Gentex Corp (GNTX) 2015 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Gentex second quarter 2015 earnings conference call. Today's conference is being recorded.

I would now like to turn the meeting over to Mr. Josh O'Berski, Gentex Investor Relations Manager.

Good morning, and welcome to the Gentex Corporation second quarter 2015 earnings release conference call. I'm Josh O'Berski, Investor Relations Manager, and I'm joined by Steve Downing, Senior Vice President and Chief Financial Officer, as well as Kevin Nash, Vice President and 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 the unauthorized use of any contents of this conference call.

This conference call contains forward-looking information within the meaning of Gentex safe harbor statement, included in the Gentex report second quarter 2015 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.

Contents within conference call may make reference to certain non-GAAP financial measures. These measures were furnish to the FCC and are available on our website within our press release from earlier this morning, and the press release contains the most directly comparable GAAP financial measures and a reconciliation to the most directly comparable GAAP financial measures.

Now I will turn the call over to Steve Downing who will give the second quarter 2015 financial summary.

Thank you, Josh.

For the second quarter of 2015 the Company is pleased to report net sales of $379.3 million, which was an increase of 12% compared to net sales of $338.4 million in the second quarter of 2014. The Company's continued growth in sales has been accomplished despite worldwide light vehicle production that declined 1% in the second quarter of 2015 in the Company's primary markets versus the second quarter of 2014. In addition to foreign currency fluctuations that accounted for approximately 1% of revenue headwind during the second quarter of 2015.

The gross profit margin in the second quarter of 2015 was 38.4%, compared with a gross profit margin of 39.7% in the second quarter of 2014. The primary drivers affecting gross profit margin on a year-over-year basis were annual customer price reductions, unfavorable product mix, and currency rate fluctuations which were partially offset by purchasing cost reductions.

Operating income for the second quarter of 2015 increased 8% to $108.1 million when compared to operating income of $99.8 million for the second quarter of 2014. Adjusted operating income for the second quarter of 2015 increased 12% compared to the second quarter of 2014.

Other income in the second quarter of 2015 decreased 60% to $2.3 million compared with other income of $5.8 million in the second quarter of 2014, primarily due to lower realized gains on sale of equity investments. In the second quarter of 2014, the gains in the quarter were higher than normalized levels given the strength in equity markets and the Company's rebalancing of its investment portfolio following the HomeLink acquisition in 2013.

Net income for the second quarter of 2015 decreased 3% to $74.6 million, compared with net income of $76.7 million in the second quarter of 2014. Adjusted net income increased by 12% for the second quarter of 2015 when compared to adjusted net income for the second quarter of 2014. Earnings per diluted share in the second quarter of 2015 were $0.25 per share compared with earnings of diluted share of $0.26 in the second quarter of 2014, which reflects the December 31, 2014 stock split effected in the form of a 100% stock dividend.

The reported earnings per diluted share for the second quarter of 2015 decreased 4% on a quarter-over-quarter basis. However, adjusted earnings per diluted share for the second quarter of 2015 were up 11%, compared to adjusted earnings per diluted share for the second quarter of 2014.

Now to Kevin Nash with the second quarter 2015 financial details.

Thank you, Steve.

Automotive net sales in the second quarter of 2015 were $370.5 million, up 12% compared with automotive net sales of $329.6 million in the second quarter of 2014, primarily due to an 11% increase in auto-dimming mirror shipments. Other net sales, which included dimmable aircraft windows and fire protection products, were $8.8 million in the second quarter of 2015 compared with $8.9 million in the second quarter of 2014.

ER&D expenses in the second quarter of 2015 were $22.3 million, which was a 10% increase versus ER&D expense of $20.2 million in the second quarter of 2014. The increases continue to be driven primarily by staffing, testing, and prototype expenses to support ongoing product development and launch activities in all product areas.

SG&A expenses during the quarter of 2015 were $15.1 million, which was a 6% increase versus SG&A expense of $14.2 million during the second quarter of 2014. Excluding severance related cost and favorable effect of foreign currency fluctuations of the Company's foreign sales offices, SG&A expenses would have been $13.6 million or down 6% versus the second quarter of 2014.

The tax rate during the second quarter of 2015 was 32.5%, which varied from the statutory rate of 35%, primarily due to the domestic manufacturing deduction. The tax rate increased from the second quarter of 2014 rate of 27.4% primarily as a result of incremental research and development tax credits of $5.5 million recognized during the second quarter of 2014. Excluding the impact of incremental credits in 2014, the tax rate would have been 32.5%, also, during the second quarter of 2014. And based on the Company's forecast and current legislation, the Company expects its tax rate to be approximately 31.5% to 32% for calendar year 2015.

Now on to some balance sheet items. Cash and cash equivalents were $569.9 million. That's up from $497.4 million as of December 31, 2014 primarily due to cash flow from operations. Accounts receivable was $196.1 million, up from $168 million as of December 31, 2014, primarily due to higher sequential sales level as well as timing of sales within the quarter.

Inventories were $150.8 million, up from $141.8 million as of December 31, primarily due to increases in raw material and support of increased sale levels. Long-term investments were $114.7 million, versus $114.6 million as of December 31, 2014.

Accounts payable was down slightly to $69.9 million versus $71.5 million as of December 31, 2014. And accrued liabilities for $85.4 million versus $62 million as of December 31, primarily due to timing of certain tax and wage payments.

Some cash flow highlights now. Cash flow from operations for the second quarter of 2015 increased to $83.9 million from $44.4 million in the second quarter of 2014, primarily due to changes in working capital. And year-to-date cash flow from operations increased to $191.8 million from $142.1 million in the prior year, primarily due to increases in net income and changes in working capital.

Capital expenditures for the second quarter were $18.4 million compared with $13.8 million in the second quarter of 2014. And year-to-date capital expenditures were $33.6 million compared with $30.2 million through six-months in 2014. And based on estimated completion dates for the Company's current and planned capital expenditure projects, the Company is maintaining its capital expenditure guidance range in the $95 million to $105 million range for the calendar year 2015.

Depreciation and amortization expense for the second quarter of 2015 was $21.2 million and $42.5 million year-to-date. And the Company continues to estimate that depreciation and amortization expense for the calendar year will be between $85 million and $90 million.

During the second quarter of 2015, the Company repurchased 1.4 million shares for approximately $25.1 million, and through six-months ended June 30, the Company has repurchased 2.8 million shares for approximately $50.1 million. The Company intends to continue to repurchase additional shares of its common stock in the future depending on macroeconomic issues, market trends, and other factors that the Company deems appropriate. As of June 30, the Company has approximately 3.4 million shares remaining available for repurchase under its most recently announced share repurchase plan.

Lastly, on May 21, the Company announced that its Board of Directors approved a 6% increase in its dividend rate, and subsequently, declared an $0.085 per share dividend which was paid on July 17 to shareholders of record of the common stock at close of business on July 7.

Now back to Steve for a products and business update and the remainder of the year guidance.

Thank you, Kevin.

Gentex continues to significantly out pace vehicle production growth thanks in large part to the many different product launches that we've been executing this year. The Company continues to grow by introducing our electrochromic technology on many vehicles that are new applications for our products.

Base interior auto-dimming mirrors were launched on 10 new vehicle models in the first quarter of 2015, and six additional models in the second quarter of 2015. The Company's growth was further driven by increased applications of electronic features. In the first quarter the Company had 13 new vehicle models that launched with advanced features, and another 10 new vehicle models that launched with advanced features in the second quarter.

Our outside auto-dimming mirrors are continuing to see strong growth and penetration as evidenced by our launch on seven new vehicle models in the first quarter, and 14 new vehicle model launches in the second quarter. These new vehicle models offering our inside, outside, and advanced feature products, as well as further penetration of our products on existing models, helped drive a 7% organic growth rate of interior mirrors and a 21% organic growth rate for our outside mirrors for the first six months of 2015, versus the flat production rates in our primary markets.

Additionally, electronic content has helped drive the growth rate this year as evidenced by revenue growth outpacing unit growth rates despite a 1% headwind from foreign exchange rates and the impact of annual customer price reductions of approximately 2% to 3%.

The Company continues to penetrate BNC segment vehicles with not only our inside auto-dimming mirrors, but also our outside auto-dimming mirrors and advanced electronic features. The first six months of 2015 are also highlighted by the fact that the Company has launched and is shipping multiple A segment vehicles with inside auto-dimming mirrors with many of those vehicles utilizing advanced electronic features such as reverse camera displays, SmartBeam and HomeLink. The Company is excited about the first production launch of our Full Display mirror in the fourth quarter of 2015 on the Cadillac CT6, and we continue to have interest from multiple automakers for development and launch of Full Display mirror going forward.

Now on to our updated guidance for calendar year 2015. Based on the first half of 2015 results and the mid-July 2015 IHS production forecast for the second half of calendar year 2015, which for our major markets is expected to increase 2% versus the second half of calendar year 2014, the Company is increasing its estimate for net sales for calendar year 2015 to between $1.52 billion and $1.55 billion.

Recent strength in European vehicle production levels and continued penetration of the Company's products across vehicle segments are contributing to the Company's upwards sales revision. Based on actual results for the first six months, forecasted sales and product mix, the Company estimates that the gross profit margin will be between 38.5% and 39% for the calendar year 2015. Based on actual expenses for the first six months of the year and current foreign exchange rates, the Company is lowering its estimate of operating expenses for the year, and now estimates its operating expenses to be between $148 million and $151 million for calendar year 2015.

We can now proceed to questions. Thank you.

(Operator instructions)

David Leiker, Baird.

Good morning, everyone.

Good morning, David.

We look - great launches here in the first half growing faster than the market. Can you -- and it looks like with your revenue guidance that continues for the second half of the year. Is there any color you can give us in terms of launch activity that you have in the second half of the year and maybe some insight in to 2016?

Yes, when you look at launches in the first half of 2015, historically the industry has been heavily focused on summer launches. That's a little less of the case now. For the most part, most OEMs are launching vehicles when they're ready. I wouldn't say there's any necessary seasonality to the launch rate. What I would suggest, and I think the data shows, is those type of launch rates should continue to be fairly stable at least through the second half and into next year.

Okay, great. And then a question on gross margin. You called out mix as one of the reasons that gross margins were a little bit weak. Normally that's exterior mirrors jiving that and exterior mirrors were up pretty meaningfully. So something else was at work there. Can you help us out there?

Yes, I think we've talked a little bit about in the past to some of our Driver Assist features, the [mobile specific] features have a below corporate average margins, so we saw some strength in there on a year-over-year basis and we did have some launch growth in our base EC product as well. Those are the things that kind of offset the growth in the outside mirror for the quarter.

Okay. One last item. Excluding severance which is in the SG&A line, that was down pretty meaningfully year-over-year. Looks like you're expecting that to continue. As we go in to 2016, any thoughts in terms of what that trend could be?

I think on a comparable basis, once you get in to 2016, the effects of the foreign exchange rates, assuming a stable rate then, would go away.

So normally it's the last trend over the last quarter has been the euro recovering a little bit. If that continues throughout next year you'd expect the SG&A rate to increase at about that kind of sales level growth rate.

Okay. Perfect. Thank you much.

Thanks, David.

Ryan Brinkman, JPMorgan.

Hi, this is (inaudible) on behalf of Ryan. First question I have is primarily on the guidance, and maybe help me understand here, obviously you're taking revenue guidance up for European production. But in terms of the gross margin and you [trimming] the high end, is that related to the Driver Assist feature that he just mentioned which is sort of maybe growing ahead of what you expected at the start of the year? Is that what's driving that?

If you look at the beginning of the year, we gave a full gross margin point range on guidance, and given the first half of the year being toward the bottom half of that range, you look at the weighted average for the year and it's very likely that we'll be in that 38.5% to 39% gross margin range. It's not necessarily driven by any one product. It's more just about first half actuals and what you can expect from a weighted average once you lock in the second half of the year where we'll probably end.

But I mean just to sort of follow up on that, what is that likely driven by in terms of created your expectations at the start of the year?

Sure. If you look at the beginning of the year you've got a lot of puts and takes. You start with annual customer price reductions at an average of 2% to 3% down per year. Then you have to offset those. So the first half of the year is primarily focused on trying to offset those price reductions to your customer base. Then your purchasing reductions do take time to roll on as the year progresses. So you start the year with some negative headwind on the margin side as you work through your annual customer price reductions, but then you layer in all the things we've been discussing. We had some yield issues that started in late last year and have been progressing and improving throughout this year, but still a headwind as we've launched the new Frameless products and some of our new camera products. Additionally to that you have the mix issues that Kevin described and we also have FX issues that we've been facing on a year-over-year basis because of the drop in the euro. When you look at all those factors combined, that's why you see the slight reduction in our margin guidance for the year.

That was helpful. Then just for clarification, you were mentioning the number of launches you did off advanced features during 1Q and then 2Q, is that basically the Driver Assist features that you were launching or is there an update in terms of the number of launches you did just for the Driver Assist features.

If you look at Driver Assist, Driver Assist was fairly modest in terms of number of launches in the first half of this year. Most of those launches had been occurring over the last two and a half years. So if you look at how many programs came on in the last six months, there were a handful of those but they weren't significant. Most of the launches that we described were our core electronic features and our inside and outside auto-dimming mirrors.

Okay. In terms of your visibility into 2016 for launching more Driver Assist features, is there some color you can give on that?

I think if you look at -- like we've talked about when we first launched the Mobileye system for Ford, Jaguar and Land Rover, that was a pretty steady increase in that business from when we started a couple years ago, really up until and through next year. So I wouldn't expect anything out of the normal in terms of the growth rates we've been posting on the Mobileye product.

Okay. Last question. Just keeping in mind the cash balance that you have, is there an acquisition pipeline that you're looking at when thinking about the Driver Assist functionality that you currently provide? Are there (inaudible) technologies you can acquire to enhance those over time? Is that something you can sort of help us on that?

If you look at -- the first question, absolutely, we're constantly evaluating acquisition targets. One of the things we do talk openly about, however, is from a strategy perspective, Gentex is very careful about making sure we find acquisition targets or anything that we would buy that has to keep with our current corporate profile in terms of what that business looks like, how unique is it in the marketplace, does it fit well with our existing business from a technology and roadmap standpoint, and then does it have the type of margin profile that we look for and have the longevity that we think we need in order to justify the investment. From a strategic perspective those are factors we take in to consideration.

On the finance side things are going at pretty high premiums right now. It's one of the other factors we look at. We're not too interested in overpaying for a technology if it's something we believe we can either develop in-house, or if it doesn't meet that strategic objective. All that being said, is we're very interested in looking for opportunities like the HomeLink one, but it's got to be the right fit. We're not going to overpursue any opportunity or overpay. Our strike zone is probably a little smaller than a lot of suppliers as it relates to acquisitions, but we're constantly evaluating opportunities there.

Okay. Thanks for taking our questions. Thank you.

Thank you.

Richard Kwas, Wells Fargo Securities.

Hi, everyone.

Good morning.

Just on the gross margin for this year, I missed a good chunk of the explanation, but was it related to the inefficiencies around new product launches --

That was apart of it. But we explained -- it has trimmed. I think last quarter we talked about it being 50 to 75 and it's probably more in the 30 basis point range now. Really on a year-over-year basis it's driven by the shifts in the mix. If you think about sequentially we're running at pretty high capacity levels right now. So leverage that we got on our fixed overhead cost were offset by the fact that we're working a little bit of overtime to keep up with the demand. So on a sequential basis, overtime issues, the launch costs have reduced, but it's more of our existing business that -- and product mix that drove that sequential difference.

On that product mix comment, is that the vehicle mix or is that just what the OEMs are taking in terms of the various features?

Yes, it's the features primarily.

Okay. Then Steve and Kevin, how do we think about fair call for next year -- the inefficiencies, you already said they're starting to come down. As we think about next year, I don't recall that there was any major headwinds as it relates to gross margins. Is that still the case as you see the business right now, and that the gross margin leverage should be more or less consistent with historical trend as we think about 2016?

Yes, typically the big hitters are annual customer price reductions in the first half of the year, and then we spend the rest of the year working to offset them. The way we think about purchasing cost reductions, for instance, typically in the first quarter you don't get much benefit because you're working through old inventory. In the second quarter it's kind of a mixed benefit. And then the third and fourth quarter is typically when you see your most leverage, at least on the purchasing cost reduction side. And then working through some of the launch costs. So those are still the same things as always with the caveat that product mix can shift.

I think Rich, the thing we've been trying to talk about both from a general perspective in terms of guidance, when we look out the next couple years what we're really targeting is a double-digit growth rate, but to maintain that margin in that 38%-ish to 39% range. When we look out into next year, what we're seeing is the type of growth rates we need to help support that. And with the 2% to 3% annual price reductions, we get some of that out of supply base obviously, but a portion of that growth helps to go and offset that margin degradation that happens because of the APR situation. That's kind of our long-term perspective and target for what we think we'll be able to achieve over the next of couple years.

Okay. So last year's 39%-plus number is not the right way to think about it as we think about going forward here?

No, if you really look at our guidance for this year, it's probably more similar to this year's guidance in terms of gross margin guidance for next year.

Okay. Then on the features, so what is that exactly? Is that some of the electronics features? What exactly in terms of mixes --

Yes, specifically within the quarter like I had said, we talked about the fact that Mobileye -- Driver Assist has a lower than corporate average gross margin and the volume there is growing as we've talked about. And then base EC mirrors tend to have a slightly lower than Company average gross margin, so when you see growth in those areas, that specifically is the headwind for us.

Okay. And then anything new around the full display rear display product? I know that you'll be launching that later this year. Anything new around announcements? Apologize if I missed this earlier.

No, we didn't make any new announcements around FDM other than to say there's an increasing amount of interest from other OEMs in developing and launching that product over the next several years, so we continue to be excited. There's nothing that we're free to discuss publicly at this stage in terms of customer specifics, but there's a lot of interest around that product.

Okay. Thanks. I'll pass it on.

Thank you.

Brett Hoselton, KeyBanc.

Good morning, gentlemen.

Good morning, Brett.

I was hoping to take a little step back and talk about your camera strategy, your SmartBeam strategy. I tend to think of it, and Josh and I talked a little bit earlier this week or last week, I tend to think of it as around 10% to 15% of your sales. I think you kind of see that as consistent with your double-digit growth strategy and so forth. But I've just been getting a lot of questions from a lot of clients given mobilized strengths in the space. How does Gentex fit in to this? And how can Gentex succeed where you've got a lot of very large players investing a lot of dollars, whether it be Mobileye or Bosch or Continental. How does Gentex fit into this and how can you expect to grow your revenue as opposed to being squeezed out by maybe some of these larger players?

Sure, it's a great question and we get this a lot. You have to step back and look at what Gentex has done historically with our SmartBeam product and why we're in the marketplace today with it. Gentex historically has been focused on a custom solution. In other words we're not competing with Mobileye or other large tier ones trying to go head to head against Mobileye or any of the other tier ones who are becoming more involved in active Driver Assist. Gentex is looking at a very customized solution. In other words, it's a homegrown developed camera and imager solution that we bring to the market and we offer that at a much lower price point than what most of the Driver Assist systems are selling for today. Historically Gentex has started our product focused on lighting control. We have had the ability and we have product offerings that go above and beyond that.

What we look for though is customized solutions with OEMs to solve unique problems that they have and bring those customized developed solutions to market on their vehicles to help fill gaps or create new market opportunities. In other words, most of the Driver Assist competitors are competing at the high end for expensive systems that have anywhere from six to ten different features available on them. With Gentex -- and they're pretty expensive to the consumer. What Gentex is focused on is lower level, lower cost Driver Assist system that helps open up driver assist type functionality on vehicles that price points historically wouldn't have had those features available and in a different way. In other words, instead of taking an off the shelf imager and writing algorithms around that imager to create driver assist functionality, Gentex only works with its own unique custom designed and developed and manufactured imager. That is a lower cost imager than what is historically been available in the marketplace. So it's a really unique strategy. Gentex has always brought the bear on any area of capability really. It's not unique to driver assist. This is pretty much how the whole business model at Gentex has always functioned.

Let me just ask a follow-on question. I think some clients have asked the question that Mobileye can add a feature or two, like high-beam assist or something along those lines, for an extra $10 or $20 or something like that. So they're not really clear on how it is you have a cost advantage versus some of these other folks. So maybe you could explain how it is that you have that cost advantage and how there's a difference in what Mobileye is talking about versus what you're talking about?

Sure. If you look at -- with the risk of disclosing -- the answer to that question always runs the risk of disclosing information. It's not publicly available. But I believe -- and so I'm going off of my recollection of what Mobileye discusses publicly, but I believe they disclose information around revenue and number of chips that they're selling. So based on that you could roughly back in to kind of an ASP of what their average software set sells for. If you start with that, that ranges anywhere from $40 to $60 depending on how many features that you're buying. Now that is just that. You're buying a chip with algorithms on it. In order for a tier one or anyone else to integrate that mobilized system, you have to buy a camera, you have to buy a lens, you have to buy supporting circuitry and you have to meet the OEM specifications for the electronic circuit. Typically that chip from Mobileye is only a fraction of what the total cost of that system is. Typically to OEMs, that's going to range normally well north of $100 if not much higher than that. Gentex's product that we sell is normally priced well below that price point. So whereas you may be able to buy a four or five-feature system from a tier one at $150, Gentex historically is selling our forward facing camera products at $70 or below.

Great. Very good. Thank you very much, gentlemen.

Thank you.

John Murphy, Bank of America.

Good morning, gentlemen, this is Eileen Smith on for John. The first question we had was regarding pricing. So if we do a simple calculation of your revenue premier, it seems your average selling price increased year-over-year for the first time on just an organic basis. Can you give us any insight or detail on the price strengthening and should we expect that going forward?

Sure, that's correct. Two things you have to remember over 2012 and 2013, and really in to 2014, we had some issues with the RCD losses that were affecting the business during that period with the KTSA launch and the removal of some of our RCD products. Those couple-year period due to those RCD losses had driven some declines in our average selling price. If you look at this quarter on a year-over-year basis, there was strength in the average selling price and that's primarily driven by a couple things. One of them is there were no more losses on the RCD business. So there were no more headwinds on the business from that side. And then what you're seeing is the normal organic growth that Gentex has historically posted in terms of upselling advanced features to OEMs. So as the product mix from a dollar content standpoint increased on a year-over-year basis, you see that ASP change.

Okay, great. That's helpful. And if pricing is strengthening but you're seeing your gross margins come under pressure -- you highlighted a couple things in your press release being price downs and mix and FX, but is there anything else we should think about going forward that might pressure your margins?

Nothing outside of what we already just discussed.

Okay. And the last question we had was regarding your mirror shipments. So if we're looking at exterior mirror shipments and they're increasing much more quickly than your interior mirror shipments, especially in North America, can you give us any insight into why that's happening? What's driving that?

Yes, that's actually been going on for about two years now. And primarily it's just a business development activity that we've been undergoing for several years in terms of working to continue to increase the awareness of the product, the need from OEMs. There has been some takeover business from a competitor in the last 6 to 12 months that's helped to grow that. However, there's a tremendous amount of organic growth on the product as well.

If you look on a worldwide basis, our inside mirrors are penetrated on about 25% of the global production. Outside mirrors are really only about 7% or 8% of global production. Now, it is a requirement that outside mirrors do not function if you don't have an inside mirror. So the inside mirror has to always be on a vehicle before your outside mirrors will work. With that type of gap between the penetration rates you can see where the opportunity lies for outside mirrors to continue to grow.

Okay, great. Thank you. That's very helpful. I'll pass it along.

Thank you.

Jason Rodgers, Great Lakes Review.

Hello.

Good morning.

Looking at the SmartBeam product, just wondering if you could talk about what your current share is of that lighting control product, if you're gaining or losing share, and if that product differs from the others out there other than price?

Yes. First, we don't really track what percentage of just lighting that we have. What I would say is I think if you looked at lighting you'd say we're probably about the same level of market share on lighting as what we have been historically. I don't think there's anything -- we've been growing pretty significantly with our SmartBeam product and I think other tier ones have been growing with some of the lighting control products that they're doing as well. So I don't think the market share has changed too much. But the product is inherently different. If you drive the products, Gentex has a longer history focused on lighting control than pretty much any other tier one. And so if you look at the product and how it performs in the marketplace and some of the advanced developments we've done with OEMs on new lighting technologies whether that's LED, laser, or otherwise, we have a pretty good history of having a superior lighting control product versus anything that's in the marketplace today.

And just getting back to Mobileye. What exactly are you doing with Mobileye currently? How significant is that relationship? And where do you see that relationship headed?

So what we're doing today is we're actually integrating the Mobileye product at a couple OEMs. It's Ford, Jaguar, and Land Rover. And on those OEMs, the reason why we decided to integrate the Mobileye product was because those OEMs were interested in a two-pronged approach to forward facing cameras. On our lower end vehicles, or lower priced vehicles, our the lighting control system, the Gentex SmartBeam system itself is available on those vehicles at a lower cost point.

On the higher end vehicles, those OEMs were interested in the package that Gentex offered, and the design and the location and wanted to integrate Mobileye as available on our mirror. So what we offered was the full range of products. Both the lower end, homegrown system, and the higher end, Mobileye system on those OEMs. When you look at that strategy, that's kind of what we're talking about on a go-forward basis of what our plan is for the SmartBeam product itself is to help increase the use and penetration of lighting control on to lower end vehicles as the driver assist market expands on the higher end. On a go-forward basis our plan is to focus primarily on our homegrown system. Obviously, when OEMs are interested in Mobileye, it's a discussion we're willing to have. However, historically Mobileye has not been willing to work with tier ones who have competitive products, and that being said, they've labeled us to date as a competitor in the forward facing camera space.

All right. That's helpful. Final question on the gross margin. You mentioned the 30-basis point headwind from the frameless mirrors. Do you anticipate that to be the same in the current quarter or is that going to be pretty much gone by the end of the year?

Yes. That's our goal is to continue to work that down and the manufacturing teams have been focused on it pretty consistently since we've started the launch. As you get critical mass and volume there, then it starts to work itself out typically and historically.

Thank you.

Thank you.

(Operator instructions)

Richard Kwas, Wells Fargo Securities.

Steve, Kevin, just a question on the buybacks at $25 million this quarter, it seems like you're comfortable with that range or that level. So given where the stock is, what's the propensity to reconsider on potentially getting more aggressive versus that run rate?

I think at that $25 million a quarter, that's kind of our comfort level right now. Obviously, we feel like this PE is not appropriate given our growth rate in technology plan and our prospects for the future, so it's something -- it is something internally that we discuss frequently. However, right now for the foreseeable future at least, that's probably the type of range we'll be in on the repurchase side.

Okay. Thanks.

Thank you.

There are no further questions at this time, gentlemen. I'd like to hand it back over to Mr. Josh O'Berski for closing remarks.

Great. Thank you, everyone, for listening in and all the great questions. Thank you everyone for your time. Have a great day.

Ladies and gentlemen, this concludes the conference call for today. We thank you for your participation. You may now disconnect your line and have a great day.