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Gentex Corporation
7/25/2025
Good day, and thank you for standing by. Welcome to the Gen Tech's second quarter 2025 financial results conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today. Josh Oberski, Director of Investor Relations. Please go ahead.
Thank you. Good morning and thank you for joining us today for our second quarter 2025 earnings conference call. I'm Josh Oberski, Gentex Director of Investor Relations, and with me today are Steve Downing, President and CEO, Neil Boehm, COO and CTO, and Kevin Nash, Vice President of Finance and CFO. Please note that a replay of this conference call webcast, along with edited transcripts, will be available following the call in the Investors section of our website at ir.gentex.com. As a reminder, many of the statements made during today's call are forward-looking statements that reflect our current expectations. These statements are subject to a number of risks and uncertainties, both known and unknown, including those detailed in our second quarter 2025 earnings press release and our annual report on Form 10-K for the year ended December 31, 2024, as well as general economic conditions. If one or more of these risks or uncertainties materialize, or if our underlying assumptions or estimates prove to be incorrect, actual results could differ materially from those expressed or implied in our forward-looking statements. I'll now hand the call over to Steve Downing for our prepared remarks.
Steve? Thanks, Josh. Gentex completed its acquisition of Vox on April 1st of this year, and we did our best in the press release from this morning to provide information for both what we call core Gentex, meaning without Vox, and consolidated Gentex, which includes financial performance for both Gentex and Vox. Additionally, in an effort to not repeat this caveat throughout the call, it is important to remember that for any year-over-year or quarter-over-quarter comparisons, the second quarter of last year did not include Vox. In the second quarter of 2025, consolidated net sales were $657.9 million, which represents a 15% increase over the second quarter of last year. Core Gentex revenue for the quarter was $579 million, which represents a 1% growth rate versus last year on a decline of 2% in light vehicle production in our primary markets. Vox revenue for the second quarter was $78.8 million. Given the overall weak light vehicle production in our primary regions, we are very pleased with our sales levels this quarter. This is particularly notable given the impact that tariffs and counter tariffs have had on demand for our products, especially in the China market. Overall sales into China for Gentex during the quarter were approximately $33 million compared to our beginning of year forecast of $50 to $60 million for second quarter sales. Despite revenue headwinds related to tariffs and reduced sales into the China market, the company more than offset these challenges through strong growth in full display mirror and other advanced features, along with incremental revenue from the box acquisition. Our consolidated gross margin for the quarter was 34.2%, up from 32.9% in the second quarter of last year. Core GENTX gross margin was 35.3%, a 240 basis point improvement versus last year. Sequentially, we saw a 210 basis point improvement in core gross margin, reflecting the continued success of our margin improvement initiatives. The improvements were driven by purchasing cost reductions, favorable product mix, and operational efficiencies, although they were partially offset by tariffs that were not reimbursed during the quarter. Additionally, on an adjusted basis, consolidated gross margin was 34.6% when excluding $2.5 million purchase accounting adjustment related to the Vox acquisition. During an incredibly difficult operating environment, this quarter's gross margin performance is a testament to the hard work and discipline the entire team has put into our margin improvement effort. Operating expenses for the quarter were $106.8 million, up from $73.7 million last year, primarily due to the Vox acquisition. Vox accounted for $23.9 million of that increase, plus $1.5 million in acquisition-related costs on the Vox side, and $600,000 in costs relating to severance expenses for Vox. Core Gentex operating expenses were $80.7 million, up from $73.7 million, but this included expenses of $1 million in acquisition-related costs for Gentex and $6.2 million in early retirement incentives for Core Gentex. When we adjust for these one-time items, Core Gentex operating expenses were down slightly versus last year, which is in line with our expectation, strategy, and execution of the work we have been doing on our cost reduction program. Consolidated income from operations was $118.5 million compared to $114.9 million last year. However, core Gentex operating income was $123.8 million, up 8% year-over-year. Additionally, when adjusted for the one-time expenses mentioned previously, core Gentex operating income was $130.9 million, a 14% increase over last year. Our effective tax rate for the quarter was 17.2%, up from 15.1% last year, primarily due to lower stock-based compensation tax benefits and a reduced foreign-derived intangible income deduction. Consolidated net income for the quarter was $96 million, up 12% from $86 million last year. On an adjusted basis, net income was $105.8 million, a 23% increase versus last year. Consolidated earnings per share were 43 cents, up 16% versus last year. When we adjust earnings per share for the one-time expenses mentioned previously, EPS was 47 cents, a 27% increase over last year. I will now hand the call over to Kevin for some further financial details. Thank you, Steve.
Gentex automotive net sales were 566.5 million in the second quarter of 25, which were negatively affected by the company's lower than expected sales into the China market. due to the impact of counter tariffs, but were more than offset by increased advanced feature mirror sales. Net sales from Gentex's other product lines, which includes dimmable aircraft windows, fire protection products, medical devices, and biometrics, were 12.5 million in the second quarter of 25, compared to 13.6 million in the second quarter of 24. And as previously mentioned, VoxNet sales contributed 78.8 million during the second quarter of 2025. The company continues to work through post-acquisition transition with a focus on aligning product strategies, optimizing customer relationships, and identifying operational synergies across both businesses. During the second quarter of 2025, the company repurchased 5.7 million shares of its common stock at an average price of $22.13 per share for a total of $126.2 million. And year to date, the company has repurchased 8.8 million shares for a total of $202.2 million at an average price of $22.97 per share. And on July 16th of 25, the company announced a new share repurchase authorization from the Board of Directors of an additional 40 million shares, representing more than 18% of the company's outstanding shares as of June 30 of 25. This new authorization is in addition to the company's existing repurchase authorization. And with this new authorization, as of today, the company now has approximately 40.6 million shares authorized for repurchase under the plan. The company intends to continue to repurchase additional shares of its common stock in the future in support of the previously disclosed capital allocation strategy, but share repurchases will vary from time to time and will take into account macroeconomic issues, market trends, and other factors the company deems appropriate. Shifting over to the balance sheet, today's comparisons are figures as of June 30 versus December 31 of 24. These numbers include the initial purchase accounting estimates from the Vox acquisition as of April 1st, and while they reflect our best estimates, they may be subject to change throughout the measurement period. Starting with liquidity, cash and cash equivalents were 119.8 million, down from 233.3 million at year end, primarily as a result of the Vox acquisition and share repurchases during the quarter. Short-term and long-term investments totaled 290.1 million, compared to 361.9 million at the end of 24, These investments include both fixed income securities and our equity and cost method holdings. Total accounts receivables stood at $372.9 million. Of that, $317.5 million was attributable to Gentex and $55.4 million came from the box acquisition. The increase in core Gentex receivables was primarily driven by higher sequential sales and the timing of the sales within the quarter. Total inventories were $473.3 million. with $380.9 million representing core Gentex inventory. That's down from $436.5 million at year end, largely due to reductions in raw material inventory. The remaining $92.4 million in inventory is tied to the Vox acquisition. And consolidated accounts payable was $212.6 million. And within that, core Gentex accounts payable was $156.3 million, down from $168.3 million at the end of 24, primarily due to lower inventory purchases during the quarter. and the remaining $56.3 million reflects payables associated with Vox. And as it relates to cash flow, the company is still in process of finalizing operating cash flow metrics for the quarter and will provide those details in its upcoming Form 10-Q filing. Capital expenditures for the second quarter of 25 were approximately $31.1 million compared to $31.8 million in the same period last year. In year-to-date, capital expenditures totaled $67.8 million, up from $63.6 million in the first half of 24. And depreciation and amortization expense for the second quarter was approximately $27.4 million, including $0.8 million attributable to Vox and $26.6 million related to Gentex. This compares to $23.9 million in the second quarter of 24. And on a year-to-date basis, depreciation and amortization totaled $52.9 million compared to $47.9 million in the prior year period. I'll now hand the call over to Neil for a product update.
Thank you, Kevin. In the second quarter of 2025, we had 18 net new nameplate launches of our interior and exterior auto-dimming mirrors and electronic features. Over half of these launches in the quarter included advanced feature content, with Full Display Mirror and HomeLink being the primary technologies introduced. The launch cadence has been strong over the past several quarters, and the teams have been doing an outstanding job to make them successful. Now for an update on Full Display Mirror. In the second quarter, Full Display Mirror launched on the Cadillac Vestique Ferrari 296 GTB, Genesis GV60, Hyundai IONIQ 9, and the Mitsubishi Outlander. These new launches bring our total number of nameplates launched to 139. With six months of actual performance and improved visibility around program launches, we now expect full display mirror unit shipments for the full year of 2025 to increase by approximately 150 to 300,000 units compared to 2024. Interest in the Full Display Mirror product family remains strong, even in a challenging production environment, particularly in North America. In addition to the growth in units in 2025, we continue to anticipate announcing an additional OEM customer for Full Display Mirror later this year. Full Display Mirror has been one of Gentex's primary growth drivers, and we remain fully committed to its continued advancement. We're actively investing in next-generation camera and display technologies, new feature content, and a deeper focus on user experience to ensure the platform remains at the forefront of the market. Another product focus area for us has been large area devices. In the second quarter, our teams made strong progress in optimizing initial production lines for large area applications like sunroofs and visors, and advanced key technical aspects such as dimming speed and film durability. Our customers remain highly engaged and working closely with them to align product capabilities with their evolving expectations. For large area devices, our target is to bring this technology to production within the next 24 months. Turning to Vox, now that we've completed our first full quarter working alongside their teams, we're focused on gaining a deeper understanding of their product lines, cost structures, and operational opportunities. The various technology and product platforms this acquisition brings like iris-based biometrics and the premium audio group will create some new and unique product opportunities and we're excited to engage into these areas going forward. We've taken a deliberative approach to not rush the integration so that we can ensure alignment across departments. As with our core Gentex technologies, we're focused on balancing quality, cost, performance, and design, and I remain optimistic that our ability to enhance each of these metrics across our expanded portfolio. Finally, we're excited to announce that we began shipments of our new Place product line through a major big box retail partner during the quarter. Place is a suite of advanced multifunctional smoke and carbon monoxide alarms designed to elevate home safety, comfort and security through room specific intelligence. The system is managed to be an intuitive mobile app and features an industry first low frequency sounder engineered to improve alarm effectiveness for deep sleepers, children, and individuals with hearing impairments. It also aligns with emerging safety standards, including updated residential codes recently adopted in states like California. As a longstanding leader in commercial fire protection and sensing technologies, the launch of PLACE marks a significant milestone in our strategy to bring cutting-edge, accessible home safety solutions directly to consumers and further expand Gentex's presence in a rapidly growing smart home market. Gentex is an innovation-driven technology company. Our focus on R&D over the past several years has enabled us to generate a strong pipeline of both automotive and non-automotive products and technologies, and we're excited about the potential they have to help drive our growth into the future. I'll now hand the call back over to Steve for guidance and closing remarks.
Thanks, Neil. Our light vehicle production forecast for the third quarter and the remainder of the year is based on the mid-July 2025 S&P Global Mobility Outlook for North America, Europe, Japan, Korea, and China. For the third quarter of 2025, global light vehicle production is expected to be relatively flat compared to the third quarter of last year, while light vehicle production in our primary markets is projected to be down approximately 1% for the quarter. In the fourth quarter, global production is expected to decline by approximately 6%, with similar declines anticipated for our primary markets. For the full year 2025, light vehicle production in our primary markets is now expected to be down 3% year over year, with North American production projected to fall by approximately 4% compared to last year. Based on this updated production outlook, our first half performance, reduced demand in China due to the recently implemented counter tariffs, and the expected contribution from the Vox acquisition, we are revising our full year 2025 guidance. This updated guidance reflects the anticipated impact of all known tariffs effective as of today. We now expect consolidated revenue, including Vox, to be in the range of $2.44 and $2.61 billion, which is higher than our previous estimate of $2.15 and $2.32 billion without Vox. Revenue from Gentex's primary markets is expected to be in the range of $2.1 and $2.2 billion. Revenue from the China market is projected at $100 to $125 million, and Vox revenue is estimated to contribute between $240 to $280 million. Consolidated gross margin, including Vox, is expected to be between 33 and 34%. Core Gentex without Vox is now expected to be between 34 and 34.5%, which is a significant improvement from our prior range of 33 to 34%. Vox gross margin is anticipated to be in the range of 27 to 29%. Consolidated operating expenses, excluding severance, are expected to be between $370 to $390 million. Core Gentex operating expenses are expected to remain unchanged at $300 to to $310 million. Vox operating expenses are projected to be between 70 and $80 million excluding severance. Our effective tax rate is now expected to be in the range of 16 to 17% versus our previous estimate of 15 to 17%. Capital expenditures remain unchanged at 100 to 125 million for the year. And lastly, consolidated depreciation and amortization is expected to be between $91 and $98 million. This includes $90 to $95 million for Gentex and $1 to $3 million for Vox. The second quarter began with a flurry of activity that has not slowed down. We closed the Vox acquisition on April 1st and then moved very quickly into a chaotic period of global trade uncertainty that lasted for the entire quarter and remains unresolved. It was nevertheless a very productive quarter as we continue to make progress on our path toward improved profitability. Our teams are performing at a very high level and our operational efficiency is improving significantly versus the same time last year. These improvements played a key role in driving strong revenue and profitability improvements despite revenue reductions in the domestic China market and the lower than expected light vehicle production in our primary markets. Over the next several quarters, the company will continue executing the margin improvement initiatives that are targeted to get the core margin profile in line with our long-term target of 35% to 36%. While we are working on those targets, we are also working with the Vox team to ensure the combined organization is appropriately structured to support long-term profitability and shareholder value. That completes our prepared comments for today. We can now proceed with questions.
Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Our first question comes from the line of Luke Young with Baird. Your line is now open.
Thanks for taking the questions. Steve, maybe if we could start with just the underpinnings of gross margins, certainly I think one of the big stories this quarter. And just curious to get your thoughts on the factors that are now Within your controls, we're starting to see the gross margin improvement efforts internally really showing up in the P&L and continuing to work on that versus some of the uncertainty that's still out there, be it industry production volume, trim mix. That feels kind of like you've turned the corner on getting your arms around the margin trend. Is that how you feel as well?
Yeah, I'd say, I mean, honestly, if you go back over this, it's been a little over two years that we've been working on margin improvement, really since the forced electronics cost increases that we incurred post-COVID. But since that time, there was a lot of other factors, obviously the labor crisis and other factors on the industry that caused some problems. So it felt like over the last two years, every time we made progress, there was some type of headwind that kind of reset the bar lower. This quarter really starts to show the work that's been going on. And it read through all the way through the income statement, which I think is a really positive sign to your point. And just kind of walk through that a little bit. The way we kind of categorize this, we'd say there was a negative in the quarter between pricing and tariffs of 50 to 100 basis points were kind of the negatives on margin. But then there were several positives, but the biggest ones were PPV. So our savings from our supply base, that was 100 to 150 basis points. And then labor and overhead savings were 150 to 200 basis points positive. So when you start looking at those trends, we don't see those reversing in the second half of the year. If you look at the pricing from the commodities that we buy, those should be locked in for the rest of the year. And then if you look at the labor and overhead, as long as revenues stay in this range, we should have a very efficient and our operational efficiencies are definitely showing the signs of improving the stats that we look at in terms of predicting how are we going to do in the second half of the year.
And then just switching gears to China, certainly, you know, it's coming up in the guidance relative to now, you know, less bad tariff situation. But just curious how you're thinking about China strategically, incrementally, including the market, is open again to some extent, but you know, still a challenging market with respect to competitiveness, payment terms, et cetera.
Yeah. I mean, for us, the biggest, the biggest challenge in the China market is because almost all of those sales are exports out of the U S into the China market. The threat of those counter tariffs, when they got over a hundred percent, basically had all of our customers in China, uh, reconsidering what to do with our product. And on a large degree, it's either some of it got resourced to local suppliers, but the vast majority of it just they punted on the technology itself and just removed it from the vehicle. And that's also in keeping two things. It's not just the tariffs. It's also the decreasing profitability for OEMs in the domestic China market. A lot of them, and this is well-documented, obviously, in that industry, but there's been a lot of challenge with their profitability. And so some of the content and features are starting to get squeezed out from a product planning standpoint. And so we're re-looking at that China market, trying to determine how do we find a way to grow there. In this market, the way in the current uncertainty as it relates to tariffs and counter-tariffs, We haven't found that winning formula yet. But like we've always said, that market does tend to be a little lower than average margin profile. And so there is definitely some help there as that business shrunk. It's not obviously helpful on the revenue side, but it does help on the margin side.
Got it. And then lastly, Neil, just Hoping to get a little more commentary on larger devices mid-year. So I guess what you're sharing today sounds like good news in terms of engineering unlocks and aligning to what customers are expecting. But for that view to bring production within the next 24 months, could there be some conservatism in there potentially?
There could be a little bit. The team's done an amazing job these last, I'll say the last six months of this first part of the year, getting processes improved to get the visual characteristics, performance, all of the above on the product and technology to customer level that can really help us accelerate bringing it to market. There could be. I mean, 24 months I think is a pretty safe window. I think we should be able to achieve something sooner than that, but there's a lot of variables that are still in line in achieving the product that the end customer is looking for. So still working really hard. Team's doing a phenomenal job, but feel pretty comfortable that within those 24 months we should be able to get there. Okay. Well, stay tuned.
I'll leave it there. Thank you. Thanks. Thanks, Luke.
Our next question comes from the line of Joseph Speck with UBS. Your line is now open.
Hey, team. Good morning, everyone. Morning. Good job. A couple of questions, I guess, on Vox, now that you've had another quarter adjusted and it's in the guide. Obviously, the EBIT is breakeven this year. It looks like it's $100 million annualized OPEX run rate. How should we think about that level on a go-forward basis in terms of either synergies or cost savings that could come out as we think about the next couple of years?
Yeah, if you look at the overall OPEX on the Vox side, we know there's some synergies in combining the two organizations. Part of that is you have two separately publicly traded companies going down to one. We know that'll bring about a lot of those. We also know as Neil's team engages with their engineering teams, there's definitely some overlap and some synergies that we think we can accomplish there. The same thing with the back office side of the house. We definitely know that working together, we can definitely find ways to be more efficient. One of them will take a little longer, but that's also ERP integrations. Our system, we believe, is a more efficient system that will help with the workload that's manually required today inside of the Vox system that we believe we can help with. This is a 12 to 18-month process, but definitely want to get that OpEx on a percentage basis. You know, probably won't get all the way to the Gentex level, but definitely closer to that. Percentage sales? On a percentage sales basis, yep.
Yeah, it's a percentage sales. Okay, so over a couple years, you think that's sort of a reasonable... Yeah, very much so. Okay, and then just sticking on Vox... Like I know with the audio side of the business, you know, when you sort of talked when you first bought it at the height of sort of tariff uncertainty, there was maybe some decisions that had to be made about sourcing from China versus sort of other alternatives. And, you know, that seemed more clear when tariffs were, you know, 145% or higher, maybe less clear at current levels. I know It's not like we have full tariff certainty yet, but do you have any sort of hard reviews of what you plan to do there or when you think a decision would be made?
Yeah, so the audio teams, so primarily Klipsch, but Klipsch and Onkyo teams have done a phenomenal job. of proactively getting sourcing decisions made to reduce that risk. So in that case in particular, now as a consumer electronics company, they have a lot more flexibility than an automotive supplier does for sure. And so a lot of those they've already made decisions with the existing supply base of how to reduce the risk and exposure to tariffs out of the China market. And so they're actively pursuing relocation of manufacturing in their supply base currently. I would expect that within 12 months, basically, that most of those transitions will have been handled already. And so to your point, it will be nowhere near that kind of 100% that was threatened and worrisome. They're obviously based on trade deals that are happening between the U.S. and the rest of the world. There will be some remnant of tariffs that will exist for the long period, but it will be significantly lower than what that 100% risk factor was.
Excellent. Last one for me, just on sort of the core Gentex mirror business. You know, I think like second quarter production, you know, did certainly come in better. That benefited from you. We're seeing some signs of softening schedules in the back half. Do you think there was any, like would you classify it as any sort of like pull forward or shifting in timing? Or I guess how do you sort of view the cadence of sort of production, you know, 2Q through the balance of the year?
Yeah, if you look at Q2 and what we're seeing in Q3, we think Q3 is going to be very similar to Q2. I think the softening is really going to happen in Q4. And that's, you know, if you look at our primary markets, North America and Japan-Korea markets are the ones that are probably on a year-over-year basis in Q4 going to be down the most. If you look at it, there was some pull forward a little bit. We did push back on that with our customers. In other words, what they were looking for was some shipments ahead of trade deadlines. We just worked with them very openly about, well, we could do that for you, but we're going to incur a tremendous amount of costs on the overtime side. If that's something you need us to do, we'll do, but we've got to talk about the expense associated with that. And most of our customers made decisions based on that delta cost basis of whether or not they wanted us to pull ahead schedules. So I don't think it was as much as what has been speculated. There definitely was a little bit, but I wouldn't say it was a significant portion of our revenue. It was a pull forward from the back half of the year into Q2.
Great. Thanks so much, guys.
Thank you.
Thanks, Joe.
Our next question comes from the line of James Picariello with B&P Paribas. Your line is now open.
Hey, guys. This is Jake on for James. Now that you've had a chance to have a full quarter owning Vox and really dig into the business, How do you think about what portion of Vox revenue should be considered non-core and could be divested versus what you guys definitely want to kind of fold into the core business?
Well, I think, you know, if you look at that total business, right, I mean, it really breaks up into really two separate buckets, right, in terms of revenue. You have the premium audio, and part of the reason we are excited about premium audio, as Neil referenced, our place launch, right, And that move into what we're trying to do is expand our HomeLink brand into home automation. And so both our place product and the Klipsch and Onkyo brands were part of that strategy of how do we combine that business and start to become a bigger player in the home automation space and start to leverage our manufacturing capability in home electronics as well. And so I look at that and say that was really part of what we are really attracted to in the acquisition of Vox. The other two pieces are really very similar piece of business to what we do. So you have an OEM piece of the business that Vox on the electronic side handles, and then they have an automotive aftermarket business. And so they've done distribution for us for a long period of time, and we're very familiar with what their distribution model looks like. As we sit here today, both of those are still interesting pieces of business for us where we look at that and say, you know, hey, how can we know we can help improve the overall profitability of those businesses? And so we want to leverage our supply base on the cost reduction side from a bill of materials standpoint, but then also look at how can we get those products to market quicker at a lower OpEx.
And then the one last piece is the biometrics, which has always been part of our growth path for in the mirror growth. And we're getting our hands on the underlying algorithm through that acquisition. So the ILOC piece is more of a longer term strategy, but Being able to own that technology was important too.
All right, thanks guys. And then I just wanted to quickly follow up on China. How should we think about the first half, second half split? And then what does the run rate look like going forward into 2026 and beyond?
Yeah, if you look at the first quarter was almost a normal quarter for us, really, in terms of exports into China, I think I was at 43 million, I believe, and then 33 million, you know, I would say probably in the back half, you're probably more like 25 mil per quarter, roughly. And then after that, I mean, who knows, but if a deal gets done, that's, you know, sub 50% tariff rates, then then I would say it's probably a $75 million to $110 million book of business for us going forward versus the $240 million, $250 million we are anticipating this year.
Thank you. Our next question comes from the line of Josh Nichols with B Raleigh. Your line is now open.
Yeah, thanks for taking my question. Great to see the margin and the revenue bump coming here. I know, I think last quarter, you know, things have been shifting a lot with the tariff news and whatnot. Mix was a big question, right, last quarter, and clearly mix has become a pretty big tailwind for this quarter. You're seeing FDM, other advanced feature mirrors move higher. I'm kind of curious, like, What's changed a little bit of what you're hearing from your customers for how they're focusing on mix for some of these higher value products and what continues to be a little bit of challenging light vehicle production market?
Yeah, I think overall what you're seeing is kind of return to where we were a couple of years ago where OEMs were focused on profitability, knowing that overall light vehicle production isn't probably going to be what anyone would like. But based on that, you know, that does tend to shift part of the upper half of the production volume into higher mix for us, so that's good. At the same time, though, you'll see some OEC declines, and, you know, that's obviously negative on the margin profile side. And so, you know, there is some good news in there, but there also is some decontenting and some focus on cost from an OEM standpoint that have negatively impacted our OEC volumes. And so it's not all positive tailwinds. We actually fought through some additional headwinds. And so the financial performance, given that full context, was actually very, very good. When you look at losing that type of OEC volume on a year-over-year basis, that is pretty negative both operationally but also on the overall margin profile. And so, you know, while there is some definite trend towards FDM and increased take rates on advanced features, the outside portion of the book of business is definitely struggling a little.
And just to touch on like Vox real quick, I think at a high level, you mentioned it, you know, it's running around breakeven today, but when you look at the opportunity, you know, for margin expansion, I think the guidance for Vox is like 27 to 29%. This year, you guys, your core business is, you know, running the best in class numbers, 34 plus percent this year, like How much do you think that those margins for Vox could improve over the next 12 to 24 months? As you mentioned, probably not to the level that you guys are operating at, at the core business, given the nature of it. But I'm just curious how much of that synergies and operating leverage is going to be coming through the gross margin line for Vox.
Yeah, I would say I don't know about, given the industries, I think on the clip side, You can improve it in a quicker environment because of the cycle on how quickly those products are redesigned, and that tends to reset the margin profile of consumer electronics quicker. And every one of those redesigns gives you an opportunity to improve bill. The automotive side obviously takes a little longer, but I would say if you're looking out two years or so, I think 200 to 300 basis points of improvement in the gross margin is absolutely achievable.
Last question for me. You touched on the dimmable glass, a very big opportunity there. Good to see the progress the company's been making on that front. On driver monitoring, a little bit more near-term revenue opportunity. Any updates on that? I know you expect to do a little bit of revenue this year, but that could ramp to be more material over the 27, 28 type timeframe. Right.
Yeah, exactly. So we start, our second customer will go to production here in late Q3, early Q4. And then the additional, actually there's customer two will be late Q3, early Q4. Customer three will be late Q4, early Q1 of next year. And then the fourth one will also be early first half of 2026 with, as you said, volumes will be ramping up over the next couple years. Really 27 into 28 is when it becomes more significant or substantial.
Appreciate the context. Thanks.
Thank you. As a reminder, to ask a question at this time, please press star 1-1 on your touchtone telephone. Our next question comes from the line of Ron Yepsekov with Guggenheim Securities. Your line is now open.
Yeah, good morning, and thanks for taking my questions. Maybe, yeah, good morning. Maybe starting on just the FDM growth, the increase in the guide, any color on kind of what's driving the roughly 5% upside versus prior shipment expectations? I guess want to unpack, like, I don't think it's probably light vehicle production volumes, or is it take rates? Is it launches coming quicker than expected? Just kind of what you're seeing.
It's really a combination of both of those. I'd say the launch cadence and both take rates, I mean, we have line of sight to what this could be. I think we were a little bit more pessimistic on LVP in the first half of the year than what actually happened. And so with that, we were, like we had talked at the beginning of the year that we thought there was a little bit more risk factors there. Given the strong first half of the year and the launches that Neil referenced in the second half, you know, our confidence is starting to increase and us hitting those numbers primarily based on what's already happened this year. But then also, even with the lower production volumes, if you look at how we're laid out across those OEMs and what those take rates could look like, we think there's a little less risk factor now than what we thought at the beginning of the year. And so I think take rates continue to trend positive, and then the launches have not slowed down. And I think that's one of the big improvements in the back half of this year. OEMs are still committed to their product launch cycles, and we're hitting those.
Okay, that's super helpful color and want to maybe double tap or it might be triple or quadruple at this point on the China guide. Yeah, I guess. What is the reason in your estimation that the China market is not bouncing back? I think post post tariff relief to to kind of pre tariff levels is local competition filling the void. Was there kind of enough inventory in the channel already that OEMs we're able to use that, or is there kind of just decontenting at certain OEMs as a result of tariffs?
Yeah, if we were, all three of them are true, but the single biggest one is decontenting. If you look, and this is really driven by the profitability of the OEMs in that market right now being squeezed very, very tight. A lot of them, and you've seen the announcements on you know, negative margin profile for several OEMs and others struggling just to break even. A lot of it has been driven by, you know, driven by decontenting, trying to get the cost per vehicle down. There has been a little bit of replacement on local competition, but I would say that's a much, much smaller percentage of the business loss in China is driven by that. More of it's driven by decontenting.
Okay. That's helpful, Culler. And if I could just squeeze one more in. On the tariffs, or the net tariff costs that weren't reimbursed this quarter? It seems like it was maybe four to five million of net costs. Sorry.
It was about 2.7.
Okay. Do you expect those to be reimbursed in the second half, or is that just kind of assumed as kind of leakage in the guide?
No, the team's very clear that our expectation is that we're going to get at least most, if not all, of that reimbursed.
Okay. No, that's super helpful. And I really appreciate you taking my question.
Thanks, Roshan.
Our next question comes from the line of David Whiston with Morningstar. Your line is open.
In terms of the core company getting that gross margin target to 35% to 36%, what major activities still need to be done to get to that level?
Right now, if MIX stayed the same, I would tell you we're there. But we have additional things that we had kicked off that we're still working on. That includes some product redesigns. Definitely, it all started if you go back to when the cost increases happened on the electronics piece. There were several things that we began working on. Some of those redesigns we're still working on that we haven't fully executed yet. There's obviously continuous improvement on the manufacturing piece, throughput, yield, scrap, cost, those types of things. Also, one of the things that we always work on is replacement products, and that can mean different things, right? So some of our incoming bill materials are impacted by tariffs from different regions, so looking for alternative supply. And so we're constantly looking at those, saying, how do we de-risk the business to make sure we get to this margin profile and stay at it for a longer period of time?
Okay, thanks. And then on your supply chain, how much exposure do you guys have to rare earths and magnet materials from China upstream?
I would say on the rare earth side, there's quite a bit of exposure on the coating side for core Gentex, right? There's a lot on the precious metal side and our coatings especially. Obviously with the Klipsch acquisition, magnets became a much bigger piece. Magnets weren't a problem for us pre-acquisition, but obviously that is something that the Klipsch team and the premium audio team has been working really hard on to make sure that does not become an issue for them and their ability to deliver to their customer base. I would say they've done a really good job of de-risking that supply as much as humanly possible in this environment. Not that it's completely risk-free, but right now we feel like we have a very good plan of how to make sure to maintain supply of magnets for their speaker products. Yeah, thanks, guys.
Thank you. And I'm currently showing no further questions at this time. I'd like to hand the call back over to Joshua Berski for closing remarks.
Thank you, everyone, for your time today. As a reminder, we will be at SEMA in November. If any investors are interested in joining us, please reach out. But this concludes our conference call. Have a great weekend.
This concludes today's conference call. Thank you for your participation. You may now disconnect.