Gentex Corp (GNTX) 2016 Q1 法說會逐字稿

Good morning ladies and gentlemen and welcome to the Gentex Report's first-quarter 2016 financial results conference call. Today's conference is being recorded.

I would now like to turn the meeting over to Josh O'Berski with Gentex Investor Relations Manager. Please go ahead.

Thank you. Good morning and welcome to the Gentex Corporation first-quarter 2016 earnings release conference call.

I'm Josh O'Berski, Gentex Investor Relations Manager, and I'm joined by Steve Downing, Senior Vice President and Chief Financial Officer; Kevin Nash, Vice President and Chief Accounting Officer; and Neil Boehm, Vice President of Engineering.

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 and 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 Report's first quarter 2016 financial results press release from earlier this morning, and as always shown on the Gentex website. Your participation in this conference call implies consent to these terms.

Now I will turn the call over to Steve Downing who will give the first quarter 2016 financial summary.

Thank you, Josh. For the first quarter of 2016 the Company is pleased to report net sales of $405.6 million, which was an increase of 10% compared to net sales of $368.9 million in the first quarter of 2015, on a 1% overall increase in automotive light vehicle production on a quarter-over-quarter basis in the company's primary markets. The gross profit margin in the first quarter of 2016 was 39.1% compared with a gross profit margin of 38.8% in the first quarter of 2015. The primary drivers affecting gross profit margin on a quarter-over-quarter basis resulted in a net increase in the gross profit margin.

Annual customer price reductions were more than offset by purchasing cost reductions and the Company's ability to leverage fixed overhead costs. Operating income for the first quarter of 2016 increased 12% to $120.8 million, when compared to operating income of $107.7 million for the first quarter of 2015. Other income decreased to a loss of $1.3 million in the first quarter of 2016, compared with other income of $0.7 million first quarter of 2015, primarily due to realized losses on the sale of equity investments during the quarter.

Net income for the first quarter of 2016 increased 4% to $80.3 million, compared with net income of $77.2 million in the first quarter of 2015. Net income was impacted by a reduction in other income of approximately $2 million on a quarter-over-quarter basis. The reduction in other income was a direct result of the underlying performance in equity markets.

In addition, the percentage increase in net income on a quarter-over-quarter basis was impacted by the fact that in the first quarter of 2015 the Company realized incremental research and development tax credits of $3.9 million, related to the completion of an audit of calendar years 2010 through 2012. When comparing this quarter's net income to last year's net income without the benefit of the 2015 tax adjustments, net income increased 10% on a quarter-over-quarter basis. Although prior period tax benefits and poor performance in equity markets had an impact in the first quarter of 2016, the Company continues to deliver sales growth through the operational lines of the income statement.

Earnings per diluted share in the first quarter of 2016 increased 8% to $0.28, compared with earnings per diluted share of $0.26 in the first quarter of 2015. As previously stated, EPS was positively impacted by $0.01 during the first quarter of 2015 by the aforementioned prior period tax benefits. When comparing this quarter's EPS to last year's EPS without the benefit of those tax adjustments, EPS increased 12% on a quarter-over-quarter basis.

During the first quarter of 2016 the Company repurchased 3.1 million shares of its common stock at an average price of $14.27 per share. As of March 31, 2016, the Company has approximately 6.4 million shares remaining available for repurchase in the plan, including the most recent share authorization of 5 million shares in February of 2016. 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.

During the first quarter of 2016 the Company paid down $15 million on its revolver loan, in addition to its normally scheduled principal repayment on the Company's term loan. The Company may, at its discretion, pay additional principal towards its term or revolver loan in the future, depending on macroeconomic trends, capital expenditure spending, cash and money market interest rates, the amount of available free cash flow, and other factors that it deems appropriate for timing and amounts of incremental debt repayments.

I will now turn the call over to Kevin with some first quarter 2016 financial details.

Thanks, Steve. Automotive net sales in the first quarter of 2016 were $394 million, an increase of 9% compared with automotive net sales of $360.6 million in the first quarter of 2015, primarily due to an 11% increase in auto-dimming mirror unit shipments quarter-over-quarter. Other net sales in the first quarter of 2016 were $11.6 million, an increase of 39% compared with $8.3 million in the first quarter of 2015, due to a 42% increase in dimmable aircraft window shipments and a 36% increase in fire protection (inaudible).

Both ER&D and SG&A expenses increased 7% for the first quarter of 2016 to $23.1 million and $14.8 million respectively. The tax rate during the first quarter of 2016 was 32.9%, which varied from the statutory rate of 35% primarily due to a domestic manufacturing deduction. Based on the Company's forecast and current legislation, the Company continues to expect its tax rate to be approximately 31.5% to 32.5% for calendar year 2016.

Now for some balance sheet items. The following balance sheet items represent a comparison versus year end 2015, also included in today's press release.

Cash and cash equivalents were $626.5 million, an increase of $74.9 million, up from $551.6 million at year end, primarily due to cash flow from operations. Accounts Receivable was $224 million, up from $196 million, primarily due to the timing of sales. Inventories were $188.6 million, up from $174.7 million, primarily due to increases in raw materials to support increased production in sales.

Long-term investments were $71.1 million, down from $95.2 million, primarily due to sales of equity investments that were not reinvested. Accounts Payable was $79.4 million, an increase from $66.4 million, primarily due to increased inventory purchases and capital expenditures. Accrued liabilities were up $115.9 million, up from $64.7 million, primarily due to increases in accrued income taxes and accrued wages.

Cash flow highlights: cash flow from operations for the first quarter of 2016 increased to $146.4 million, from $108 million in the first quarter of 2015, primarily due to increases in net income and changes in working capital. Capital expenditures for the first quarter of 2016 were $20.3 million, compared with $15.2 million in the first quarter of last year. Based on the estimated completion dates for the Company's current and planned capital expenditure projects, the Company is maintaining its capital expenditure guidance range in the $115 million to $130 million range for calendar year 2016.

Depreciation and amortization expense for the first quarter was $22.8 million, compared to $21.3 million in the first quarter of last year, and the Company also continues to estimate that depreciation and amortization expense for the calendar year will be between $90 million and $100 million.

Now I will turn it over to Neil for products and business development update.

Thank you, Kevin. Over the last several quarters we've been providing updates about our full display mirror product launches. During our last conference call we discussed the momentum generated for the full display mirror at CES.

Since that time the Company continues to see a high level of interest in this product for most of is customer base. This is a byproduct of our normal sales and business development process. However, recently we have seen an increase it recognition received for this product in the industry.

Over the last three months, the Company has received one of General Motors' inaugural Innovation awards for the full display mirror, our seventh Automotive News PACE award, and various other technology awards and nominations The full display mirror is the continuation of the Company's long-standing ability to create innovative products that improve safety for drivers and add value to the automotive OEM's product portfolio. This technology has the ability to be a game changer in the industry and for the Company.

During the first quarter of 2016, the Company had 11 new nameplate launches of its inside and outside [electronic] mirrors and advanced electronic features. This launch rate is consistent with the second half of 2015. The Company continues to grow the number of applications of advanced features with approximately 1/2 of revenue growth coming from added electronic content and improvements in styling and design.

Now back to Steve for our remainder of the year guidance and closing remarks.

Thanks, Neil. Our guidance for calendar year 2016 is based on the mid-April 2016 IHS production forecast for the remainder of calendar year 2016. The current IHS forecast for our major markets is expected to be up 2% for calendar year 2016, but does not include any impact from the recent earthquakes in Japan. Based on information received this week, IHS is predicting modest to loss production in the second quarter for OEMs producing in Japan. However the volume is expected to be made up by the end the third quarter.

Based on the information we have received to date, we continue to estimate that net sales for calendar year 2016 will be between $1.64 billion and $1.72 billion. The Company currently expects little disruption or impact on its supply chain, ability to procure raw materials, or our cost of goods sold, as it relates to the Japan earthquake. Based on actual results for the first quarter, currently forecasted sales mix and product mix, in addition to what is currently known about the Japan earthquake situation, the Company continues to estimate that the gross profit margin will be between 38.5% and 39.5% for the calendar year. Lastly, the Company continues to estimate that operating expenses will be between $152 million and $160 million for calendar year 2016.

And with that we can now proceed to questions. Thank you.

(Operator Instructions)

Christopher Van Horn, FBR and Company.

Good morning, guys, and congrats on all the awards for full display. Just on that front, could you give us an update on the pipeline and the timing? We know about the GM launches later this year, as well as the CT6 already. But could you give an update on kind of the pipeline and the timing of possible additional awards around full display?

Sure, so we'll start with kind of the higher level view of the number of OEMs. So like we talked about in the last conference call, there's a total of four OEMs who've given us firm awards now for the product.

GM is obviously already launched and continues to roll that product out on vehicles. The second OEM will launch at the end of this calendar year, probably the fall timing for this calendar year. The third and fourth OEMs, I believe, are both slated for 2017 [SOPs].

Beyond that, we believe there would be probably in the next six months, I would estimate, there'd probably be another opportunity for another couple OEMs that we believe have interest and that we'd like to try to push for awards with.

Got it. And then if I heard you right, you said 11 new nameplate launches during the quarter, and I was kind of on track with what you did in the back half of 2015. Is that kind of a run rate that you guys are confident about, heading into the back half of 2016, or do you see it going either up or down from there?

No, at this rate that looks like it'll be consistent for the second half of 2016 as well.

Okay, okay, good. And then just finally, the 38.5% to 39.5%, could you just help us with some puts and takes that gets us to each of those levels? Like what are kind of going into your factoring there?

I think from, if you think about the leverage points, assuming we're in the sales range you get some operating leverage from the fixed overhead. We would expect some improvements in the purchase price variance or what we're getting out of our supply base, but we also have April 1 price concessions that we have to give. So that's a put, and then the biggest factor that is unknown going in is our product mix. So we saw fairly good leverage in this quarter.

But typically the first quarter, the first half of the year is the hardest to achieve your margin, and given what we've put up in Q1 we feel pretty comfortable with the range that we've given, that you know, we're performing; the engine's kind of firing off on all cylinders right now.

Great, great. Thanks for taking the questions.

Rich Kwas, Wells Fargo Securities.

Good morning, everyone. Wanted to follow up with regards to the gross margin comments. So first quarter came in a bit better. You do have pricedowns that you referenced starting April 1. What's the cadence of those pricedowns for the first half of the year? Is it more weighted in the first quarter or the second quarter, typically speaking?

I believe 70%, probably 70%, 80% of them are in January 1. Another, honestly, 15% to 20% are in Q2. And then the remainder kind of trickle in throughout the year. But by the time we get through April 1, we've gotten through probably 85% to 90% of them, at least.

Yes, and then consistent with prior years, you start to see more leverage on a purchasing cost reductions starting in that second half.

Okay. So then as you look at Q1, was there anything abnormal that helped the margin in the quarter? Just trying to gauge how within the range, because you are slightly above the mid-point, and with pricedowns seemingly moderating going forward, it would suggest that again, pending mix, that there's potential for upside. But just wanted to get your thoughts on that.

Yes, I think in 2015 we were leveraging fixed overhead, but we're battling some of the variable cost of some of the launch costs and working a ton of overtime. So we're starting to work through some of that, so you see the full leverage, leveraging your fixed base with a sales growth and a flowing through in the first quarter.

Well and I think, Rich, what you're asking about is the remainder of the year, as it relates to being in [the middle] of the guidance.

If you look at, the big thing that helped us in Q1s was mix, it wasn't, it was mildly high but it was a very solid mix for us in terms of advanced features versus base.

So the big thing that could hurt you in the out part of the year, the only thing that could really affect us that we don't have visibility into is product mix. And so on those mix changes from quarter to quarter, you'll see your margin move around, you know, as much as 50 basis points based on product mix, sometimes more depending on how severe those shifts are.

But we don't see any of that happening throughout rest of the year. I mean we would expect product mix to kind of continue with what happened in, you know, Q3, Q4, and then obviously in Q1.

So on the mix, is that more of an OEM comment, or a vehicle comment, in terms of light truck [pass] car?

It's both. Really if you look at it, if the business stays inside of an OEM and it just transitions between cars and trucks or SUVs, typically it's not a huge content change.

However, as the mix changes from one OEM to another, that can have an impact. And then also just in general, as OEMs try to address their market, whether the mix is towards fleet cars versus, you know, personal consumption or otherwise, you can see mix changes based on that, because the content does change quite a bit depending on what mix of vehicles the OEs are building.

Good. And then just a quick one, Steve, on the buyback. So it's pretty significant in terms of number of shares in the dollar commitment. So would you characterize that as opportunistic, or is this kind of a new run rate?

Yes, it's a combination of the two. So really, if you look of that prior run rate we've been discussing, that's kind of our, kind of you know, standard go-into-a-quarter plan for repurchases. The incremental pick up that you see in Q1 is all based on the opportunistic side of that.

You look at the price we are trading at inside of the quarter, it fell well below what we believe to be an acceptable price of the stock, given our performance, and so we just took advantage of that opportunity to pick up some additional shares at those prices.

So 25 to 30 is still a good base to use, and then we have to gauge the opportunity arises, if you will?

Exactly right.

Okay. Thank you. I'll pass it on.

Steve Dyer, Craig-Hallum.

Thanks, good morning, guys. I know you don't break out kind of guidance by the quarter, and it remains unchanged for the year, but any material impact you'd expect in Q2 from the earthquake in supply chain disruption?

So really, what we're seeing is IHS is saying they are going to see 150,000 or so, 100,000 to 150,000 vehicles probably pull out of the production of the Japan region this quarter. But their estimate is that those OEMs will be operational fairly quickly and will pick up most of that volume by the end of Q3.

So there could be a slight shift, but if you look at that content, our average content in Japan, it shouldn't be material to the business per se, just this one incident.

Okay. That's helpful. And then as it relates to inventory, the last couple quarters it's crept up well ahead of sort of the pace of revenue year over year. I don't know if you can break it out between finished goods, raw materials, etcetera, but any color around why that has risen so much as a percentage of sales?

Yes, it's primarily raw materials driven, and there is some shifts going on in our supply chain, where we're moving some of that stuff to ocean shipments within, to our distribution office in Germany, and so you're starting to fill the pipeline with that in the last couple quarters with raw materials, and then just what we're seeing from releases really for the rest of the year.

Well really, it's primarily raw material pickups, like Kevin mentioned. The other factor is that with the launch of FDM it's a pretty expensive build material for that product and we need to be prepared to get the system sale ready to go for the launch of that product with GM and with the other OEMs that are launching later this year. So some of that you see is just in preparation for some new program starts on a very contented product.

Okay. Thank you.

Jason Rodgers, Great Lakes Review.

Hello, guys. Wondering if you could talk about the exterior mirror shipments being flat for the quarter. Growth was pretty good for interior mirrors and domestic exterior, but just wondering why the flatness, if it was related to difficult prior-year comparisons or any other factors there?

No, you're exactly right, I mean, if you look at it, the last three years, really, of OEC growth, especially in international shipments, have hovered around the 20% average over that three-year period and so those comps have gotten difficult.

One of the things we tried going into this year, talk about that, but the comps on OEC were going to get hard because of that, you know, basically a 60%, 65% increase over the last few years in outside mirrors internationally.

Additionally, we did have one factor with one OEM in particular who was struggling with some cost issues, who may decide to make some decontenting plays just to try to save money. Typically this happens every few years with us where we have an OEM, who tries to roll through some silent price increases to their consumers by removing content and not changing the price of the vehicle. So that happened this year and we're working through that.

That's where our kind of sales and benchmarking activities become very important, and also the revenue generation model that we give that we try to provide OEMs with our products.

On a year-over-year basis should we expect similar performance there?

Yes, I think the sales growth will probably be fairly muted on OEC internationally this year, primarily driven by those comps and by the flow-through of that product. We don't expect it to be, you know, materially different from what we did in Q1. Obviously, we like to think there's more upside than downside in our forecast, but that's probably a fair assessment for the rest of this year.

All right. And are you seeing any changes, as you discussed, your discussions with European automakers as far as using cameras as an alternative to mirrors?

You mean are we seeing any changes in what their interest is, or --

The new rules allowing for cameras to replace mirrors in Europe, I wonder if there's been any discussion of doing that with the European automakers?

Oh, there's absolutely interest in our full display mirror product from European OEMs, I mean that's a big thing we're focused on right now. The outside mirror replacement conversation is one that OEMs are trying to study and understand. There hasn't been really any awards given by an OEM for this type of a product.

We believe with our camera technology and our full display mirror technology and what we're doing in the space, we think we have the right product offering to meet OEMs' requirements and needs when that becomes a conversation.

But right now it's almost all theoretical and studies about what is possible, what can be done, trying to figure out what that impact is on the overall vehicle and the driver, if something like that were to happen.

So what we'd say is we haven't seen anything change. That's really been a conversation OEMs have been looking at for the last couple years of theorizing and trying to find the right solution to. We believe whatever happens on that front, we will be well positioned to be a contributor in that space.

And then finally if I could ask one more about the current unrealized gains and losses in the portfolio?

Yes, they're currently, we're sitting about breakeven, which is a vast improvement versus throughout the quarter. Obviously the equity markets were fairly weak. But after-tax basis we're sitting around breakeven.

Thanks very much.

David Leiker, Baird.

Hi, guys, this is Adam on the line for David. So just on the acceleration in North American interior mirrors, I mean, even well above production growth, are there specific segments or customers that are driving the strength?

Well if you look at the segmentation, right, we've historically done really well on [D and E] segment. So really when you see us picking up, you're going to see us picking up gains in the [B and C] segments in the North American space. And there has been some production increase in D and E as well for the first time, really, in a long time inside of the North American markets. So we are a benefactor of that, but then also you'll see us further penetrating those lower segment vehicles.

Okay, and then just globally interior mirror shipments grew significantly faster than exterior mirrors in the quarter, [which] is typically positive for ASPs. Were there any offsets, I guess anything that kind of drove the slight ASP decline?

Really, you're talking about, when you come into January 1, you're talking about most of that ASP decline as that 2.5% to 3% price reductions we talked about that we average with our OEMs. So there's really not a whole lot more than that, other than the pure pricing play from Q4 to Q1.

Okay. And then lastly just in light of the USAB announcement from the automakers this past month, can you talk about your SmartBeam strategy and then any growth assumptions you can give through the end of the decade?

Well, so we don't give guidance for anything beyond 2016 and 2017. What we have continued to state is that we believe there's plenty of opportunity to grow SmartBeam.

Probably different from the [AAB] conversation is the one for NCAP in North America where, for the first time the rating agencies are considering offering points for lighting. We believe that would position us much better than what we have been in the past, where it's purely been a customer convenience type product.

I think the legislative bodies are starting to realize the importance of lighting, not just by itself but also in combination with these other type systems. And so we continue to see plenty of opportunity for our SmartBeam products.

The key is like how you sell it and how you market it to your OEMs changes, based on the ratings system changes. But it doesn't mean that it's vastly different, it's just been different approach and different business case you can offer OEMs than what we've been able to in the past. And that's a net improvement for us.

Before we're selling just like we have been historically a customer product, a convenience product, and a safety product that a consumer's willing to pay for. Now for the first time we have the ability to actually tie safety points to that system, if this plan goes through as originally submitted to the community.

Great, thanks, I'll leave it there.

Brett Hoselton, KeyBanc.

Good morning, Steve, Kevin, Neil, Josh. So I know that you provided some revenue growth guidance for 2016 and 2017. I was hoping you could speak to HomeLink. There appears to be a significant opportunity in China.

I'm kind of wondering where are you at in the development stage there, and should we anticipate it just kind of dovetailing or layering on and just contributing a small amount to your revenue growth; or is there is there a potential for maybe a significant acceleration revenue growth in year 2, 3, or 4, something along those lines?

Well, if you look at it corporately the answer is it's going to dovetail in, it's going to be a smooth transition, and hopefully a long-term growth plan. I mean what we'd love to see from HomeLink is what we've had from HomeLink in North American, is a 15 or 20 year growth curve, because that's really what the history of HomeLink has been in the North American market.

If you look at it on a percentage basis of growth, where you're going from zero, obviously of HomeLink sales in China, so, you know, it's going to look, the percentages are going to look huge but because you're working off such a small base.

We really have our first couple of OEM programs that we've been awarded, those are scheduled to launch I think late in 2017, maybe one this year, late this year, and then there's potential beyond that. But those are fairly modest [long-in] programs to begin with, but it starts the benchmarking activities and that's primarily what we use to help grow businesses like these in new markets.

And I know you weren't necessarily there, let's say 15, 20 years ago, at HomeLink, but what's your sense of the adoption rate or the interest level from the OEMs on the product in China? Is it very strong interest? Is it kind of middle-of-the-road? Or is it, I mean, how do we think about that?

Well, it's interesting when you're doing, when you're creating a new market like this, you have to first study and understand the market. And so we've done some marketing endeavors in China to understand the consumer, the use case and try to understand what the value equation is from a consumer standpoint.

So we've accomplished that. We believe there's plenty of good use cases. When we first started marketing the concept of HomeLink in China, you're talking to people either sitting in foreign countries at the JV who don't understand the China market, and so you're having to make sure you make that explanation very clear.

Now we're start to market more toward the product planning teams in the China market who obviously understand that market better. And so the amount of interest is very by OEM, but most of them understand clearly that the use case makes sense, and it's fairly common, and so therefore is not a niche market per se.

It's just about you getting that OEM to make the decision to go through the steps that it takes for them to accept the product, to understand it, how it works, and then get those awards.

So typically in automotive, you're talking to two to three year business development exercise, from the time you start pitching with good data, till they make an award and you see something go into production. And so we're in the middle of that. We started selling HomeLink about a year ago, but we're making pretty good progress with OEMs and their interest is definitely there.

And then just finally from a margin perspective, thinking sequentially from the fourth quarter to the first quarter, your margins, they do fluctuate sometimes throughout, very rarely they're down. This year you went, I mean, my calculations on an operating basis suggest that your margins declined 140 basis points from the fourth quarter of 2015 to the first quarter of 2016. And is that primarily maybe a shift in mix just sequentially quarter-over-quarter, or is there anything else that might have caused the margins to decline sequentially?

Yes, the biggest change sequentially from Q4 is our first quarter pricedowns. That's virtually the single biggest negative factor, and was actually better than we were expecting.

But the margins themselves did not decline.

Yes, the net operating margins were --

Well, and the gross margins.

I guess I'm asking is, I'm looking sequentially, margins from the fourth quarter 2015, they were 31.2, and then they went to 29.8 in the first quarter of 2016, if I have my number correct, so I was down 140 basis points. And I kind of go back and I look at that same margin progression for the fourth quarter to the first quarter in previous years, and the average was an increase of 90 basis points which would've incorporated the pricedowns that maybe you normally see, and so I'm just wondering if there's something unusual this year.

No, what we're saying is not that the margins, the overall gross margin didn't change, but the gross margin of the products themselves didn't change other than the pricing that Kevin talked about. Really you're talking about a difference in mix too, from quarter to quarter.

So that's the thing that we always like to point out is, you know, a large, you know, 50, usually in most quarters you're going to see 30 to 50 bps difference on fluctuation and product mix, and what does that -- how do sales come in based on that.

So if you look at the individual products though that add up to the total, right, there's nothing significantly that changed or nothing drastic that happened on any one of those product lines that changes the gross margin of the underlying products, minus the pricing that we give on January 1.

Yes, that makes perfect sense. Thank you, Steve, appreciate it.

Ryan Brinkman, JPMorgan

Hi, good morning, thanks for taking my questions. Okay, so first can you talk about the biggest drivers of that 9 points of outperformance of revenue versus global light vehicle production in 1Q. Of course we can see the mirror unit shipments and I know you don't like to talk the average selling price of those much anymore, but I'm just thinking generally in terms of how much of your growth is driven by, you know, increasing penetration of auto dimming mirrors versus the additional value-add features like your newer driver-assist products, your SmartBeam, etcetera? And then lastly, if you could just sort of venture to say what you think the normalized outperformance of Gentex revenue is relative to global production going forward.

Sure. So on the first part of that question, if you look at most of our sales growth or revenue growth, about half of it comes from increased penetration of units. The other half comes from content. And so, and that's true really of our current makeup of our business as well, about half of our revenue is kind of the mirror portion, and the other half is advanced electronic features. On a go forward basis that question Ryan was about --

-- about your ability to outgrow --

-- outgrow, sorry. If you look at the market, we believe that typically we're going to outpace the market by mid to high single digits, is kind of what our current plan is. And we don't see any reason why that changes over the next several years.

What that equates to normally, if you look at our kind of estimate of the production environment over the next several years is high single to low double-digit growth rates for the Company.

Okay. Great. And then, you know, another question on HomeLink to follow on Brett's but, you know, from another angle. So, you know, is there anything different now to say about HomeLink, versus smartphone enabled, wifi-based solutions relative to the time that you bought the business? And then also, how is it progressing the plan to get HomeLink more involved in aspects of the smart home, maybe beyond garage door openers?

So that sounds like a softball lead into a sales pitch, so I appreciate the question. But it's actually Neil's team has been working really hard on what our interface is.

So fundamentally, no, nothing's changed versus from when we acquired HomeLink. In fact we probably see more opportunity to interface with those devices to help bring clarity to the vehicle environment through a HomeLink application.

At CES this year we actually had our first kind of demo of a product where we believe HomeLink can be one of the leading consumer kind of lead points in the vehicle, in other words initiate a lot of the home automation type functions.

And so if you guys are going to be out at [CMAR or CES] this year we welcome you to stop by and see this product. It's difficult to explain in a conference call setting. When you see the application of what we're modeling and working on from an engineering perspective, we think it's pretty exciting and we hope that OEMs show the same amount of interest that we have for it.

Perfect. Last question then on the TransCore universal toll monitor product discussed at CES. Can you remind us of when you expect that potentially translate into revenue? And then, maybe you could share, have you been having discussions with, I don't know, either automakers or toll authorities, and what kind of interest there seems to potentially be out there in the market place.

Sure if you look at that, we literally debuted that product in January at CES, and so we just started that week on the initial sales pitch. We've been working on that and refining that customer presentation. There's quite a bit of customer interest in that product.

Typically that's kind of a three-year out development before it'll generate revenue, and that's kind of still the window we're operating inside of for UTM. It is a very exciting product and we think there will be a tremendous amount of OEM interest in it.

Okay. Great. Thanks for all the color.

John Murphy, Bank of America Merrill Lynch.

Good morning, guys, this is Eileen Smith on for John. First question, regarding the North American plant that you started construction on in 2015, can you give us any update on how that's progressing? I mean, last time I read in your 10-K, production was expected to begin in early 2017. As we think about margins, do you see that being a headwind to margins in 2016 and 2017 as you're getting that plant fully ramped up?

So the development plan, the rollout is we're going to begin to occupy that later this summer from a distribution center standpoint, and then it'll probably be end of the year and we're going to start to occupy that building from a final assembly standpoint.

And no, we don't see any step function increase in overheads related to that plant. It's really, if you look at the Gentex facility history, people reference that 30 to 50 basis point kind of headwind when we launch a new facility. But that was all predicated on a Company that was anywhere from $300 million to $500 million, $600 million in revenue. Given the size of the business today, and what those launch costs will be for that facility, we don't expect a tremendous amount of issue to cost, based on the opening of that building.

Okay. Great that's very helpful. And secondly, can you remind us of your overall priorities for capital allocation? You've talked about the buyback being more opportunistic depending on the stock price and I'm assuming also dependent on the M&A pipeline. So if you could just give us an update there and if there's any technologies or things you're seeing in the market right now that you would potentially look at acquiring.

Sure, so the M&A strategy is always front and center from a capital allocation standpoint. That's a factor of the type of technologies that are available and also the multiples that our businesses are going for.

So we're interested in new technology, we're at the same time obviously interested in paying fair prices for those technologies and so we always kind of check that box early on in the process to make sure it's a fair price. That's kind of priority one.

Priority two is obviously share repurchases. I would add a little bit of color to your statement that it's not just opportunistic, there's a $25 million to $30 million kind of a quarter run rate that is consistent. Anything above that or below that would be kind of a function of where we're at from a market value standpoint. And so the opportunistic portion is what layers on top of that baseline of $25 million to $30 million.

Beyond that obviously, we have we have had history of moving dividends in line with earnings and so our plan is to continue to work on making sure we return value to shareholders through consistent dividend plan and policy.

Okay, great. And then just more of a high level question. Have you guys been seeing any material market share shifts in the electrochromic mirror market recently, or do you see any potential for market share shifts going forward among your competitors?

No, in fact if anything over the last four years, five years, we've shown a pretty strong trend towards growing our market share. If you look back to 2001, 2002, we were just under 80%, so 78%, 79% market share. We're now probably in the high 80s to around 90% market share and we don't see any significant change in that market share.

All right. Great. That's helpful. I'll pass it on.

David Whiston, Morningstar.

Good morning. Question on your Late Departure products, standalone separate from mobile IOA. Where is that pipeline process? Is there anything holding you back from being a much bigger player in that market today?

So as it relates to the forward facing camera, our strategy is primarily focused on lighting and ancillary features that an OEM either wants to either round out their product offering. Our goal as a Company is not to try to compete a product, compete with a product that already exists in the marketplace.

So for instance the Company is not pursuing AAB or FCW type applications, for the very reason that there's already several suppliers in the space, and more coming as larger tier 1s look to get into that arena.

Gentex is focused on leveraging what we have on a cost advantage standpoint with our internal camera, and leverage that into a product offering that we believe offers superior value to the OEM through a lower cost point and marketable product to their consumer.

So our strategy is pretty clear there, that we're not trying to be a Mobileye per se, it's definitely a different play as it relates to forward facing cameras.

Okay thanks. And I'll give you another opportunity to put on your sales hat here, because I still get investors asking me about the threat of mirrors going away being replaced by cameras. If you'd just like to give your thoughts on why you don't think that's the case, and then how much business you can do with your standalone camera expertise that maybe people don't know about, love to hear your thoughts on that.

Sure, so the first thing we like to talk about as it relates to cameras and displays and digital technology is we believe we have a proven track record of showing that we have the right skill sets in house to participate in whatever OEM, direction OEMs want to go in the future as it relates to mirrors, to cameras, and displays. So that kind of sets the stage that we believe we're well-positioned to compete for that.

The evidence of that is the full display mirror and the growth that we see in that product, the interest in the marketplace, the awards from the industry. We believe this is really the next 5 to 10 years of automotive production as relates to volume applications that OEMs are looking for the redundancy in. And the reason why they're looking for the redundancy is because it's a safety critical item. There's a multitude of reasons why a camera in the display system won't perform perfectly. Everything from whether to lighting to nighttime driving to block conditions.

Additionally there is a significant portion of the population that's not comfortable with the display vision of what's behind them because it's a two dimensional view of a three dimensional world and a mirror offers you a three dimensional view of what's going on behind you.

Additionally, so there's people that aren't comfortable with that, there's people that due to eye issues, whether they wear bifocals or other things, struggle to focus on displays, and those type of areas and geography in the car.

The last thing, I won't say last, there's a laundry list of reasons why we don't view it as the imminent threat that some investors view it as, is because it's a very difficult transition for an OEM to make this happen. You have to design a system, that is not an easy task. More importantly it's incredibly expensive. These digital technologies cost more than traditional mirrors.

And lastly, the thing I'll point out that you remove optionality if you try to design a car only around digital technology. What's interesting about the redundancy of our system, it allows consumers to choose between display or reflective technology, is that you allow it to be a priceable option. Very important for an OEM. They can't afford necessarily to throw $600 to $1,000 of content on a vehicle and not get reimbursed for that by the consumer.

What's important about an optional product, and the one that we offer in full display mirrors, that you can very simply remove, change the interior of the vehicle from a traditional mirror to a full display mirror application, and still find a way to be able to market that vehicle as an upgraded feature item.

If you imagine trying to change an entire center [console] to have displays or door panels or wherever you want to put displays, you basically have a very rough system, or you have to tool that car interior of that vehicle twice to be able to keep the optionality part of that economics in play.

So, that's kind of the abbreviated list, I could go on for another half hour, but I've probably droned on long enough already. So I'll kind of leave it at that. But that's kind of the long and short. You know, we believe with the full display momentum we have right now, but we continue to grow that business; we really position ourselves really well to help with that transition on outside mirrors by leveraging the technologies we're developing on the inside mirror.

Thanks. Just a very short one on 787 program, how much longer can we expect these rates of growth and are you any closer to any new aircraft wins?

Well, really that rate of growth is really a function of Boeing production, so it's not, really, it's kind of at about where we would expect the 787 max production to be. Obviously, as the Dash 10 rolls out, you'll see a small increase because it'll replace some Dash 8 and Dash 9 planes, so there'll be a small incremental pick-up there. But really we're kind of at about what we expect to be the 787 volume level to be.

Okay.

We're actively pursuing other programs from an award perspective.

Okay. Thanks.

(Operator Instructions)

Brett Hoselton, KeyBanc.

Gentlemen, so this is going to be a bit of a softball question but obviously one of the questions you have, it's been asked a couple of times is, how does Gentex's SmartBeam fit into the picture going forward in a world where the likes of Bausch and Conti and Mobileye and [autolead] seem to be able to simply add a SmartBeam feature onto their product at a lower cost maybe than Gentex has? And so that's kind of the general bear case of perception. I'm kind of wondering how you would kind of counter that bear case. It sounds like you may have a cost advantage, but can you talk to that?

Well sure, so for the part about standalone features and cameras, obviously there's a cost range, I'll let Neil kind of hit the technology side but the important part at least in our perception of this is, and what we are seeing from OEMs, the assumption that there's a one camera fits all, that's going to be cost optimized to a vehicle and that's what they're going to be their platform for forever is where we would disagree with that thesis. And primarily because as you look at standardizing a product, cost becomes very important and cost optimization becomes very important. It's really hard to keep a scalable program cost optimized.

And so what our focus is and what we're seeing in OEMs is saying, hey, if I'm going to standardize AAB type features I need that system to be cost optimized and B, I don't want to change it a lot because that means new validation cost. And when you're talking about a safety critical feature like AAB or forward crash, you need to make sure that that validation costs remain as low as possible because there's literally hundreds of thousands of scenarios you have to drive that vehicle in.

When you look at lighting it's a plug-and-play feature, right. And so we believe there's plenty of opportunity longer term for OEMs who are now working to standardize AAB to find a way to make that architecture more flexible. We believe our camera is one of the ways they can do that.

Yes, and I was just going to add, about the only other aspect of that is people believe AAB is going to only be a camera-based system. There are other technologies that OEMs will be employing in order to accomplish that function, which then opens a window for a lower-cost lighting module to help get additional points as we look at some of the (inaudible) stuff as well.

So let's say, as I understand the bear case, the general thought would be that [Autoleave] or Mobileye or Bausch or Conti or whomever would provide a system which would provide AAB for example or lane departure warning, something along those, some combination of features.

And their ability to just tack on additional features is the cost associated with that is fairly de minimus and therefore why would somebody want to pay for a Mobileye system plus a Gentex system if they could just buy a Mobileye system and then tack on a SmartBeam-like application, it seems like it would be less expensive.

Well, so two things like Neil just mentioned, not everyone's going to be using, accomplishing AAB using cameras. There's other technologies, [light Rs], radars and other systems that can do AAB, right. So if they choose to go a different technology route then cameras are an open door.

Secondly, even if they do use another forward facing camera system and it appears to be cheaper by adding software, like we talked about before the overall system cost and the overall development cost associated with taking an off-the-shelf system and now modifying it, adding either horsepower from the processing standpoint or changing the hardware schematic in order to make sure it functions as an additional challenge as it relates to the R&D and the investment side of the equation. And so it's not as simple as just a dollar for dollar comparison on bill and materials, and it's definitely a part of that OEM strategy and what their choices are. There are several OEMs who don't buy a Mobileye system for their AAB functions. A couple OEMs develop the software inhouse and they haven't focused on lighting as one of their preferred methodologies.

And then the last thing I will point out is, that there is a value equation associated with how the systems perform. We still believe that our lighting is best in class, and if you look at the new rating systems, how you perform in lighting environments is beginning to get interest not only from OEMs but from the rating agencies on how important lighting really is.

Right now our comp is better than others systems on a pure SmartBeam turn your highbeams on and off. We believe this legislation and the conversations that are happening will hopefully lead to legalization of our dynamic forward lighting system, which is all the time on highbeams, in which case you can truly see the benefit and improved performance of a Gentex system over these other systems.

So as the market changes and these products become more allowable in the US, we believe that'll help drive the differentiation strategy between those products that you're talking about and ours.

And so, just make sure I understand this. It sounds like certainly it sounds like from some of the conversations I've had with some bears that there's the impression that you can easily plug and play in a Mobileye system or in a {Autolight] system -- you can simply plug and play a SmartBeam application in there with very little effort and cost and so forth.

And yet it sounds like what you're suggesting is that altering the algorithms and hardware and all this other stuff requires a significant amount of validation because it's a safety critical component and it may alter the performance of that safety function and therefore may result in a significant amount of liability. Is that kind of conceptually the idea?

Yes, that's absolutely it.

Perfect. Thank you very much, gentlemen.

And we have no further questions at this time.

Great, thank you everyone for your time. Thank you for listening in, if you have any further questions please let us know. But have a great day.

And that does conclude today's conference call. We thank you all for your participation.