gentex design proprietary CMOS imager that delivers unprecedented dynamic range. This new imager allows each individual camera pixel to choose its own exposure, self-adjusting so that the brightest and darkest areas of any given scene are clear and visible. This is the same imager that we use in the generation four SmartBeam product.

As a family of camera products with features that include high beam assist, dynamic forward lighting with high beams constantly on, LED matrix beam and such aiding functions as lane detection, object detection and collision detection. And there is a new generation five imager in development and launch for future applications.

Gentex is also awarded business for expertise in camera integration to the vehicle mechanically and electrically. SmartBeam cameras are integrated into the interior rear view mirror. Gentex video cameras can integrate behind the rear window and the rear spoiler and the trunk lid and the roof mounted shark fin antenna into the high mount stop lamp, into tailgates, into license plate holders and to outside mirrors, front grills, bumpers and many other locations, either individually or as part of a multiple video camera system.

Our cameras are ultra lightweight, aerodynamically optimized, and can be heated and coated for better performance in adverse weather conditions. These products are the growth drivers for the business in 2015. They were awarded and launched in 2012.

In 2012, we were $1.1 billion in sales with 33.9% gross profit and $168.6 million in net income. Today, we are $1.38 billion in sales with 39.2% gross profit and $288.6 million in net income. These 2015 new products are designed to sustain this growth momentum and allow us to target new growth. New growth and electronic vehicle communication with HomeLink, new growth in electronic driver assistance with our camera systems, new growth in vehicle safety and information systems with our new auto dimming mirror technology and new display systems.

Now, back to Steve Downing for future guidance.

Thank you, Mark.

As a Company, we have been working hard to do a better job of explaining the business, which includes more discussions on all of our products and the featured growth drivers of the business. The first step in that process was to spend time during the last year discussing the breadth and depth of the product line up and how that has driven growth over the last several years. And then to use that baseline as a leverage point for discussing our longer-term growth strategies. Our product updates are intended to move us in that direction by giving shareholders a better picture of where we are investing the research and development dollars so that you will have a better information regarding the growth drivers of the business.

The Company has also been working diligently to provide better and more relevant financial information regarding our long-term growth strategies and goals. As part of that evolution, we will now be providing annual sales and gross margin guidance in addition to other key annual guidance figures with quarterly updates to true up our annual guidance in each of these areas. Based on the January 2015 IHS production forecast, which for the major regions of the world that the Company serves is expected to be flat versus 2014, the Company estimates that net sales for calendar year 2015 will be between $1.47 and $1.54 billion.

The Company also estimates that the gross profit margin will be between 38.5% and 39.5% for calendar year 2015. Operating expenses, which include ER&D and SG&A expenses, are expected to be between $150 million and $157 million for calendar year 2015, demonstrating continued discipline to manage growth of expenses inside of targeted sales growth while continuing to reinvest in the business.

The Company expects that the effective tax rate will be between 31.5% and 32.5% for the year. Based on the previously announced facilities projects and expected growth in unit shipments, the Company is expecting that capital expenditures will be in the range of $95 million to $105 million for the year. Depreciation and amortization is expected to be approximately $85 million to $90 million for the year.

Thanks for your time, and we can now proceed to questions.

(Operator Instructions)

We'll go first to David Leiker with Baird.

Good morning, everyone.

Good morning, David.

I wanted to start and see if we can flesh out some of the details of these factors in the fourth quarter, launch costs, size, amount, timing, how long they're going to be around and then the impact of the exterior mirror inventory correction that your Tier 1 customer went through.

I'm assuming you want us to cover all of those, David, or do you want to ask some more specific questions first, or do you want us to just kind of go through them?

Yes, I think to get an understanding of what the financial impact were of those two factors in the quarter.

Sure, so I'll start with the sales side. And if you look at a couple factors, first we'll talk about actual production in Q4. And if you look at Q4 production levels, they were about 2% roughly down for the year, on the year-over-year basis for Q4, and our sales were up 7%. So, we actually beat the market by about 9% from a growth standpoint, which is roughly in line with what we've targeted. We've talked publicly about the double-digit growth goals for the Company. If you look specifically at D&E segment globally, well, really if you look at it in the three major areas that we operate in, so the ones that we publish financial details around from a production standpoint, what you'll see is that D&E was really down about 4% in that segmentation, which is based on our discussions we've had where we're highly contented. That was pretty much a headwind for us in the Q4 area.

Additionally what we had was the Tier 1 adjustments. This isn't uncommon for us in December, especially usually late November, December to have issues with Tier 1 inventory adjustments. Because of the cycle time and the lead time of those products and not knowing exactly what inventory levels our Tier 1 customers are holding, it is something that we deal with, usually on an annual basis where you'll see dips in orders of our outside mirror products. And now with the addition of HomeLink, you also have risk there on the HomeLink side, and that's what we experienced, was just that our Tier 1 customers were obviously trying to manage their inventories for year-end close a little tighter, and so the orders weren't as strong. We don't believe any of the things that we saw in the end of November through December as it relates to those Tier 1 orders are indicative on a go forward basis. We feel like the sales guidance that we've been giving is right in line still.

Okay, thanks. And then what about the launch costs that your -- the product and technology launch costs, if you can quantify what impact that had on margins.

Yes, so if you look at -- I'll start, and I know Kevin is going to have -- add a couple details there. But if you look at the overall manufacturing costs, what we saw was we saw a $2 million headwind in the quarter on manufacturing costs. A good portion of that was obviously driven by the new technology launches that Mark's been discussing in his product section. There's a lot of things that we're just launching this year and going into 2015, so they were the primary drivers of that. Obviously, the sales level being slightly behind our forecast didn't allow us to leverage the overhead portion as well as we would have liked. And like we mentioned, at the higher sales levels that we've guided to for 2015, we believe that shouldn't be a problem on a go forward basis.

Yes, the specific launch costs are probably between 50 and 100 basis points, so David, if that's what you're pointing to.

Okay.

Of all of the factors, that was one -- the 50 to 100 was a negative impact there.

Right, so all in all, it looks like there's some mix issues and then the launch costs were the biggest issues here and --

Yes, we had favorable mix that obviously helps us, but then some of these things outweighed that in the quarter.

Okay, great. Thanks, I'll come back.

Thanks, David.

We'll go next to Rich Kwas with Wells Fargo Securities.

Hi, good morning.

Good morning, Rich.

Just a follow-up on David's question. When you look at the inventory destocking, if -- Steve, how would you frame it between the impact of the exterior and then just the lower production on the D&E segment in terms of the impact on sales? Is there a ratio we should think of?

Sure. We'll start with the D&E segment. If you look at the units that fell out of the forecast -- that fell out of the production environment in the fourth Quarter, given our content there and an average when you're dealing with D&E segment, you're talking about we average between 2 and 2.5 mirrors for every one of those vehicles because of the inside and the outside mirror content we tend to have. And if you're looking at ASPs, that could have been anywhere from $7 million to $10 million.

And then if you look at the inventory adjustments, you're looking at another $7 million to $10 million roughly that took place in the quarter based off -- and now some of those are overlapping so you can't necessarily add the two together entirely. Because part of that inventory adjustments from the Tier 1s was probably partially driven by the lower production, but not all of it.

Okay, and you feel at this point the Tier 1 customers have their inventories in pretty good shape?

Yes, typically we -- and this actually happens almost every year. It's just a matter of how severe is from time to time. But typically, they are trying to get their inventories in order for their end of year close and trying to make sure they're holding the right amount of product as they close their year up. And sometimes you'll see a more significant cut back in orders in that period, and then typically you'll see it either strengthen or go back to normal as January rolls around.

Hi Rich, this is Mark. As I think we've talked previously, when it comes to outside mirrors in the year-end issues with our Tier 1 customers, it's no excuse at all on our part. We just missed it. We had been missing in previous quarters low on outside mirrors and had continuing improving performance. And in this particular case, this should be viewed as more of a one-time situation resulting specifically from the year end.

When I think the important thing to remember is that we do have more risk to this now with the HomeLink acquisition. Because the part of the business that we acquired is all Tier 2 business for us. In other words, all those components sell through at Tier 1. Now it's not just our outside mirror business, it's also the HomeLink business that's subject to this type of inventory adjustment risk.

Okay, so -- but bottom line, it sounds like the D&E piece was a bigger piece of the sales miss than the inventory adjustment, is that a fair comment?

Yes, I would say they are roughly about the same. But yes.

Okay. In terms of the guide for gross margin -- so the decline, can you frame this up in terms of what's transitory versus what's sustainable/structural? Meaning how much of the impact here should get reversed as you move into 2016 and get more volume and leverage on the new products?

Well I think if you look at -- like we said before, if you look at the overhead portion of it, that's a function of how you're doing relative to your sales level. As the sales respond and get back to the levels we believe they will be at in 2015, then you'd expect the overhead to move in line and to be obviously divisible by a greater base, so that should help smooth that out.

If you look at the other -- these launch costs, some of those will probably likely to continue into 2015. But on the higher sales levels, that should help absorb those costs as well. And then as we work through six months or so of launching these products, typically what Gentex has done a fantastic job of is getting more efficient and getting yields up and not having -- and when those things are occurring, obviously you have issues with overtime and some of the other things that have to occur in order to hit your shipments. We look at it and say, hey, by hopefully through mid 15 we'll be through a lot of those one-time issues on start-up costs and start to produce the type of margins on those products that we're accustomed to.

Does the guide include a 50 to 100 basis point headwind similar to what you experienced in the fourth quarter related to launch costs, manufacturing efficiencies, et cetera? Is that --

Yes, I think like Steve indicated, we have some of that factored in early and working to be more efficient throughout the year. But as we also know, historically January 1 is typically when we have price downs to the customers, right? So, we're factoring that in as well.

Okay, all right.

And one of the other things we have talked about too, Rich, is just that our supply base and then also our manufacturing costs are kind of spread out. Those efficiencies come in throughout the year. The pricing effects us on January 1. Some of the efficiencies are -- filter in throughout the year, so there's -- the year is not 100% consistent as it relates to the margin impact.

So, the way to think about it is from a Q1 standpoint? I know you are going away from quarterly guidance, but from a Q1 standpoint, similar impact on the launch costs here in the near term, and then you add in the price downs because of the normal cadence?

You got it, exactly.

Okay, all right. And then just a bigger picture question. Mark, appreciate all the commentary around the new products, just to be clear, SmartBeam is going to grow faster than the overall corporate growth for 2015? Is that -- did I catch that right?

SmartBeam and HomeLink on the electronic side have been and will continue to. Generally in from what we're seeing for 2015 right now and growth that we have been experiencing the last couple of years has increasingly had contributions in these areas, so yes.

Okay, so faster than the 7% to 12% range for the Company as a whole, right?

Yes.

And then just a quick follow-up. On that point, can you give us any color around ADAS functionality? You referenced it in terms of SmartBeam, but can you give us any flavor for what you're selling or what you're shipping right now that has ADAS functionality within the SmartBeam portfolio? Because I think that's one of the things that people want a little more clarity from you on in terms of the growth profile of that business. And I understand that it's a moving target right now, but it would be helpful if you could provide any color around that specifically.

It's not really a moving target. The SmartBeam generation four product has from the outset, from when we first began shipping it at the end of the third quarter of last year, and now with the expansion this year, that product was created with this capability. It's important to note that for over a decade, SmartBeam has been positioned as a mid level option package beginning originally to control forward lighting. And increasing in capability through fusion with radar and steering and other electronic systems on the vehicle and adding capability to detect lanes and roads and objects. As you might easily imagine, we've been, since the outset with the original SmartBeam, we've been detecting lights as they approach the vehicle. Those lights, turns out, are attached to vehicles, and so it's no stretch to misunderstand that we have been detecting vehicles and road conditions.

In almost all of our applications where SmartBeam is applied, we've got currently right now 17 different automakers worldwide where this is applied, and it has continued to be a growing product for us as you know. In each of those applications, there has been generally a high end package of multiple feature driver assist, consistent with Bosch or Continental or the Mobileye applications as well. We have been participating as the mid level option while there was a high end option. We've publicly pointed out, and with almost 7 million units on the field we've experienced that we've had a much higher application take rate than the more expensive multiple feature driver assist systems. The good news today with the increasing market interest in success of applying more driver assist systems on the vehicle means that the high end systems, as you know, multiple feature like the Continental or Bosch or Autoliv or Mobileye applications with multiple features, those are increasing in applications, but so is ours.

We were -- we created SmartBeam now for over a decade together with customers, adding feature capability to it at customer request, not of our own free will, in doing so. And so with this the generation four SmartBeam that is shipping now includes capability of -- for features that detect objects and report that information to the car. On high end systems you have very sophisticated, and they are outstanding products, that have applications that detect specifically pedestrians and detect vehicles and detect collision and detect road conditions. Our product has been detecting vehicles and road conditions and objects in this. And so, as the market broadens, there are more applications generally for mid range as well as the high end, and that's basically what we have been developing and are experiencing growth in.

But you are seeing growth in ADAS functionality take rate within the SmartBeam portfolio?

The generation four SmartBeam was specifically, we created the imager or we created the applications done at customer requests to add capability and lane and object detection, as well as in lighting. And so yes, those are driver assist functions in this we're sending information to the vehicle. We have been highly flexible in fusing with a wide variety of radar and steering and pitch and (inaudible) and other sensors on the vehicle for some time; many years. So, we've been increasingly seeing more with our cameras, sending more information to the car, integrating with more systems at customer requests, and that is ADAS. ADAS doesn't have to specifically be seven features specifically defined as an application base. It's actually quite broad and it's actually an application just beginning in the market with pretty low take rates so far. Good news is, there's great interest and it's an opportunity for growth.

Thanks, I'll pass it on.

We'll take our next question from Ryan Brinkman with JPMorgan.

Hi, thanks for taking my question. Just on the Tier 1 destocking issue again, did this relate to destocking of Gentex components that go into the supplier modules, implying some sort of change in take rates? Or was it more just a destocking of the completed modules because of lower production at the automakers, for example?

Yes, what this is is destocking of our outside mirror assemblies that we sell to the Tier 1 outside mirror manufacturers. In other words, they buy our glass element, our electrochromic element, and then they use those in their full outside mirror assemblies. And basically, it's a timing issue and it's an inventory management issue that they have. And typically, like I said, we've experienced this almost every year since we've been selling outside mirrors. Now it's a little larger in terms of its overall dollar value because of the HomeLinks are also Tier 2 business for us where we sell our electronics module that are then added to visor and overhead console. And so typically when you see this occur, it's not a change in any type of take rate or any type of what's going on with the core business. It's more just the Tier 1 customers trying to make sure that they have the right inventory levels as they head into the New Year.

Hi, Ryan, this is Mark. Typically, as you might imagine, in this case it's a question of don't ship it to us between Christmas and New Years. We're going to push the order out into the New Year type of situations is what often happens.

I see, okay, great. And then what are you seeing on take rates? You'll see the average transaction prices for new vehicles are at all times record highs. Some of that might relate to segment mix. What are you seeing in terms of how vehicles are being contented, and how is that impacting the business? In the past, you've commented on changes by geography, US getting more content and Europe lesser. What are you seeing now?

I'll start. We've all got responses, I think, in this. Again, this is Mark. As we've been saying publicly for some time, the best surprise that we've enjoyed, particularly in 2014 going into this year, is rapid growth in the B&C segment in sub compact and compact vehicles, which traditionally did not have advanced electronic content like we provide. That's been a great growth area for us in this. So that's driving a lot of the unit application growth that we've been experiencing over the past year, and it is also reflected in new business awards that we've received for future business in 2014. We're excited to see more in the B&C side.

Probably the best place to see evidence of that is if you look at the end of the 8k or the press release, what you'll see is content on inside and outside mirrors by region, both North America versus international. And what you see as consistent growth in all areas of our business; in other words, both in inside mirrors and in outside mirrors and in all regions. One of the things we point to there is, yes, we believe that some of the content that you're seeing in vehicles, some of the average -- higher average sell prices on those vehicles are helping us. Because we're one of the features that OEMs look to to add to a vehicle to make it, A; to add a pricable option and B; to help content that vehicle, especially as they start to move down segment. And as a shopper begins to look at lower segment vehicles, it doesn't necessarily mean that price is the issue. It's also a function of size, fuel economy, and some of the other things that we're seeing in the industry.

Okay thanks, and then just last question on the buyback. You did it for the second quarter in a row after not having done it for awhile. What should we infer from this? And then can you comment on the stock split too, reasons for that?

Sure, so on the share repurchase side, like we said before, this is something that the Company uses as an opportunity. We tend to be very situational; in other words we don't have a preformatted or stated strategy about when or how we're going to execute stock buybacks, but it is something that the Company evaluates constantly. On the stock split side, that was primarily a function of trying to make sure we're managing our stock option expense as it relates to the Company. As the stock has been going up in value, one of the things that comes along with that as a negative is that the option expense can grow. The advantage of a stock split is that it helps to minimize the growth in that area of the business, so it helps us control our costs in a more effective way.

All right, thank you.

We'll go next to Brett Hoselton with KeyBanc.

Hi, Brett.

Hi, Brett.

Good morning, gentlemen. How you guys doing?

Good.

Two things. One, you've obviously laid out quite extensively the products that are driving your revenue growth, so thank you very much. That's very helpful. My question is in the past few years here, you've talked about 10% revenue CAGR, plus or minus. And this year, 2015, you're guiding to around 10% on average, given roughly flat production and so forth, so that's fairly consistent. My question is as you look across your broader product portfolio and as you look out into 2016, 2017 and 2018 or something along those lines, and you consider that 10%, what's the bias on that growth rate? In other words, do you think that that's just simply going to remain in that 10% range? Is there an upward bias or a downward bias? Do you see your product growth accelerating or decelerating or just remaining the same?

All efforts on the Company's part where we are working to communicate -- again Brett, this is Mark, are to accelerate that growth. But we always hesitate with caution primarily because we're sold as an option package as opposed to largely a standard equipment application. Because we're an option, we tend to vary a lot based on economic conditions in our various markets. When economies are good, since we're a paid option that consumers must select, we tend to do well. When the economics tends to slow in a certain region, we could move back to a more base auto dimming mirror product with a lower mix with advanced electronics, so that's where we tend to be cautious.

The message that I think you're pointing to, and we do want to communicate, is that the Company increasingly and the leadership increasingly is pushing for accelerating that growth. But we're not committing to it beyond the 10% at this point, one, because we continue to see a flat production environment and two, because we're an option in a situation that does not indicate large segment vehicle growth.

Excellent, and then just a follow-on on the share repurchase. Obviously, you've got a growing cash balance and so you've put your toe in the water here as far as share repurchase. My question is, what do you think the possibility of maybe developing a more consistent, let's say share repurchase plan, as opposed to an opportunistic share repurchase plan? What do you think the possibility of that happening might be? And if so, do you have any sense of whether or not that's something that could possibly occur in 2015 or 2016 or 2017? Or what's your general thought there?

Well I think overall, when we look at share repurchases, historically, the Company has used the opportunistic approach and hasn't done anything from a methodology standpoint that would drive it to be consistent. It's one of the things that we talk about very frequently here in terms of, how do we leverage the balance sheet to make sure we're doing the right thing for the shareholder. But as of right now, the strategy remains to be the same, which is that we're going to look at this as an opportunity and we're going to be opportunistic in how we handle our share repurchases. Like I said before, though, the Company, one of the things that makes Gentex very unique is that we are opportunists and we do look at things, reevaluate them all the time to make sure we're taking the right approach. That's something that we debate internally and we do talk about and look at.

It's one of our -- our focuses, though, has always been on top line growth of actual revenue. Not trying to drive EPS only through balance sheet, but to look at it as, how do we grow in the business, invest in the business in such a way to make sure we're drive the top line and improving the shareholders overall value through those means. It's one of the things, the balance sheet is very important. And as Fred Bauer would point out, we did last year make a big step from an acquisition standpoint. And so right now we're in the process of making sure we're being disciplined with the business and running it efficiently so that we can rebuild that balance sheet and then get ready for what's next.

And then finally, as we think about your operating margin outlook, obviously you've got an implied outlook, let's say, in 2015. As we think about 2015, 2016 and 2017, the faster revenue growing products certainly seem to be higher margin, that might be a nice tailwind. It looks like you're not necessarily anticipating your sales growth to outpace your operating expenses, so at least on that basis, you don't necessarily get that kind of leverage. But I'm wondering outside of those two factors, and correct me if those assumptions are incorrect, but what are the other major puts and takes with regards to your operating margins? Because it seems like your margins are quite sustainable, but there may be some opportunity for some upside there.

Sure, so first we'll start at the very highest level. Anything above 10% tends to be when we have the best opportunity to expand gross margin, anything below that, typically we're going to be more on the realm of maintaining margins, not expanding them. So, that's the first factor. The second one is, on the take side, is really when you look at annual customer price reductions, you're facing 2.5% to 3% on January 1. A little bit later in the year, but most of it at January 1, so that's a big headwind for the Company. Our first goal is to get the purchasing group in line and our manufacturing costs in line to try to offset those costs, just to be able to maintain the margins that we've posted in 2014.

Beyond that, if you look at the operating line items, like we said, we try to be disciplined with our expense growth there to make sure that we're not growing those at a rate faster than sales are growing. But at any given point in time, they can outpace, and that's primarily, especially on the R&D side, would be driven by customer orders or awards that need developed in terms of our product launch to make sure that we're delivering products on time. And so those are the things that can drive operating costs to outpace sales growth. But for the most part, if we can move those two roughly in line, then we're focused on our sales if we're selling the right products. And like you mentioned, the things that will help us on the gross margin side to help us offset those cost reductions is the mix.

And for us, the mix when we sell HomeLink or outside mirrors or SmartBeam products, those are positives from a margin standpoint. At this stage and what you see in this longer term, this one year gross margin guidance is stabilization in that gross margin. And we believe if we can do that, that gives us some upside potential, but that will be predicated on our ability to grow it faster than 10%. If we're growing anywhere around 10% or slightly lower, you'd expect hopefully margin stabilization. Anything that outpaces that is when we have our first opportunity to expand margins.

And just for one context, we did come in the short period of time from low 20% operating margins to where we are today.

The high 20%s.

20% to 30% operating.

Yes.

Gentlemen, thank you very much.

We'll take our next question from Brad Erickson with Pacific Crest Securities.

Hi, Brad.

Hi guys, thanks for taking my questions. First on HomeLink, can you just give a little bit more of an update on how both the refresh is going, particularly in the new geographies? And then maybe also some of the new products like the non-automotive applications and how those ramps are going relative to your commentary a quarter ago?

We're fighting over the answer. I'll start and Steve will continue. The product release in the new applications does begin to have primary launches starting in 2015. And in the new market applications, specifically as we've talked, in China as a growing area for us, those also begin later this year as well. Those have both been very, very positive. Right now we're, since we're just starting, we're not giving specific guidance in those market areas beyond saying that HomeLink continues to be our largest electronic application, and it is growing at and often above where the business is as a growth product.

Yes, so I think like we talked about before a little bit on the product side, and Mark addressed this. One of the things that we're excited about is it's taken an off-the-shelf product and using it in some new market opportunities. And not that those, especially in the ATV market or some of the other industries that we're talking about there, it's not that those are going to be necessarily material to the business in and of themselves, but it's an example of additional opportunities for the Company to operate outside of just strictly automotive. And that applies not only to HomeLink, but our goal is to help us build relationships to allow us to introduce other technologies that we make and have expertise in, to be able to offer those to those new customers as well.

On the other side, the HomeLink and international markets, what we have talked about is we're coming along quite nicely with our compatibility agreements in the China market. We're excited about over the next three to five years, what kind of growth opportunities that'll have in the China market. It's all speculation at this point, because we actually have to go and first get the compatibility in place and then get customer awards that will help drive that business. But based off our initial dialogues with OEMs, we are excited because they do see the value of the product in that marketplace. I think that's, between Mark and I, hopefully we answered your question, but that's what we're seeing for the HomeLink product.

Yes, no, that's great, thanks. And then just following up broadly on, there's been a few questions around ADAS, obviously very hot topic these days. As ADAS potentially, if and as it falls more under the regulatory umbrella over time, how do you think about your opportunities there from a competitive standpoint? Meaning, is this just basically a rising tide from a content perspective over time? Or are there pricing pressures that, akin to some of the RCD stuff you had talked about a few years ago, that you could be subject to over time? Just any help with how we should be thinking about that would be great.

I like your language on that. It is a rising tide, just beginning, but it's a rising tide on the content side. I know there's been so much discussion in the marketplace, the most common thing that we hear was that there was a war and the war's over and it's already been won. The actual application for multiple function drivers assist applications is actually just starting, and we're really pleased that it is. There are very, very powerful competitors in this. We are one of those. We've been building it from a bottom up application with our SmartBeam product. We're going to continue to be a mid range option package. There are high end, high performing multiple function option packages, but we are seeing growth in this.

Again, our product, we're unique in that -- we did that acquisition we talked about back in the 90s to have a capability design our own camera chips so that we'd have better control on what applications we applied those to. And so we do our own camera chips, we design our own optics, we write our own algorithms for these. And now that we're in the fourth generation of product, those products have been developed together with customers, and so we've been adapting it specifically. Customers have driven us, have requested of us and have awarded to us mid range application packages that have an increasing amount of function for ADAS. The good news is it is a rising tide of applications. And there are competitive pricing pressures in it, but right now still relatively new as an application space. It's basically a very low single-digit application percentage where it's applied currently today. That will begin to grow between now and 2020 as the first major applications begin to be applied. And with it, there are high end applications and then there are mid range applications; we're mid range application in this, as SmartBeam has always been.

Got it. That's great, thank you.

Thanks, Brett.

We'll go next to Steve Dyer with Craig-Hallum.

Thanks, good morning, guys. Couple quick ones, since most have been asked. As you look at growth for 2015, the mid point of your revenue guidance is something like 9% or 10% growth over 2014 and in a flat production environment. As you take kind of that 9% or 10% and then you account for price downs, actually means apples-to-apples, you're growing 12% to 13% faster than the industry. Could you maybe take a shot at bucketing out where that growth comes from? And with the buckets maybe being new programs, take rates going up or down and then content or overall ASP? Or however you think the best way is to bucket how you're able to grow 10%, 12%, 13% faster than production?

Sure. Well, if you look at the press release and what we've done, for instance this year, in terms of mirror content growth, that establishes the baseline. In other words, that's the penetration our new programs, awards that we're going to have in 2015. Anything -- the difference between that and the stated growth goals, especially when you add back those 2.5% or 3%, the difference is content increases, it's new features that we're selling, it's the stuff we don't report necessarily on a per part basis.

In other words, it's taking a mirror where we already have content and adding in another additional feature to it or changing that product to upgrade, for instance, a frameless type product. Those are how you bucket the growth rates. If you were to look at it, you'd say roughly, probably 50%, 60% of the growth is penetration and the other half is content increases.

Great, that's very helpful. There's not a lot of talk about RCD anymore. Can you talk a little bit about where you stand there, the momentum that you're getting or not getting and how you think about that piece of the business going forward?

This is Mark. RCD is still a product for us, it continues to sell and continues to be applied, primarily outside the United States. In the United States where we have and it's a law that begins to take effect, applications are pretty much already defined. We've publicly stated that at this point we've got no new material guidance on it. It is no longer a headwind to the business. The areas where we were affected occurred in 2013 and 2014, so we're very pleased we passed that; and so that's where it stands right now.

Yes, like Mark said, the biggest thing that we're actually excited about is the headwind stops in 2015. In 2013 and 2014 we saw significant drawbacks because of the NHTSA legislation. But it's a stable product at this point in growing outside of North America, so it's no longer shrinking the inside mirror business.

Plus it became a family of products as it relates to video displays and what we're doing as a Company. In terms of RCD, gave us the infrastructure, it helped us pave the way for what full display mirror has become. And so really it gives us a lower grade introductory product and gives us a high end product that we can introduce to OEMs who want to move to a full display type application.

And given the fact that the NHTSA rule is about to take effect and it sounds like most OEMs have made their decision so far. What kind of opportunity or role do you think the full display rear view mirror has?

Totally different application. Completely different, always was when we were developing it. Full display mirror was to address styling design changes in the car where you see less and less out a smaller and smaller back glass. And so this is a camera mounted high on the vehicles where it's applied, and it is an auto dimming mirror with the option to switch to a display that's also the full size of the mirror. It's not the same application as the NHTSA at all, which is looking down in a very specific area.

This is to address a totally different issue. It's sold as an option for automakers. It was designed and requested of us specifically by auto maker customers in the past few years, and so they're not related applications. As we begin to go to market, we start initial shipments late in the year in the fourth Quarter.

Great, and then last question. Could you give a little bit of guidance on the other income line of the P&L? I know you've been winding down the investment portfolio. How should we maybe think about that number for 2015 and beyond?

Yes, I think if you look at, we didn't talk about it, but the unrealized gain loss has come down, it's around $11 million after tax. So, we wouldn't expect that it would be at the levels as it was in 2013 or 2014 and so --

That's going to be largely market dependent too.

Yes.

Is that number half of what it was in 2014 or, without knowing the market of course, but is $11 million a decent number to think about?

Yes, I think you're somewhere in that range, given -- depending on the market, it would have to have a 10% to 15% improvement in the market from here to go any higher than that.

Okay, great. Thanks, guys.

Thank you.

Our next question from Jason Rodgers with Great Lakes Reviews.

Just to follow-up on the full display mirror, it would seem that unlike RCD, that there would not be a lot of competition from the console since the display would be needed for infotainment features and other information. Is that the case?

That's correct. It's totally independent of any other application for video display that the automaker has. It's an additional option that automakers have requested and are increasingly requesting as a product.

And is it too early to talk about estimates for expected unit shipments as a percent of the total?

Too early at this point. We really don't start production until very late in the year.

Right, so this is not a material impact by any stretch in 2015. It doesn't start until Q4 and the volumes aren't huge, even in Q4. This is really one of our longer-term growth plays for the Company.

And are you expecting any change in the degree of customer price reductions?

No, if you look, we've -- those have come in line over the last several years, and somewhere in this 2.5% to 3% range tend to be about where we'd expect this to settle out and maintain going forward.

And finally, looking at -- we talked about Gentex being mid range versus high end for the ADAS functions. What's the main -- if looking at the high end, what are some of those features that Gentex can't do or are working towards?

All right, well SmartBeam actually always was designed intentionally since we started shipping it a little over a decade ago to be a mid range option application. It has an average application take rate where it's applied to about 25%. The high end applications for driver assist are traditionally referred to as: lane departure warning, lane keep assist, forward collision warning, pedestrian detection, collision mitigation, traffic sign recognition, headway monitoring, adapted video, adapted cruise control, things like that. At the core, where we've been asked to compete in this, we began originally as an automatic lighting control system; we're the industry leader in that. But from that point originally, the subsequent generations of the product up to the generation four that is beginning to ship now, we've been asked to detect objects generally and send information to the vehicle to various electronic control units in the vehicle, as well as road conditions.

And so at the core of driver assist, if you want to look at it this way, the very basic function that the driver assist is working to solve is, tell me when I'm going to crash into something. Anything; a raccoon, a pedestrian, a telephone pole, leave the road and that kind of thing. In those applications, since we had originally and always have been, detecting lights and the position of lights on a vehicle and sending instructions to our own lights to manage the high beams. We have always increasingly had that capability to detect position of objects in the applications.

That's what our customers have been asking us to do. SmartBeam has continued to expand and grow as a product, and there's now, like we've said on this call, increasing market interest for the high end systems. And many of the features that we don't do at this point, the ones that we publicly said are part of SmartBeam, are the lighting control, the lane detection functions, and the collision functions generally.

Okay, if I could squeeze in one more, just wanted to get an update on the aircraft window shipments.

Did you say the level?

Yes, just a general business update, if you're continuing to grow that area of the business.

Sure, yes absolutely. The growth basically that you see in that area is related to our expansion of that product on the Boeing 787 family. And as they've launched new aircraft and new derivatives of the 787, we're part of that product growth.

Yes, Steve, we disclosed the other net sales growth in the quarter, and that was primarily driven by windows.

It's continuing to be a good business. It's a business where we're continuing to expand in the application on the 787. And we are actively quoting new business, but it's still a small portion of the business at this point.

Thanks a lot, guys.

Thank you.

We'll go next to David Whiston with Morningstar.

Good morning.

Morning, David.

In October you had said the plan on CapEx for 2016, I think was to have it go down versus 2015. Is that still true?

No. What we were talking about was normalizing the CapEx, and we were talking about the specific portion of the CapEx related to the facilities expansion.

Right.

In other words, most of the spend would be in 2015 on the new facility. We haven't given guidance on CapEx for 2016 yet.

Okay, and just two things on the product side. The -- going back to the discussion on -- your features are generally a part of an option, but down the road, as more driverless cars and semi autonomous vehicles, do you think -- really, my question is, how much longer would it be for more Gentex -- more of Gentex's product to be standard? Is it less than a decade away? And somewhat related is, any updates or anything you want to share about your time at CES would be helpful.

As far as standardization of features, we've really never been standard in many cases through our entire corporate history. And our customers tend to look to us to create options that they can apply and that automakers can also make money on, that's been one of the reasons for our success. And then so for us, predominantly going forward, we have operated the business as a growth business as an option. We're still targeting for that to continue with no real forecastable change in that at this point.

On the CES side, it was new step for the Company. We hadn't displayed there before. One of the things that I will say is that it was a great opportunity for the Company to meet, discuss new products and future technologies with customers, as well as investors and analysts.

It's nice to talk on the conference calls, it's very difficult to describe the products in words without being able to see them and touch them. And so one of the things we're focused on in 2015 is trying to be -- have the same footprint that we had in 2014 as it relates to [seam on] CES where we openly invite investors and analysts that want to stop by and see the products that we're talking about, come by those shows. As well as we're planning -- tentatively planning an investor/analyst day here in Zeeland the second half of the year. That's a great -- probably the best opportunity to actually see the products we're discussing on these calls and understand them in a more effective way.

Okay, sounds great. Thanks so much.

Thank you.

We'll take our next question from John Murphy with Banc of America Merrill Lynch.

Hi, John.

Good morning, guys. Just a first simple question. With two-thirds of your shipments, or almost two thirds of your mirror shipments international, is there any impact from the strengthening dollar? Or most of your sales dollar denominated still?

Most of our sales are dollar denominated, so the issues that we face based on currency aren't really about our sales levers and FX issues. It's more about those economies and how they are holding up and how automotive sales are doing in those local economies.

It's an immaterial level in outside of the US dollar sales, is that correct?

Yes, that's correct.

And just a second question. I hate to beat a dead horse. On the inventory that you're calling out, the adjustment you're calling out in the fourth quarter, does that mean the third quarter benefited or there will be a catch up in the first quarter? Because this sounds like it's more of a timing and a seasonality thing as opposed to a one-time item, and if that's the kind of thing that we're versed in the first quarter or the second quarter of next year?

It is primarily, you're correct. The timing and the seasonality issue, the deliveries, generally are adjusted to another time.

And the point is over the last several years, I'd say 80% of the years that we go through this occurs and happens. And so really, when you look on a year-over-year basis, Q4 is slightly lower than it probably would have been if it weren't for timing issues, and Q1 seems to be a little higher than it would have been normally (technical difficulty).

Yes, and I think to contrast that with a couple years ago, everybody was growing production at a rapid pace and working through holidays whereas now, I think they're near peak levels.

And everyone took traditional holidays.

Well, good lesson for us, if Christmas and New Years is in the middle of the week, we made a strong note to pay attention to that in the future. But it can have an impact on shipping schedules and things like that.

Got you. And then just as we think about the product and think about these full display mirrors that you've discussed, it used to be that you had products or RCD products in the mirror, the image you had in the mirror, that would fulfill the NHTSA requirements. And it sounds like what you're talking about now is that that's not possible or not the way that the automakers are going. And I'm just curious. We've always thought about the self dimming mirror or the mirror as a screen in the vehicle and potentially a replacement for the screen, and that's what you guys have talked about. But it sounds like that's changed dramatically in your communication today. I'm just trying to understand what's changed there.

No, actually it's exactly the same communication that we've been having with a full display mirror. The totally different application. Automakers came with us, basically with an increasing challenge that you're seeing less and less out of the rear view mirror out of vehicle styling. The rear windows are changing and the size, headrests are in the way. When you look in the rear view mirror, you tend to see headrests and other interfering things. So, this is an additional camera mounted high on the vehicle, looking at the place where the rear view mirror is looking. The rear camera display applications, which we do still have in the United States and worldwide, is a camera very specifically specked to look down in a specific area for back up. This is a switchable system created by automakers that addresses a totally separate issue at this point. Can they merge in the future? The cameras are looking in different places, but can the display be used for more than one use? Yes, that potential is absolutely there for more than one video camera on the vehicle and an application.

It seems logical, right? You just connect two cameras to one display as opposed to paying for duplicative display. It just seems odd that you wouldn't do both. But can you just talk about the economics of these full display mirrors versus your regular self-dimming mirrors? Are they -- is the revenue and the margin and the investment much greater than what you have just on the regular self-dimming mirrors right now?

Yes, there -- both the revenue is a lot higher than the traditional auto dimming mirror. The development, especially on the first few programs, is very high, but that development is being handled inside of our current ER&D budget. So, it's not like you would see ER&D escalate in any way outside of what we've guided to for ER&D. One of the things that we do talk about margins typically when we launch new products, tend to be roughly in line with the Company's average, so that would be the expectations from that business going forward.

Okay, and then just lastly, who makes the cameras that you guys use? Is it a number of different suppliers, or is it mostly Magna? Just trying to understand (multiple speakers).

They're Gentex cameras, John. Gentex made an acquisition in the 1990s in California and Silicon Valley effectively for a capability to make CMOS images. We've been designing our own CMOS imagers and our own cameras throughout our history. We just went to production on the fourth generation of it. We aren't buying cameras.

But you're actually producing the physical camera, or?

We're producing the physical camera, always have.

Okay, great. Thank you.

Very good, thank you, John.

Next, we'll take a follow-up from Richard Kwas with Wells Fargo Securities.

I'll make this quick. SmartBeam the version four, what's embedded? Has that launched already, or when will that launch in 2015 and --

Launched in Q3, remember, when we announced the third quarter earnings release. Picks up volume production in 2015, multiple vehicles.

Multiple vehicles. And then I guess it's too early to give us any detail on take rates for the incremental safety functionality, or do you have any kind of early read on what you see?

Since it comes on board, we should be able to in the future. We're just starting in the application right now, so it's a little early.

Okay, that would be helpful on future calls to --

Well, maybe we should point something out, because there continues to be -- there's so much public communication that driver assist is a specific set of features that a supplier or two created a name for. If you look at SmartBeam for the last few years, Rich, you've seen our generation three product, even though we've been shipping for some years, have capabilities called motorway detection, as an example. That's lane detection, and that's what those applications are. And increasing capabilities for things that -- we named village detection, tunnel detection, things like this. This is an object detection capability that can detect distance to objects, communicate them to the vehicle, and that algorithm has continued to expand. And so one of the challenges, I think we have to do, continue to do a better job of explaining is the specific list of features offered by some of the suppliers does not necessarily mean that's the product. There are many, many, many applications in this marketplace, and we'll work to try and do that to better understand.

Okay great, thank you.

Thanks, Richard. Very good. I think that's it, and we appreciate everyone for the questions and participation on the call today. Thank you very much.

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