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Executives

Steve Dykman – VP, Finance and CFO

Mark Newton - SVP

Analysts

David Leiker - Robert W. Baird

Steve Dyer - Craig-Hallum Capital Group

John Murphy - Bank of America, Merrill Lynch

Adam Brooks - Sidoti & Company, LLC

Brett Hoselton - KeyBanc Capital Markets

David Ling - Wells Fargo Securities

Greg Halter - LJR Great Lakes Review

H. Peter Nesvold - Jefferies & Company, Inc.

Gentex Corporation (GNTX) Q1 2012 Earnings Call April 19, 2012 10:30 AM ET

Operator

Good morning, ladies and gentlemen. Welcome to the Gentex first quarter 2012 financial results conference call. Just a reminder, today's conference is being recorded. I would now like to turn the meeting over to Mr. Steve Dykman, Vice President of Finance and Chief Financial Officer. Please go ahead, Mr. Dykman.

Steve Dykman

Good morning and welcome to our first quarter 2012 conference call. I will be coordinating the call this morning as Connie Hamblin is out sick with bronchitis. Joining me on the call this morning is, in Connie’s absence, is Mark Newton, our Senior Vice President.

I will first cover a few housekeeping items and then I will make some remarks with respect to our first quarter financial results.

This call is being broadcast live on the Internet via an icon on the homepage of Gentex Corporation's website at www.gentex.com. The auto playback of the conference call is available on the website as well. All contents of Gentex Corporation's conference calls are the property of Gentex Corporation and may not be copied, published, reproduced, rebroadcast, retransmitted or otherwise redistributed without the express written consent of Gentex Corporation. Gentex Corporation alone holds such rights.

While we understand that there may be companies that transcribe and redistribute our conference calls, Gentex Corporation provides no authorization to do so and expressly disclaims any responsibility for any unauthorized use of the content. We advise that you should not rely on the content of any unauthorized transcript, as Gentex Corporation will not be held liable for the content of any such transcripts.

Gentex Corporation will hold responsible and liable any party for any damages incurred by Gentex Corporation with respect to any such unauthorized use. Your participation implies consent to our taping and to the foregoing terms. Please drop off the line if you do not agree with these terms.

Before I begin, I'd like to remind you of our forward-looking statements. Gentex Corporation will make forward-looking statements in this presentation related to its financial results for the first quarter and calendar year 2012 and beyond that are based on preliminary data and are subject to risks and uncertainties.

These forward-looking statements are based on management's beliefs, assumptions, current expectations, estimates and projections about the global automotive industry, the economy, the ability to control and leverage fixed manufacturing overhead costs, unit shipments and net sales growth, product mix, the ability to control ER&D and SG&A expenses, gross margins, and the company itself.

All statements other than statements of historical fact are declarations that are or could be considered to be forward-looking statements and include such terms as anticipate, outlook, expectations, estimates, projects or forecast and variations of such words and similar expressions.

These statements do not guarantee future performance and involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, expense, likelihood and degree of occurrence, and actual results may differ materially from those forward-looking statements.

The company undertakes no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events or otherwise. We urge you to review the full Safe Harbor statement that is contained in the news release that is posted on our website.

At this time, I will review the quarterly results and I am pleased to report an all-time record quarter in terms of net sales, operating income and net income despite a volatile automotive environment. The company reported record first quarter 2012 net sales of $290.7 million, a 16% increase compared with net sales of $250.9 million in the first quarter of 2011.

We also reported first quarter 2012 operating income of $65.5 million, a 9% increase compared with operating income of $60.1 million in the first quarter of 2011. We reported record first quarter 2012 net income of $46.3 million, a 9% increase compared with net income of $42.3 million in the first quarter of 2011. We reported record first quarter 2012 earnings per diluted share of $0.32 compared with $0.29 per share in the first quarter of 2011.

Next, we’ll look at automotive net sales and auto-dimming mirror unit shipments. For the first quarter ended March 31, total auto-dimming mirror unit shipments increased by 16% in the first quarter of 2011 compared with the first quarter last year. Automotive net sales increased by 16% from $246.3 million in the first quarter of 2011 to $285.7 million in the first quarter of 2012.

Auto-dimming mirror unit shipments increased by 18% in North America in the first quarter of 2012, primarily as a result of increased mirror unit shipments to the Detroit Three as well as Japanese and European transplant automakers. North American light vehicle production increased by 16% in the first quarter of 2012 compared with the same prior-year period.

Auto-dimming mirror unit shipments to offshore customers increased by 14% in the first quarter of 2012 compared with the same quarter last year. And the increase in unit shipments was primarily due to increased mirror unit shipments to certain European automakers. Light vehicle production in Europe decreased by approximately 4% in the first quarter of 2012, and increased by 33% in Japan and Korea in the first quarter of 2012, compared with the same quarter last year.

Other net sales for the company increased by 8% to $5 million for the first quarter of 2012 compared with the same quarter last year, primarily due to a 48% increase in dimmable aircraft window net sales. The increase in dimmable aircraft window net sales for the first quarter of 2012 was primarily due to increased shipments of dimmable windows for the Boeing 787 Dreamliner series of aircraft. Fire Protection net sales continued to be impacted by the relatively weak commercial construction market.

Next, we'll look at the average selling price per auto-dimming mirror unit, which was $44.93 during the first quarter of 2012. The ASP of auto-dimming rearview mirrors was down sequentially to $44.93 in the first quarter of 2012 compared with $46.39 in the fourth quarter of 2011, primarily due to the impact of higher mix of base and exterior auto-dimming mirrors and annual customer price reductions.

The ASP increased on a year-over-year basis to $44.93 in the first quarter of 2012 compared with $44.83 in the first quarter of 2011, primarily due to the higher mix of mirrors with advanced electronics features, mostly offset by annual customer price reductions.

Based on IHS' March 2012 light vehicle production forecast, we currently expect the second quarter 2012 ASP to be in approximately the same range as the first quarter of 2011 based on anticipated product mix of base and featured mirrors in that forecast and annual customer price reduction. As usual, there are uncertainties with the IHS production and sales forecast, customer orders and new product introductions.

Next, we'll look at the company’s gross profit margin. The gross profit margin was flat on a sequential basis at 34.7% in the first quarter of 2012 compared with the fourth quarter of 2011, primarily due to the impact of annual customer price reductions offset by purchasing and manufacturing cost reductions.

The gross profit margin decreased on a year-over-year basis from 36% in the first quarter of 2011 to 34.7% in the first quarter of 2012, primarily due to the impact of annual customer price reductions, partially offset by purchasing and manufacturing cost reductions.

The company currently expects that its gross profit margin for the second quarter of 2012 will be approximately in the same range as the gross profit margin reported for the first quarter of 2012. The gross profit margin will continue to be impacted by annual customer price reductions, uncertain global automotive production levels, our ability to leverage our fixed overhead costs, purchasing, manufacturing and engineering cost reductions, supply chain constraints and manufacturing yields.

ER&D expenses increased by 23% in the first quarter of 2012 compared with the same 2011 period, primarily due to additional hiring of employee and outside contract engineering and development services to support new product development projects and new program awards.

ER&D expense is expected to increase by approximately 15% for the second quarter of 2012 compared with the second quarter of 2011, primarily due to additional hiring of employee and outside contract engineering development services.

Selling, general and administrative expense increased by 7% in the first quarter of 2012 compared with the same prior-year period, primarily due to continued overseas office hiring to support overseas growth, partially offset by the impact of favorable foreign exchange rates of approximately 5 percentage points.

SG&A expense is currently expected to increase by approximately 10% to 15% for the second quarter of 2012 compared with the second quarter of 2011, primarily due to continued overseas office hiring to support our overseas growth. This estimate is based on a stable foreign exchange rate.

Now, we will look at some additional details with respect to other income for the first quarter of 2012. Investment income was $596,000 compared to $499,000 in the first quarter of 2011. Other was $2,690,000 in the first quarter of 2012 compared to $2,865,000 in the first quarter of 2011. And total other income was $3,286,000 in the first quarter of 2012 compared to $3,364,000 in the first quarter of 2011.

Now, I will provide an update regarding certain balance sheet items as of March 31, 2012. Accounts receivable was $139.3 million, inventories were $200.8 million, patents and other assets $13.1 million, accounts payable $73 million, and accrued liabilities $57.1 million.

The company’s effective tax rate for the first quarter was a rate of 33% which varied from the statutory rate of 35% primarily due to the domestic manufacturing deduction. We currently expect that the tax rate for 2012 will be approximately 33% based on current tax laws, primarily due to the domestic manufacturing deduction.

The company's year-to-date cash flow from operations was $61.1 million. And now I will provide an update on capital expenditures and depreciation expense for the first quarter. Capital expenditures were $39.8 million and depreciation for the first quarter was $12.7 million.

The company continues to estimate that 2012 capital expenditures will be approximately $130 million to $140 million, primarily due to the increased production equipment purchases of approximately $60 million to $65 million and new facility costs of approximately $70 million to $75 million to increase production plant capacity.

2012 capital expenditures will be financed from current cash and cash equivalents on hand. And the company’s depreciation expense for 2012 is currently estimated at approximately $48 million to $52 million.

Now, an update on cash dividends. On April 20, 2012, the company will pay a quarterly cash dividend of $0.13 per share to shareholders of record of the common stock at the close of business on April 5, 2012. This new quarterly dividend rate represents an 8% increase compared with the previous quarterly dividend rate of $0.12 per share.

The company's cash dividend policy was established based on a number of criteria, including current U.S. income tax laws that it'd be meaningful and sustainable and that the dividend rate would increase generally in line with the company's earnings and operating cash flow over time.

At this time, I will turn the call over to Mark Newton who will make some comments on SmartBeam and Rear Camera Display.

Mark Newton

Good morning. SmartBeam. For the 2011 calendar year, we shipped approximately 1 million SmartBeam units, which was a 66% increase over the SmartBeam unit shipments of 630,000 in calendar year 2010. Based on the IHS March 2012 forecast, we continue to expect that SmartBeam unit shipments will increase by approximately 40% to 45% in calendar year 2012 compared with calendar year 2011.

The company currently ships two versions of its SmartBeam camera-based high-beam assist feature today. The base high-beam assist automates the process of turning the vehicle high-beams on and off, utilizing a CMOS image sensor. We recently started shipping the far more complex SmartBeam Dynamic Forward Lighting system for the BMW 3 series in Europe. That system consists of a CMOS image sensor combined with algorithmic decision making to offer constant on glare-free high-beam.

Specifically, the system detects the presence of other headlamps and tail lamps and generates dynamic block-out zones around vehicle that is either tailing or moving toward. Special headlamps equipped with shutters block portions of the high beams to prevent blinding surrounding traffic while continuously optimizing forward lighting. The vehicle high beams are always on, resulting in significantly better forward vision during night time driving.

Now an update on Rear Camera Display. Legislation. The Kids Transportation Safety Act and the pending requirement that all new vehicles in the United States will be required to be equipped with cameras and Rear Camera Displays by September 2014 based on the December 3rd, 2010 Notice of Proposed Rulemaking from the National Highway Traffic Safety Administration. Moved from the Office of the Secretary of Transportation to the Office of Management and Budget on November 16, 2011. At that time, the final rule was targeted to be completed on December 30, 2011.

On January 10th of 2012, Secretary of Transportation, Ray LaHood, sent a letter to Congressman Fred Upton and other congressional leaders, indicating that due to the many public comments and the complexity of that rule that he now believes that the rule can be finalized by February 29, 2012.

Then on February 28, 2012, Mr. LaHood sent new letters to Congressional leaders indicating that there would be an additional delay, with the new estimated deadline set at December 31, 2012. Given the recent announcements of the additional delay, there is a lot of uncertainty with automotive customers.

The company continues to believe that the market for camera displays in vehicles will be divided into two primary market segments. In addition, the company believes the customers now have a multi-pronged location product offering approach for rear camera displays.

Segment one, the top 20% of the vehicle market will primarily offer the display for rear camera in the navigation system with the option of purchasing a rear camera display mirror. Segment two. The remaining portion of the market will offer the camera display in a number of different locations, including the radio, instrument panel, console and rearview mirror. This is the segment of the market with the greatest and increasing competition.

The company still believes that it’s cost competitive RCD mirror product is an optimum, ergonomic, easily adaptable method to display the image produced by the rearview camera for increased safety. And automakers could utilize rear cameras with the display in an RCD mirror to satisfy the requirements of the legislation.

The company continues to believe that this will be a very competitive market as automotive customers consider different options for the location for that image from the camera can be displayed in the vehicle. For example, the navigation system or other radio or multipurpose displays. As a result, the additional significant delay and the uncertainty, the continued delays are generating with customers, we currently believe that RCD mirror unit shipments will be approximately flat for the calendar year 2012 versus 2011.

Steve Dykman

And now I will provide an update on dimmable aircraft window programs. We currently are shipping dimmable windows for the 787 Dreamliner and each passenger aircraft has approximately 100 windows. The first Boeing 787 was purchased by All Nippon Airways. Boeing has also expressed interest in utilizing dimmable windows for other aircraft.

Gentex is also shipping dimmable aircraft windows for -- on the passenger cabin windows of the 2010 Beechcraft King Air 350i, the first aircraft in general and business aviation with dimmable windows. Each King Air 350i has approximately 15 windows. Other aircraft manufacturers continue to have interest in this technology, and we are working on those potential programs with PPG Aerospace.

An update on our net sales estimates for the second quarter. The following projection for net sales in the second quarter of 2012 is based on IHS’ March 2012 light vehicle production forecasts. Our estimate for net sales for the second quarter of 2012 is an increase of approximately 15% compared with the same quarter in 2011 based on IHS’ March forecasts for light vehicle production levels.

The second quarter of 2012 light vehicle production per IHS the March forecasts: North America 3.7 million vehicle units compared with 3.1 million vehicle units in the second quarter of 2011 which is a 19% increase; Europe 4.8 million vehicle units compared to 5.3 million vehicle units in the second quarter of 2011, which is a decline of 10%; on Japan and Korean 3.4 million vehicle units compared to 2.6 million vehicle units in the second quarter of 2011 which is a 31% increase.

For calendar year 2012, light vehicle production for North America is 14.6 million vehicles compared to 13.1 million in 2011, which is an 11% increase. Europe 18.8 million vehicles compared to 20.2 million vehicles in 2011, a decline of 7%. Japan and Korea 13.8 million vehicles compared to 12.5 million in 2011 and that is an increase of 10%.

Few closing comments and then we will open it up for questions. As a reminder to all listeners should note that this call is being recorded by Gentex. All contents of Gentex Corporation conference call are the property of Gentex Corporation. No such content may be copied, published, reproduced, rebroadcast, retransmitted or otherwise redistributed without the express written consent of Gentex Corporation. Gentex Corporation alone holds such rights.

While we understand that there may be companies that transcribe and redistribute our conference calls, Gentex provides no authorization to do so and expressly disclaims any responsibility for unauthorized use of the content. We advise that you should not rely on the content of any unauthorized transcripts, as Gentex Corporation will not be held liable for the content of such transcripts.

Gentex will hold responsible and liable any party for any damages incurred by Gentex with respect to any such unauthorized use. Your participation implies consent to our taping and to the foregoing terms. Please drop off the line if you do not agree to these terms.

At this time, we will open the call up for questions and answers. We respectfully request that you plan to ask one question at a time, so everyone on the call who wants to ask a question has the opportunity to participate. We appreciate your cooperation.

Question-and-Answer Session

Operator

(Operator Instructions) We’ll go first to David Leiker with Robert W. Baird & Company.

David Leiker - Robert W. Baird

I want to start and focus on margins, and we’ve seen some stability here sequentially on the contribution margin. What do you think the pathway is going forward for the contribution margin to move back to normal levels? Timing wise and what the events are to drive that?

Steve Dykman

I think in the near term, like we’ve talked it’s going to be a little bit below the historical average as we’ve continued to add capacity and additional hiring. But we also have the benefits that some of the supply chain constraint issues that we’ve dealt with for the last couple of years are starting to subside. As we talked about in the fourth quarter, that had a negative impact of roughly 25 basis points. And it did sequentially improve and based on the current situation we feel will be through that here by the end of the second quarter.

Now obviously that is contingent on whether we’ll have any new supply chain related issues that come up but based on what we know right now, that is an area that’s improving. And you will notice here in the first quarter that the purchasing cost reduction area is another benefit that’s coming through. We talked about favorable PPG in the 2009 and in the 2010 timeframe. And that was overshadowed by a lot of the supply chain issues that we’ve had. So that’s starting to come to light as the offsetting benefit to our margins right now.

David Leiker - Robert W. Baird

So if you were to look at it, and you would – and I know it’s a challenge to do this, but just before the supply chain issues and the inefficiencies because of the high capacity utilization, do you think between the productivity and the purchase window (ph) you’re able to take cost down enough to offset your price downs?

Steve Dykman

That’s our objective. I think here in the near term it’s going to be a challenge.

David Leiker - Robert W. Baird

Near term to find out, is it quarter or two or as a year or two?

Steve Dykman

The next few quarters.

Operator

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

Steve Dyer - Craig-Hallum Capital Group

I am wondering Steve, if you are able to quantify how much idle capacity or maybe what drag that is on margins right now?

Steve Dykman

Well, I think when you look at our current capacity utilization it’s very high. Now we have four ongoing expansion projects that we talked about that are not up and running as of this point in time and some of them will start to come online here in the second quarter and then a couple more in the second half of the year. And specifically, we have talked about our chemistry lab expansions and that’s expected to be completed here by the end of the second quarter.

Our expansion at our exterior mirror manufacturing facility is expected to be completed by the end of the second quarter. Our electronic assembly facility expansion in Holland is expected to be completed in mid-2012 and then connecting building between two of our manufacturing facilities here on our Zeeland campus is expected to be completed by the end of the year. So I think as they come online, there will be a little bit of a drag but what we’ve talked about in previous quarters is that the negative impact on margins is not expected to be as great as when we opened a new facility. Like we did back in 2006 because these projects are expansions to existing facilities and we will avoid having to add a lot of new support functions as a result.

Steve Dyer - Craig-Hallum Capital Group

Okay. So your PP&E is up almost $100 million year over year and then I am just trying to get a sense for obviously that is some drag on margins in that - it sounds like it’s hard to quantify.

Steve Dykman

Well, I think the depreciation in and of itself on margins, the increase on a year-over-year basis is only going to be a couple tens.

Operator

Thank you. We’ll go next to John Murphy with Bank of America, Merrill Lynch.

John Murphy - Bank of America, Merrill Lynch

I just wanted to touch on the ASPs and then sort of the relative flatness there. I am just curious as you are looking at adding content, you’d assume those ASPs are going up but they’re not going up that much. Are you seeing automakers pull some features out of your mirror, opt out certain features on your mirror as more of those features are showing up in smartphones and the automakers are now focused a little bit more with the interconnection of that smartphones with their system as a push to actually putting those features into mirrors or potentially even into the center stake electronic system?

Steve Dykman

So we haven’t really seen a shift of movement from advanced electronic features in our mirrors. Directionally, we still feel the ASP will increase over time because of some of the additional feature content that we have within our product line. Now whenever you look at things within a short period of time, or within a quarter, like we have here in this particular quarter, it really boils down to our product mix. And within the first quarter, we had a higher mix of base mirrors as well as exterior mirrors.

And if you recall on our last conference call, we had talked about in the fourth quarter that some of our exterior mirror unit shipments declined versus our forecast because some of our tier 1 exterior mirror customers were making inventory adjustment. And so in the first quarter that did bounce a little bit more as a result, which does impact the ASP because those have a lower average selling price. Like we’ve said, our gross margins do not vary significantly by our product lines. So the ASP’s decline is not really an indication of our impacts on margins.

John Murphy - Bank of America, Merrill Lynch

I am just trying to understand, I mean, it’s really been two years where this number has been plus or minus $46. And I am just curious -- it’s not just a one quarter issue, I mean, this has been 10, 11, 12 quarters of these kinds of numbers relatively flat and historically you’ve had pretty good growth in these ASPs and we’re talking about new content like SmartBeam and RCD being – ultimately being added and I know you’re calculating numbers slightly differently than we are. But the ASP is not really the revenue per mirror. All in, it’s not really increasing. I am just trying to understand what’s going on there because it’s not just a one quarter issue?

Steve Dykman

Right. I think it depends a little bit as to what timeframe that you are looking at because over the last 3 plus years we’ve really increased from the low 40s into the mid 40s. So it has increased. Now when you look at it from any particular quarter, there certainly is some fluctuation and again that boils down to the product mix and feature content.

So again, directionally we feel the ASP over time will continue to increase because of some of the higher value add content that we have and then obviously for rear camera display, the growth rate is slowing due to the overall uncertainty with the ongoing delays. So that does have a slight impact.

Operator

We’ll go next to Adam Brooks with Sidoti & Company, LLC.

Adam Brooks - Sidoti & Company, LLC

Yes, real quickly wanted to take a look at inventories, crept higher again in 1Q. I know you touched on the last quarter that possibly you’d hold little higher inventories given supply chain issues. Can you talk about maybe how inventories are through the balance of the year if they get worked down or if we’re just going to stay at this kind of new norm?

Steve Dykman

Yeah, so you looked since December 31 through the first quarter, our inventory levels overall increased about 6%. The increases were primarily in the raw materials area. We do feel since we are on the tail end of our known supply chain constraint issues that those raw material inventory levels will start to decline a little bit. But we are expecting starting in the second quarter we’re going to see some slight decreases in our raw materials inventory with a potential for some additional flat decline as we progress through the year. And again, some of that is somewhat dependent on production levels and if any other supply chain constraints do arise.

Adam Brooks - Sidoti & Company, LLC

And can you touch base – touch with us a little bit on exterior mirrors, domestically up only about 4%. Was there any type of inventory adjustments there? Was it mix and what really drove the underperformance in the market?

Steve Dykman

Okay. With respect to exterior mirrors domestically, if you think about it, many of the North American automakers really only have one exterior mirror where – when you look in other regions in many cases they will have one or potentially two exterior mirrors. So that has something to do with it as well.

Operator

We’ll go next to Brett Hoselton with KeyBanc.

Brett Hoselton - KeyBanc Capital Markets

Good morning Mark.

Mark Newton

Good morning.

Brett Hoselton - KeyBanc Capital Markets

And Steve, with Connie out I thought you might relax the one question rule. But –

Steve Dykman

We wouldn’t want to disappoint Connie, no.

Brett Hoselton - KeyBanc Capital Markets

I am sure she is listening in. RCD, you’d provided guidance of up to 10% to 15% in the first quarter, and I didn’t hear or see any where you’ve commented on the performance in the first quarter. Do you have a – or can you give us a sense of how you performed in the first quarter?

Steve Dykman

In the first quarter, it was on the low end of the range.

Brett Hoselton - KeyBanc Capital Markets

Okay. And so as I think about flat for the full year, it seems to imply that you’re going to have declining RCD shipments throughout the remainder of the year, which is surprising in part because production is increasing overall which you think would just simply drive RCD shipments to begin with. And then of course, you’ve got the customer price downs that you typically faced which would suggest that in addition to lower shipments in the back half of the year, let’s say, your sales are actually going to decline maybe incrementally little bit further. And so is that the case? Are you expecting RCD shipments to actually start to decline as you move through the second, third, and fourth quarter?

Steve Dykman

We’re certainly leveling off and as we’ve talked there is a lot of uncertainty and there have not been any sourcing decisions that have been made. And so there are no new programs that’s based off from our forecast for the calendar year 2012 which has estimated take rates based on packaging assumptions and there is some fluctuation there. The other thing to keep in mind that we mentioned the last quarter is that there are some programs that are in the production.

Brett Hoselton - KeyBanc Capital Markets

And is there the potential for some upside in the back half of the year or is the timing just too tight and really that the year is kind of set in place at this point in time, you really have to look out into 2013 before you can see any new programs?

Steve Dykman

I think the variability, Brett, is going to be in the production forecast and that vehicle production within customers by platform with the vehicles we are on and what happened.

Brett Hoselton - KeyBanc Capital Markets

And then finally, how would you characterize the customers? I mean, would you kind of say they’re all just simply in a holding pattern or would you say that they’re aggressively evaluating alternatives at this point in time or do you see them actually moving in some particular direction and then just simply delayed?

Mark Newton

Hi Brett, this is Mark. As the customers, they have always had opportunities, and in this application space there have always been multiple locations for potential rear camera display. That has not changed. There has not necessarily been an increase in difference in that area. What there has been now is continued consideration now with the delay in KTSA is one aspect of this to evaluate decisions for how they’re going to apply this package in future model.

Operator

We’ll go next to David Ling with Wells Fargo Securities.

David Ling - Wells Fargo Securities

Just a quick question on – do you have any kind of exposure to this PA-12 resin and if so, how would that affect you guys, or have you guys done any preliminary kind of analysis if there is any actual effect to Gentex?

Steve Dykman

Yeah, we are currently evaluating that potential impact to specifically Gentex but we do not currently anticipate any significant impact to the company. Now certainly that resin issue at that plant in Germany will likely impact the overall auto industry.

David Ling - Wells Fargo Securities

Got you. And then if I may follow up. When it comes to – we’re seeing your mirror delivery growth as well as production. Do you anticipate the spread between production and your mirror deliveries to maintain or is there some sort of slowdown that may occur this year because of RCD or other specific reasons?

Steve Dykman

Well, I think when you look and we’ve talked about it for the last few quarters that we have had a bit of a tailwind when you look at that delta between the vehicle production growth in the regions in which we operate versus our unit growth. And up through the third quarter of last year that was a tailwind and a lot of that was driven by strengthened Germany specifically with the luxury automakers and the strength in China.

And so we talked how in the fourth quarter, this is the case in the first quarter and expected to be the case here for the near term that some of that there is weakness in Europe and there is weakness in China. So it certainly has narrowed but we don’t expect it to significantly change.

Operator

We’ll go next to Greg Halter with Great Lakes Review.

Greg Halter - LJR Great Lakes Review

Given the decline in the share price today, down to about 22 bucks or so, and your cash position of about $4 a share. Just wondered if you could revisit for us your thoughts on the share repurchase program. I think you talked maybe the buyers around the $15 level but correct me if I am wrong on that.

Steve Dykman

Well, we have about 2 million shares remaining on our existing share repurchase plan. We previously talked about some of the criteria the company has utilized. One being that we want our share repurchases to be significantly anti-dilutive. And when you look in our historical SEC filings, you will see that in the past we started to purchase around $17. Within our anti-dilutive calculation, we do use a normalized interest rate because obviously given current interest rate environment, that certainly can change the formula.

So it’s certainly something that we evaluate on an ongoing basis and it is discussed at the board. And like you said our share price has pulled back a bit. So we continue to evaluate that.

Operator

Next we’ll take a follow-up from David Leiker with Robert W. Baird.

David Leiker - Robert W. Baird

One quick question and then a follow-up. How much of your revenue is priced in euro today?

Steve Dykman

Well, for the first quarter and for the 2012 calendar year, about 91% of our revenues are denominated in dollars. So about 9% are foreign currencies. So it’s not that significant.

David Leiker - Robert W. Baird

That foreign currency is, I am assuming most of that, all of it is euro?

Steve Dykman

The majority of it.

David Leiker - Robert W. Baird

And then as we look at this, you have this wait and see period that – well, I mean, does it relate to RCD? You made a comment that there haven’t really been any meaningful bookings in the orders. Has that carried over in terms of new product launches for auto-dimming mirrors – has that carried over into that space as well, or is it just RCD related?

Steve Dykman

No, that’s specific to RCD. So we haven’t seen any impact on our normal penetration and growth within the auto-dimming feature.

David Leiker - Robert W. Baird

And then the one last quick one on the ER&D and SG&A numbers, you lowered the growth rates there. Is that just a function of what the comps are versus last year, or is there a concerted effort to lower the spending rates there?

Steve Dykman

Well, it’s two-fold. Part of it is the year-over-year comps like you mentioned because we are working on for a larger base. But we are starting to see some gains in efficiencies within the ER&D area. And we previously talked about there has been resources and time devoted within the ER&D group dealing with supply chain constraints and redesigning products. And so as that area has subsided to some degree that is generating some efficiencies for us within that group.

Operator

Now take a follow-up from Steve Dyer with Craig-Hallum.

Steve Dyer - Craig-Hallum Capital Group

Thanks. I was just wondering on the RCD. You talked about a couple of models or programs, stopping or end of life thing. Has anybody actually removed or taken you guys out of that feature?

Steve Dykman

Not as a result of the KTSA delays in legislation, no.

Steve Dyer - Craig-Hallum Capital Group

But just in general, I am still wrestling with how production is up pretty significantly year over year. In the back half really for you guys it’s down, and I don’t know if it’s strictly a mix shift, lot of downtime for the T900 that sort of thing, or if there is really kind of – some kind of concerted thing where you’re losing platforms here?

Steve Dykman

Well, I think to some degree it is mix shift in packaging and mix within vehicle production based on our forecast.

Steve Dyer - Craig-Hallum Capital Group

And then you guys have talked about a new product or new feature offering this year along with the design win. When would we anticipate hearing about that?

Steve Dykman

I assume you are referring to the driver assist product that we’ve talked about before?

Steve Dyer - Craig-Hallum Capital Group

Yes.

Steve Dykman

Yeah, we are still anticipating it would be in the first half of 2012.

Operator

We’ll take a follow-up next from Adam Brooks with Sidoti & Company, LLC.

Adam Brooks - Sidoti & Company, LLC

Just wanted to touch real quickly on the first quarter revenue guidance was up 15% to 20% and production came in considerably better than expected in North America and Europe. Can you maybe give us a sense of why you came at the low end of the range? Was it really a function of your platforms not being better than expected, or is it something else in there?

Steve Dykman

Okay. When you look at it from a revenue standpoint, there is a couple things. One of them is mix. So we touched on that with the ASP. There was a higher mix of base and exterior mirrors which have a little lower per unit revenue. The other aspect to what you’re getting at is there was some lower than forecasted vehicle production volumes pertaining to some certain customers and platforms within those customers when you look at the beginning of the quarter to the end of the quarter.

Adam Brooks - Sidoti & Company, LLC

And was that weakness little bit in Japan, Korea?

Steve Dykman

Yes.

Operator

We’ll go next to Brett Hoselton with KeyBanc.

Brett Hoselton - KeyBanc Capital Markets

Gentlemen, two follow-on questions. First just pride-downs, in the past you talked about down 3% to 5%, recently you talked about down 2% to 4%. Has there been any change in the general trend of price-downs for you?

Steve Dykman

No. So we’ve said now for like a year and a half to continue in the 2% to 4% range and that is still currently accurate. That’s the expectation for the 2012 calendar year.

Brett Hoselton - KeyBanc Capital Markets

And then as we think about the RCD, even after the legislation was signed for a long period of time, the thought was that NHTSA the actual implementation of the law was going to, let’s say, small cars, possibly allow them to use sensors rather than cameras and so on and so forth. And everybody was surprised in the fall of 2010 when NHTSA said hey, everybody needs to use a camera, so 100% of all vehicles. And your stock obviously went up quite significantly.

My question is do you have any sense of whether NHTSA is being – is considering the possibility of maybe altering the implementation, the ruling such that they might allow small cars to be excluded in some way, shape or form?

Steve Dykman

We are not aware of that, no.

Operator

We’ll go next to a follow-up from John Murphy with Bank of America, Merrill Lynch.

John Murphy - Bank of America, Merrill Lynch

Thanks for squeezing me in again here. Just on, to beat a dead horse on these RCDs a little bit. As you’re talking about your shipments being flat, do you think the RCDs for the entire industry are going to be flat, or do you see sort of the delivery through the Nape system actually increasing?

Steve Dykman

We’re not a 100% sure about Nape penetration but we are not seeing a significant shift of increased penetration within the Nape if that’s the question.

John Murphy - Bank of America, Merrill Lynch

So you think the penetration of RCDs which is running in the low 20% range for the U.S. industry, for this year, you’re going to see no incremental penetration, in fact, it’s actually going to be going down because production is going up. Is that – I mean, that’s the math?

Steve Dykman

Potentially you are talking about all the various alternatives, Napes and everything else. But we are not seeing any significant increased penetration of Nape systems for rear camera display.

John Murphy - Bank of America, Merrill Lynch

Okay. So what you are seeing is for the industry in aggregate though the penetration is going to have to go down – is going down this year?

Steve Dykman

With vehicle production, as we continue to improve, that certainly would be a good conclusion.

John Murphy - Bank of America, Merrill Lynch

Okay. And then just lastly, as you look at this legislation, it seems like it just keeps getting delayed, delayed, delayed. And it sounds like it just keeps getting pushed back on the dock because there’s a lot of stuff going on in DC these days. Would it be better for you if these were not enacted and we just saw sort of the consumer pull of these RCDs, might that give you better content or revenue per RCD sold and better margin?

Mark Newton

Hi, this is Mark. Hi John. I don’t know that we could make that kind of claim. We have had good road and success with the product without kids transportation safety act. With KTSA automakers in the United -- for the United States vehicles are evaluating carefully. A multi-pronged option capability to satisfy customers if this does go into law. Right now we’re being cautionary on where we are seeing this going at this point. Because of the continued delays I think it’s probably what we want to propose here and I don’t know that we could say that without this, would life be better?

John Murphy - Bank of America, Merrill Lynch

And just one follow-up question. How long ago was that you sold your first RCD? I am just trying to understand the penetration curve because it sounds like we’re in the low 20s right now in the U.S. When was it with euro? Was that 3 to 5 years ago?

Steve Dykman

We started shipping in 2007.

John Murphy - Bank of America, Merrill Lynch

So we are kind of 5 – we’re almost 5 years in and we’re at the low 20% range of penetration.

Steve Dykman

Yes.

Operator

We’ll next to Peter Nesvold with Jefferies.

H. Peter Nesvold - Jefferies & Company, Inc.

Good morning. Now my star 1 was broken there for a while. So you got clearly lot of questions about RCD penetration and it seems like there are lot of moving parts here. I mean, you got the regulatory delays which are holding up the new platform awards. You’ve got some platform retirements, you’ve talked about that. You got the T900 downtime and sort of all these things are kind of getting thrown into the mix. Is there maybe another way of looking it if you were to look just on an apples to apples basis, products where this feature is offered today, what is the take rate today versus the take rate a year ago? Is that leveling off as well?

Steve Dykman

The take rates vary significantly depending on the customer and certain vehicle platforms. But if the question is if there is significant shift from maybe what a take rate is on a particular vehicle platform, a year ago to today there we haven’t experienced significant shift.

H. Peter Nesvold - Jefferies & Company, Inc.

And then my follow-up question, historically when I look at 1Q to 2Q typically earnings EPS are roughly flat plus or minus a penny. Last year was a little bit of an anomaly. This year when I kind of build up to the guidance, I kind of get to about $0.29. And that would be about a $0.03 decline sequentially from 1Q to 2Q. Is that primarily due to downtime by T900 or is there something else that explains why sequentially EPS is down a little bit more this year seasonally than we normally would see?

Steve Dykman

Some of it is going to be the sequential decline of vehicle production in the regions in which we operate from Q1 to Q2 as well.

H. Peter Nesvold - Jefferies & Company, Inc.

So what region would be influencing that so much? Is it 5% to 10%

Steve Dykman

As you think of Europe is down sequentially from Q1 to Q2. North America, even though it is strong sequentially it’s down a little bit as well as Japan and Korea.

H. Peter Nesvold - Jefferies & Company, Inc.

Okay. If I go through sort of country by country, I will see industry wide production being down sequentially more in 1Q to 2Q for the industry, little bit more so this year than in historical years?

Steve Dykman

Yes.

Operator

At this time, I will turn it back to our speakers for any additional or closing remarks.

Steve Dykman

Great. Thank you for joining Mark and I on the call today for our first quarter results. And if you have any follow-up questions, you certainly can contact us and we’ll get back with you and answer your questions. Thank you.

Operator

That concludes today’s conference. Thank you for your participation.

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