Gentex Corp Q2 2026 Earnings Call

Good day, and thank you for standing by. Welcome to the Gentex Report second quarter 2026 financial results conference call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question and answer session. 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. I would now like to hand the conference over to your speaker today, Josh O'Berski, Vice President of Investor Relations.

Thank you. Good morning, and thank you for joining us today for our second quarter 2026 earnings conference call. I'm Josh O'Berski, Gentex Vice President 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. Many of the statements made today during the call are forward-looking and reflect our current expectations. These statements involve a number of risks and uncertainties, both known and unknown, including those described in our press release issued this morning and in our annual report on Form 10-K for the year ended December 31st, 2025, as well as general economic conditions.

Actual results may differ materially from those expressed or implied in these forward-looking statements if risks or uncertainties materialize or if our assumptions prove to be incorrect. Ahead of our prepared remarks, I would like to remind the investment community that we will be hosting our invite-only Analyst and Investor Day on August 27th in Zeeland, Michigan. During the event, we will be doing facility tours, showcasing some of our new products and prototype vehicles, and showcasing the infrastructure that has been going into place to support the expected product line growth over the coming years. If you are interested in attending, please email me or apply to attend at josh.oberski@gentex.com or sign up at ir.gentex.com. I will now hand the call over to Steve Downing for our prepared remarks.

Thank you, Josh. For the second quarter, Gentex reported net sales of $651.3 million, down 1% from $657.9 million in the second quarter of last year. Automotive revenue declined approximately 3% year-over-year, reflecting lower revenue in Europe, Japan, Korea, and China, which was largely offset by strength in North America. Our results continue to demonstrate the value of our strategy to grow through technology expansion, increasing content per vehicle, and diversification. While mirror unit shipments and automotive revenue came in below our beginning of quarter forecast, performance benefited from strong North American demand, higher vehicle content in Europe, and continued growth from our non-automotive product lines. In Europe, new driver monitoring and in-cabin monitoring system launches continued gaining traction and helped offset the impact of a significant decline in base interior mirror shipments for the international market.

In China, revenue remained under pressure as ongoing tariff-related market disruptions contributed to a 20% year-over-year decline. Outside of automotive, revenue from the company's other products category provided meaningful growth. Premium audio revenue increased 16% year-over-year to $51.7 million, while aerospace, biometrics, fire protection, and automotive aftermarket revenue collectively increased approximately 12%. Non-automotive revenue represented approximately 14% of total company revenue during the quarter, reinforcing the benefits of the company's diversification strategy and confidence in long-term opportunities to expand both our technology portfolio and revenue base. Gross margin for the second quarter was 37%, compared to 34.2% in the second quarter of last year, representing an increase of 280 basis points. Gross margin benefited from approximately $18 million of IEEPA tariff reimbursements received during the quarter that reduced cost of goods sold, as well as favorable product mix.

These benefits were partially offset by higher commodity costs and lower overall sales levels compared to the prior year. In total, the company received approximately $38 million of IEEPA tariff reimbursements during the quarter, of which roughly $18 million reduced cost of goods sold and favorably impacted gross margin. Excluding that benefit, gross margin still improved sequentially by approximately 50 basis points from the first quarter of 2026, despite lower automotive revenue and ongoing non-IEEPA tariff costs and significantly higher precious metals costs. The sequential improvement was driven by favorable product mix, disciplined operational execution, and improving profitability within the company's other products category. Consolidated operating expenses for the second quarter were $99.7 million, compared to $106.8 million in the second quarter of last year. The decrease was primarily driven by severance costs recorded in the prior year period.

On a non-GAAP basis, adjusted operating expenses were $99.3 million, compared to $97.5 million in the prior year period. Income from operations for the second quarter was $141.3 million, up 19% from $118.5 million in the second quarter of last year. On a non-GAAP basis, adjusted income from operations was $141.7 million, compared to $130.3 million in the prior year period. The effective tax rate for the quarter was 16.5%, compared to 17.2% in the second quarter of last year. Net income attributable to Gentex was $114.7 million, up 19% from $96 million in the second quarter of last year. On a non-GAAP basis, net income attributable to Gentex was $122.9 million compared to $110.9 million in the prior year period. Diluted earnings per share were $0.54 compared to $0.43 in the second quarter of last year.

On a non-GAAP basis, adjusted diluted earnings per share were $0.58 compared to $0.50 in the prior year period. While revenue came in below our forecast, disciplined execution across the business enabled Gentex to deliver record second quarter earnings per share of $0.54, an increase of 26% over the second quarter of last year. The company's strategy remains focused on identifying new growth opportunities despite the challenging market conditions, expanding and stabilizing gross margins, tightly managing operating expenses, and deploying capital in a disciplined manner. Management believes this approach will continue to support earnings growth, strong cash generation, and long-term shareholder value creation, while also funding investments in the broadest portfolio of new products, technologies, and market opportunities in the company's history. I will now hand the call over to Kevin for further financial details.

Thank you, Steve. Looking at the segment revenue, automotive net sales were $560.1 million in the second quarter, down from $578.1 million in the second quarter of 2025. The quarter-over-quarter decrease primarily reflects lower light vehicle production and reduced base auto dimming mirror unit shipments. Despite these headwinds, favorable product mix, new technology launches, and continued content gains with customers were able to partially offset the decline. Premium audio. Net sales from the premium audio category were $51.7 million in the second quarter compared to $44.5 million in the second quarter of 2025, an increase of approximately 16%. Growth was driven primarily by strong performance from the powered systems and Onkyo brands, supported by new product introductions and continued demand across premium audio categories. Other products. Net sales from the other products category, which includes aerospace products, fire protection devices, medical technologies, biometric solutions, and automotive aftermarket products, were $39.4 million, which was a 12% increase compared to the second quarter of 2025.

This growth was primarily driven by strong performance in aerospace products as well as continued growth in biometric and accessory product revenues. Share repurchases. During the second quarter of 2026, the company repurchased 2.7 million shares of its common stock at an average price of $24.48 per share, for a total of $66 million. Year to date, the company has repurchased 5.9 million shares for a total of $137.6 million at an average price of $23.13 per share. As of June 30 of 2026, the company has approximately 29.9 million shares remaining available for repurchase pursuant to its previously announced share repurchase plan.

Turning to the balance sheet, our comparisons today are based on June 30, 2026, versus December 31 of 2025. Starting with liquidity, cash and cash equivalents were $233.4 million at quarter end, up from $145.6 million at year-end. Short-term and long-term investments totaled $247.9 million compared to $278.4 million at the end of 2025. Accounts receivable was $386.3 million at June 30, compared to $368.5 million at year-end, reflecting timing of sales and collections during the quarter. Inventories totaled $519 million at June 30, up modestly from $516.3 million at year-end. Accounts payable was $266.6 million at June 30, compared to $249 million at year-end, primarily driven by timing of payments and inventory purchases. Cash flow. For the second quarter, preliminary cash flow from operations was $180.9 million compared to $166.1 million in the second quarter of 2025.

The year-to-date preliminary cash flow from operations totaled $318 million compared to $314.6 million in 2025. Capital expenditures for the second quarter were $19.2 million compared to $31.1 million in the second quarter of 2025. Year to date, capital expenditures were $36.2 million compared to $67.8 million in 2025. Depreciation and amortization expense for the quarter was $25.8 million compared to $27.4 million last year. Year to date, depreciation and amortization expense was $51.4 million compared to $52.9 million in 2025. As a result, second quarter free cash flow reached $161.7 million, an increase of approximately 20% from $135 million in the second quarter of 2025. Year to date, free cash flow totaled $281.8 million, up approximately 14% from $246.8 million in 2025. I'll now hand the call over to Neil for a product update.

Thank you, Kevin. In the second quarter of 2026, we continued to have strong feature launches of our automotive products. For the quarter, over 75% of the launches included advanced features in our interior and exterior auto-dimming mirrors and electronic modules. The launch strength in the quarter was driven by HomeLink, Full Display Mirror, in-cabin monitoring, and advanced featured exterior auto-dimming mirrors. In this past quarter, Full Display Mirror again performed well. We continue to see good growth and expansion of the product in markets around the world and across all types of vehicle architectures. In the quarter, we began shipping on the new Jeep Recon platform and the Infiniti QX65. Additionally, in the quarter, we began shipping Full Display Mirror to McLaren on its new W1, to Toyota on the Century SUV, and on the Subaru Trailseeker and Uncharted nameplates.

Shipments through the first half of 2026 have positioned us to deliver on our estimated growth rate of 200,000 to 400,000 units over prior year that we projected at the beginning of the year. Our driver monitoring and in-cabin monitoring systems continue to track in line with our expectations for growth over the coming years. We're pleased to announce we began shipping to BMW on the iX3 and to Kia on the EV2. These are some of the most complex programs our company has ever developed, and our engineering and manufacturing teams have done a great job in successfully launching these projects. Outside of automotive, the premium audio team has been extremely busy with new launches as well.

From the limited edition runs of the kO-R2 and the Odyssey edition of the Klipsch Detroit Bluetooth Speaker to the Klipsch Heritage Series latest bookshelf speakers, the Klipsch Rebellion, the team at Klipsch continues to move the market forward in blending style and performance. At Onkyo, the Onkyo Muse Series high power amplifier and limited edition 80th Anniversary Creator Series powered monitors offer premium design, smart features, and versatile connectivity. The audio community has shown substantial support and excitement around these new products. Now for a quick progress update on manufacturing products outside the U.S. Many of our international customers are focused on de-risking their supply base by increasing the amount of localized production in each region where they operate. This has created headwinds for our international growth. Specifically, several of our European customers are requiring manufacturing locations in the region to support their vehicles that are built and sold in Europe.

In support of these requests, Gentex is in process of setting up a plant in Morocco to provide components to our customers in Europe. While discussions are still underway regarding the product output of this plant, initial requests from our customers would include base electrochromic mirrors and advanced electronic modules. We have signed a letter of intent, selected the location for our plant, have received the Moroccan government's support in creating the entity, and are making progress in support of a targeted start of production in 2028. The second quarter highlighted the company's ability to execute across a broad range of strategic growth initiatives while maintaining cost discipline. Gentex continues to support an expanding number of advanced technology launches, including Full Display Mirror, driver and in-cabin monitoring systems, and dimmable device programs while remaining focused on operational efficiency.

As these technologies gain further market adoption, investments in innovation, automation, and process improvement are expected to support future growth while effectively managing operating expense levels. This includes our effort to expand in Morocco. We believe with our operating discipline and the structure we are establishing Morocco, that this shift in manufacturing will not create a large increase in operating expenses. With core technologies still coming from our existing facilities, we don't see this transition creating excess capacity in our core facilities. Innovation is a core strength of Gentex, and we're driving launches to market today. We continue to innovate across the organization to position us for growth in the future. While automotive production environment for 2026 appears to be stagnant, the team at Gentex is setting the stage for a busy and exciting future.

I'll now hand the call back over to Steve for guidance and closing remarks.

Thanks, Neil. The company's light vehicle production assumptions for the third quarter of 2026 and calendar years 2026 and 2027 are based on the mid-July 2026 Mobility global outlook for North America, Europe, Japan, Korea, and China. Based on this outlook, global light vehicle production is expected to decline approximately 2% in the third quarter of 2026 compared to last year, and approximately 3% for the full year. While global light vehicle production is currently expected to be relatively flat in 2027, the company expects continued weakness in the company's primary automotive markets of North America, Europe, and Japan, Korea, with any forecasted growth in light vehicle production coming from emerging markets. Forecasted vehicle production volumes for the third quarter of 2026 and calendar years 2026 and 2027 are shown in our press release from this morning.

Based on actual results through the first six months of 2026, the updated Mobility global light vehicle production forecast and the company's expectations for its automotive, Premium Audio, and other products category, the company is updating certain elements of its full year 2026 guidance. The updated guidance reflects the anticipated impact of all known tariffs effective as of yesterday. Consolidated revenue is still expected to be between $2.65 billion and $2.75 billion. We are raising gross margin guidance and now estimate it to be between 34.5% and 35.5% for the year. We are lowering our operating expenses budget to be between $405 million-$415 million for the year. We are lowering our tax rate estimate to be between 16% and 17%. We are also lowering our capital expenditures estimate to be between $115 million and $125 million for the year.

Depreciation and amortization is still expected to be between $100 and $110 million for the year. Based on the mid-July 2026 Mobility global light vehicle production forecast and the company's expectations for automotive, premium audio, and other products revenue, the company continues to expect calendar year 2027 revenue to be in the range of $2.8 and $2.9 billion. As we entered 2026, we knew geopolitical challenges would continue to pressure our business in China, and we also expected ongoing headwinds within our base mirror business. As a result, we anticipated that revenue growth would be more subdued than what we've historically delivered. Despite those challenges, the execution of our team has been some of the best I have seen during my time leading this company.

Across the organization, we continue to launch, develop, invent, and commercialize new technologies at a pace unmatched in our history while maintaining a relentless focus on profitability, operational efficiency, and capital discipline. Concurrently, we have worked hard together with the VOXX team to improve VOXX's financial performance, and we are well on our way to achieve the profitability targets we established post-acquisition. Similar to the Gentex team, the VOXX and PAC teams have recently developed several new product categories and developed business relationships with attractive long-term growth potential to become meaningful contributors to our overall profitability only 15 months after the acquisition. Together, we are proving to be formidable competitors in our relevant industries. Our continued focus on quality, operational excellence, gross margin expansion, operating expense management, and capital allocation have enabled us to deliver strong earnings performance despite a challenging environment.

Looking ahead, we believe the company is well-positioned to have a solid second half of 2026, with growth continuing into 2027 and 2028. Many of the investments we have made over the last several years in new products and technologies, including dimmable visors and sunroofs, our fourth-generation FDM, DMS and ICMS, and advanced manufacturing capabilities and other market expansion opportunities are expected to begin contributing more meaningfully to revenue growth. When combined with our focus on operational excellence and financial discipline, we believe these investments will drive future growth to create significant long-term shareholder value. Additionally, I would like to take just a few minutes to provide a quick update on the progress we have made since the last quarter on our electronics contract manufacturing initiative. As we discussed in the last quarter conference call, increased interest in localized manufacturing has created new headwinds and opportunities within our markets.

Neil provided some commentary earlier on the actions we are taking to address the headwinds associated with exports to our international customers. However, in the U.S., these geopolitical influences have helped Gentex gain attention for the exceptional manufacturing work our teams do, especially as it relates to electronics manufacturing. As a reminder, Gentex currently manufactures between 40 and 50 million electronic modules each year for the automotive market, fire protection industry, aerospace industry, and the medical device industry. We believe we are uniquely qualified to help grow this type of manufacturing in the U.S. We believe that by the end of next quarter, we'll be able to announce that we have secured our first award for advanced electronics manufacturing with start of production targeted for late 2028 to early 2029.

We are still in active discussions for additional programs with various customers and believe we are well positioned to win additional business. That completes our prepared comments for today. We can now proceed to questions.

Thank you. As a reminder, to ask a question, please press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again. One moment for questions. Our first question comes from Joseph Spak with UBS. You may proceed. Thanks. Good morning, everyone.

Just maybe a couple of questions here to start. The $38 million IEEPA benefit you mentioned, I know you took $18 that helped gross margin this quarter. The $20 that went to the balance sheet, do you have that coming through gross margin in the back half of the year in your updated gross margin guidance?

Not really. That goes against inventory, it reduced what was still held in inventory as of the February 24th date. We did stop expensing future tariffs as of that point, everything else was held. It's really an effective reduction of inventory.

Okay. It was really just the $18 million in the quarter that is helping the gross margin guidance.

That is correct. Okay. I guess secondly, you alluded to this, interior Europe mirrors really soft.

Probably the lowest in over a decade, ex the COVID quarter. It was over a million units lower year-over-year. I know you have talked about losing some business there, which probably ties into some of the Moroccan discussion. Is there anything else going on there? How should we think about a good level for that interior European mirrors business going forward?

Well, you got two distinct factors. I would say the bigger of the two was really the China impact. That business has obviously, since the beginning of the geopolitical issues and the tariff wars, that business has been on a very steady decline. That is primarily base interior auto-dimming mirrors that are impacted in the China market. The second one was we did have some lost programs on the Volkswagen side of the business. If you look at some of our European customers are also struggling with their volumes as well. Really those three factors are the biggest drivers of that drop.

Okay. Maybe if I could just sneak one more in the EMS win.

Yeah. Good to hear. Can you give us any sort of revenue opportunity associated with that win?

Or maybe talk a little bit more about what that product really is that you're making?

Yeah. The product itself is both of the BMW and the Kia are different implementations of it. The BMW has a module that's being placed on the bottom of the mirror. It will have different mirror features that will be tied to it, some of which we haven't announced yet. Same for the Kia implementation. That one is a little different in that we're supplying the camera and the emitters as well.

We have an opportunity to really expand on those features now that we have that core technology in there. From a revenue side, I think this year is still not significant. I think it's going to be roughly maybe $50 million-$60 million, I think, was this year's target.

Yeah, it starts ramping in the back half.

Back half of this year and into next year is when it starts becoming more meaningful.

Sorry, you're talking about the DMS, right?

DMS. Sorry. Yes. I did talk about DMS.

You were talking about the EMS in manufacturing.

Yeah. We need better acronyms.

Yeah, sorry about that. Too many acronyms flowing. Could you say your question again for me.

Sorry. Yeah. Let's just say the electronics opportunity that you sort of have highlighted in the past.

Yeah. Right. Clearing everything up.

Can you talk about any revenue opportunity associated with that?

Yeah, the first award, we believe, will be probably between $100 million and $200 million. That's the one that we're working on right now. From there, we expect the numbers to get larger as we go out beyond 2029 into 2030. Pretty significantly larger. Thank you.

Thanks, Joe. Thanks, Joe. You got a whole DMS conversation there you weren't expecting.

Fourth question. Thank you. Our next question comes from Davis Baker with Baird.

You may proceed. Hey, guys.

Thanks for taking the questions. For starters, can you walk us through the customer conversations supporting your Morocco investment? Just do you have any committed customer frameworks there? How can you help us kind of scale production at a higher level?

Yeah. Yes, we have several customer commitments already. That's really with us just securing the facility and not even able to show what it is. The first step in that is going to be a transition of final assembly products from what we're doing here in the U.S. to the Morocco facility. It'll be really just replacing what we're already doing in a different location for final. This was honestly being pushed really hard by our European customer base that we needed to find a solution to help support their business in Europe locally. After a pretty exhaustive study, what we arrived on was, from a physical location, we felt pretty confident this is the right move for us. Right away, that was met very well with customer support.

We're continuing to see not only focus on existing business that they want to move there, but also new programs that may have been in question for getting an award. Now our customer base has a renewed interest and focus on making sure that we can continue that business growth going forward.

Okay, that's helpful. Second, can you give us just a high-level update on the internal large area device efforts, setting up production in Zeeland, if I remember correctly?

Yeah. Exactly. We've made some really good progress over the last six months as we've been able to get our own different parts of the process. We were doing some contract manufacturing, or some outside companies were supporting us with some contract manufacturing to create the films. We've been able to bring a good portion of that internally and have been able to get the performance and quality of that to a pretty good spot right now. We've been building some parts, running through testing. At this stage, testing is still looking really good. We think we're getting over the big hill of problems and kind of on the downslope to be able to start really executing the product.

Okay. Last one for me, just Investor Day coming up in August. Just any previews or teasers that you can give us just before that?

Yeah, I think to your question, which is a good lead into your second, part of what we're going to do is spend some time actually walking you through the facilities that we put in place and the process that's in place for both visors and large area devices. There's obviously been a huge tech push. This is incredibly challenging technology. To Neil's point, we feel like we've actually answered a vast majority of those questions and solved a lot of those technical challenges. We're happy to show what does that facility look like. It's a world-class facility. We're excited to show that to you and kind of let you see not only the ability to build one, but with the facilities that we're putting in place, the ability to start to scale this at higher volumes.

We're further ahead along that than probably what we've implied on the calls.

Great. Thanks, guys. I'll leave it there.

Thanks, Davis. Thank you. Our next question comes from James Picariello with BNP Paribas.

You may proceed. Hey, guys.

My first question is just on the China revenue, just to square that up. What is the expectation for the full year at this point? Last year was roughly $150 million, the year prior $200 million. We could see the first half comp. Is there a point of stabilization here with maybe some improvement in the second half, or is it still in decline?

No, it's still in decline. I would say if I had to spitball one right now, I'd say it's probably right around $100 million would be where we'll end the year.

Okay. Got it. Just thinking about your revenue targets to next year, 5.5% growth, thereabout. Within that, is China still in decline?

Yeah, we're expecting China to continue to decline.

Okay. Just on other products, you referenced some very encouraging sequential growth, really across the portfolio. My question is, your total revenue for the all-in other was down by just $3 million, right? It's flattish. What within there did not grow sequentially low double digits?

Primarily, within that it would've been the automotive aftermarket within the VOXX portfolio. That was down a bit. That's really a seasonal thing. If you look at what it was last year versus now, we still expect decent growth out of that category, but that was the one area that didn't perform as well.

Okay. Thank you. Thanks, James.

Thank you. Our next question comes from Josh Nichols with B. Riley. You may proceed. Thanks for taking my questions.

Just to dive a little bit deeper into the margin. Pretty impressive margins, even though the revenue was light and stripping out the $18 million, you were still up 50 basis points. I guess, is 35% type gross margin going to be a floor you think, going forward, in how you think about how that margin is likely to be exiting this year as we move into 2027 later?

I wouldn't say it's a floor. I would say that probably that 34%-35% is kind of the sweet spot. If you look at the weighted average, the growth in some of these new emerging technologies, they're going to be slightly below corporate average, some of them, just because it is a more competitive set. If you look at the growth opportunities as we start talking about visors and some of the other new technologies, those do have a slightly better margin profile. It's really about that weighted average of how those products kind of come in. Obviously, with some of the pressure on the emerging markets, China, for instance, the lack of revenue there obviously helped degrade margins as well.

What we're trying to do is offset those losses and find new products to replace them with that are at or around our corporate average margin. We feel very confident. If you look at that growth trajectory, it's not that we're not offsetting the losses and problems in the business with wins. It's just how quickly can you do those and how quickly can you ramp them at high volume, and more importantly, with good yields.

Thanks. Last question from me. Looking at the out year, targeting about 7% growth. You're not really getting much from light vehicle production and China's expected to be down. Maybe you could articulate a little bit your thoughts about the building blocks, how much of that growth is driven by FDM, but also presumably you have some significant DMS ramp as well, and maybe tiny bit of contribution from dimmable glass in the second half of next year, and how you kind of get to that out year target for growth.

Well, I think Josh, first of all, thanks for asking that question that way. We didn't go into it too much in our prepared comments. If you look at next year, what we're anticipating from an LVP standpoint in our primary markets and our midpoint of our guidance, we're talking about a high single-digit outperformance to the underlying market again, which is where we've been there for quite a few years. I think at times, I think that kind of gets washed out a little bit just because the quarter was a hair lighter than we anticipated. By that we mean sales actually came in about $30 million light of what we were anticipating for the quarter. When you look at out year, we continue to see that strength.

That outperformance is really going to be driven by a couple factors you just called out. FDM growth, DMS and ICMS growth. A little bit in the back half will start to be driven by some visor sales. Really it's going to be a whole portfolio of products, and also including what we're expecting out of the PAC team and the audio side. Both Klipsch and Onkyo have some strong product potentials, we're looking at these as all growth drivers of the business. Quite frankly, like we mentioned, it's growth that if we didn't have the losses in China and part of what's happening in Europe, we'd be talking about double-digit growth rates over market conditions.

Yeah. Thanks for laying that out for me. Appreciate it. Yeah. Thanks, Josh.

Thank you. Our next question comes from Mark Delaney with Goldman Sachs. You may proceed. Yes, good morning.

Thank you very much for taking the questions. I wanted to ask another one on the European market dynamic and what your expectations are between now and 2028 when you are able to begin shipping out of Morocco. You mentioned some challenges you are already seeing in the European market today, but as you think about design wins and share between now and that 2028 timeframe, are you expecting additional pressure in terms of your participation within the European market because you do not have the Moroccan site yet? Is this more something you just got to get done and that is sufficient visibility and you would not anticipate share loss before 2028?

You are exactly right. The conversations we have been having with our customer base there and the plans we put in place basically kind of fended off those risk factors. If we had not made that plan and put that plan in place, then there would have been risk of continual losses there. With our plan, we feel very comfortable, and our customers do, that we have an active plan that we will execute well on, and definitely it is not slowing down or creating more headwinds right now. The only real headwinds we are really going to experience in Europe is what we just started to see now, which is, A, our European customer base, there is difficult market conditions for them. Obviously that flows down to us.

Secondly, you look at the continual, there is a little bit more on the Volkswagen side that we will continue to see a little bit of volume challenges just from that lost program.

Understood. Maybe give us an update on your ability to better sell to the Chinese OEMs as they're going into Europe. I know your business in China has been challenged, but as the Chinese OEMs are setting up European-based operations, where are you in those discussions to begin selling to the European OEMs and then maybe helping to mitigate that dynamic of them taking some share from the European customers in Europe?

Well, two factors there. Number one is obviously once we're in a Western environment, the playing field is much more level, so we feel very comfortable in our ability to compete there. Secondly, a plant in Morocco gives us another operating advantage, one that we did not have before, and the ability to get products into Europe in a more tariff-friendly manner. Also, just from an overall logistics standpoint, shorter supply chain and the ability to be closer to the customer base geographically really starts to put us in a better position than what we have been historically.

Are those discussions with the Chinese companies, are those already underway?

It was existing customers. If you look at most of what we've been dealing with on the Chinese OEM side, these are customers that we are supplying to domestically in China already. Our teams on the ground in China still have those relationships with those OEMs and continue to share with them what our plans are for how we're going to be better geographically suited to support the European market.

Thanks so much. I'll pass it on.

Thank you. Our next question comes from David Whiston with Morningstar. You may proceed. Yes, good morning.

Just on the IVA refunds, I'm just curious, is there more of those coming throughout 2026 and maybe even 2027, or is substantially all that already refunded?

We're working on kind of a phase 2 approach where we were paying it through the supplier. That's probably a little bit lower probability, our teams are working on some incremental refund, but this is the lion's share of it that you should realize. Anything else is going to be incremental.

Fairly small. Yeah, fairly small.

On the CapEx guidance change, with it going down, I was just curious if that difference got pushed to 2027, or is it just not happening?

No, a little bit of it will slide, but we feel pretty comfortable with where we're at. The good news of slightly lower volumes is that we don't need as much capital in order to maintain our capacity, and so that was an advantage. Not a whole lot's going to slide into 2027.

Just lastly, on the Morocco facility, just can you talk a bit about what were the key variables in choosing there versus perhaps a low-cost European nation in Eastern Europe?

Yeah. You go through the whole list of factors that you consider. Geopolitical risk factors from where they're at, cost increases, long-term estimates on what inflation is expected to be in each of those regions. You look at duty and trade agreements that are in place, not only between Morocco or Eastern Europe and the rest of the EU, but also between these countries and the U.S. How do you get parts going, flowing potentially both ways at the lowest duty and tariff rate possible? Obviously, you look at power and reliability of energy. You start looking through not only the geopolitics, but you look through which countries have their own power source, their own ability to replicate that power and give you stable power supply. You look at incentive programs and what each of the countries offer and from an incentive standpoint.

You look at social costs and what do we expect the role of social costs to be in each of the regions. Based on all those factors, when we kind of looked through everything, we looked at Morocco, and it was a clear winner for us. May not be for everyone, but it's something that we looked at and thought it was going to be a good fit for us longer term.

Yeah. Thanks, guys. Thanks, David.

Thank you. As a reminder, to ask a question, please press star one one on your telephone. Our next question comes from Rajat Gupta with JP Morgan. You may proceed. Great. Thanks for taking the question.

Just wanted to follow up on the revenue guidance in the second half. Given some of the challenges in international, just wanted to get a take of what's giving the confidence in the second half re-acceleration. Anything you can point to regionally, program-wise, that's helping that? I have a quick follow-up. Thanks. Thanks, Rajat. That's a great question.

Really what we're looking at and why we feel confident in the second half is we believe most of the headwinds that we experienced in the first half are already well-known and documented for the second half of the year. On the flip side of that, though, there are some pretty strong product launches that Neil mentioned during his presentation that we expect to help drive additional revenue in the back half. We're talking about additional OEMs, additional nameplates on FDM. Also, really we're starting to ramp pretty strong in the back half of the year on some of those DMS and ICMS launches. Those factors right there are really going to be the key drivers of what we believe will drive growth in the back half.

Understood. Just maybe following up on the Europe commentary and the China export commentary and share loss and stuff like that. Obviously, you're still contemplating good revenue growth in 2027. Is the assumption embedded in the second half and next year that Europe as a market gets worse before it gets better? Is this kind of like a new baseline assumption that you're taking into account in the guidance?

Yeah, no. We're not assuming much help on LVP in Europe. We're expecting that there'll be some continued base EC issues. What we are counting on is some additional content in the European market, both through DMS, ICMS, and FDM growth with our European customers.

Sorry. Got it. Sorry. Did I interrupt you?

No, sorry, I'm coughing. I've got a little cold I'm dealing with right now.

Sorry about that. Just last clarification on gross margin. If we adjust for the $18 million benefit, it does look like the overall gross margin guidance for the year is, or at least gross profit dollars guidance for the year is slightly lower than before. Curious, am I just splitting hairs there? Is there anything to read into that? Anything to call out on that front? Thanks. Yeah, I think it's splitting hairs to your point.

We tend to guide in a range, if you're looking at just the midpoint, there may be some variation or slight reduction. I think there's opportunity on both the upside and downside. With the launches, the cadence, mixed strength, those are the things that tend to drive margins up, and then we leverage our overhead costs. I think the higher end of the range is still in play.

I think you look at it, obviously as we were preparing for this, we knew midnight last night was going to bring some type of a change as it related to tariffs. We tend to be a little conservative because this merry-go-round has gone round and round and up and down a bunch of times, so it's hard to predict. We know there's some headwinds coming in the back half of the year, too. If you look at shortages on the electronic side, look at raw material costs, these are all things that, they are headwinds in the back half. To Kevin's point, we think our revenue growth and our operational efficiency will help us offset most of those. There's just a lot of unknowns as we head into the back half, we're probably a little conservative on that guide as well.

Understood. No, fair enough. Thanks for all the candid color, good luck.

Thanks, Rajat. Thanks, Rajat. Thank you.

I would now like to turn the call back over to Josh O'Berski for any closing remarks.

Thank you, everyone, for your time and questions today. This concludes our conference call.

Thank you. This concludes the conference. Thank you for your participation.