Gentex - Q2 2024
July 26, 2024
Transcript
Operator (participant)
Good day, and thank you for standing by. Welcome to the 2024 second quarter Gentex 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 a question during the session, you'll need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I'll now hand the conference over to your first speaker today, Josh O'Berski, Director of Investor Relations. Please go ahead.
Josh O'Berski (Director of Investor Relations)
Thank you. Good morning, and welcome to the Gentex Corporation second quarter 2024 earnings release conference call. I'm Josh O'Berski, Gentex Director of Investor Relations, and I'm joined by Steve Downing, President and CEO, Neil Boehm, CTO, and Kevin Nash, Vice President of Finance and CFO. All contents of this conference call are the property of Gentex Corporation and may not be copied, published, reproduced, rebroadcast, retransmitted, transcribed, or otherwise redistributed.
Gentex Corporation will hold responsible and liable any party for any damages incurred by Gentex Corporation with respect to any unauthorized use of the contents of this conference call. This conference call contains forward-looking information within the meaning of the Gentex Safe Harbor statement included in the Gentex report's second quarter 2024 financial results press release from earlier this morning and is always shown on the Gentex website. Your participation in this conference call implies consent to these terms. I'll now hand the call over to Steve Downing for our prepared remarks. Steve?
Steve Downing (CEO)
Thank you, Josh. For the second quarter of 2024, the company reported net sales of $572.9 million, compared to net sales of $583.5 million in the second quarter of last year. For the second quarter of 2024, light vehicle production in North America, Europe, and Japan/Korea declined by 3% compared to the second quarter of last year. During the second quarter of 2024, light vehicle production weakened in most of our primary markets. In fact, the quarter began with sales coming close to forecast for both April and May, but then saw a significant change in June that left us well below our forecast for the quarter.
In total, the company's revenue for the second quarter of 2024 fell short of our beginning of quarter forecast by approximately $50 million, with the biggest impact coming from expected shipments to some of our largest customers. As we look to the second half of 2024, light vehicle production forecasts continue to show weakness versus prior year performance, but we expect to return to meaningful outgrowth versus the underlying market. For the second quarter of 2024, the gross margin was 32.9%, compared to a gross margin of 33.1% for the second quarter of last year. The second quarter of 2024 gross margin was primarily impacted by sales levels that were well below our forecast for the quarter and slightly lower than prior year levels.
Additionally, unfavorable product mix resulted from lower than expected shipment levels, with Full Display Mirror unit shipments and exterior mirror unit shipments being the most affected. Unfortunately, the lower sales levels and weak product mix more than offset the positive impact of purchasing cost reductions for the quarter. While our material cost reductions are in line with our estimates for 2024, our gross margin recovery plan for the year is partially dependent on sales growth and product mix improvements that did not materialize during the second quarter. Given our historical contribution margins on incremental sales, we believe that our gross margins would have been in line with our overall plan for 2024, had revenue been close to our forecast. Overall, we are very pleased with our progress on the margin recovery plan that we estimated would take until the end of 2024 to complete.
While the gross margin for the second quarter did not meet our expectations, we continue to believe that we have the right plan and team to execute our full gross margin recovery plan. Operating expenses during the second quarter of 2024 increased by 12% to $73.7 million, compared to operating expenses of $65.8 million in the second quarter of last year. Operating expenses increased quarter over quarter, primarily due to staffing and engineering-related professional fees. Our operating expenses are trending in line with our expectations for the full year, with increases primarily focused on R&D and launches of new programs and products.
Operating expenses, especially R&D expenses, are expected to continue at the current pace for the rest of this year as we continue to invest in innovative products and technologies, new business awards, and VAVE initiatives for cost optimization of our bill of materials. Income from operations for the second quarter of 2024 was $114.9 million, compared to income from operations of $127.3 million for the second quarter of last year. Other income swung to a loss of $13.5 million for the second quarter of 2024, compared to income of $1.3 million in the second quarter of last year.
The change was primarily driven by non-cash losses of $18.3 million, resulting from mark-to-market adjustments and other market adjustments of certain holdings within the company's tech investment portfolio, which were partially offset by interest income. During the second quarter of 2024, the company had an effective tax rate of 15.1%, which was primarily driven by the benefit of the foreign-derived intangible income deduction. Net income for the second quarter of 2024 was $86 million, compared to net income of $109.2 million for the second quarter of last year. The decrease in net income for the second quarter was driven by lower net sales and income from operations compared to the second quarter of last year, as well as the previously mentioned changes in other income....
Earnings per diluted share for the second quarter of 2024 were $0.37, compared to earnings per diluted share of $0.47 for the second quarter of 2023. Earnings per diluted share for the second quarter of 2024 were impacted by the lower net sales and operating income, as well as the previously mentioned changes in other income for the quarter. I'll now hand the call over to Kevin for some further financial details.
Kevin Nash (CFO)
Thanks, Steve. Automotive net sales in the second quarter of 2024 were $559.3 million, compared to $574.1 million in the second quarter of last year. Auto-dimming mirror unit shipments decreased by 6% during the second quarter of 2024 compared to the second quarter of last year. Other net sales in the second quarter of 2024 were $13.6 million, compared to $9.4 million in the second quarter of last year. This was driven by a $2.9 million increase in dimmable aircraft window sales and a $1.3 million increase in fire protection sales compared to the second quarter of last year.
Looking at share repurchases, during the second quarter, we repurchased 1.4 million shares of common stock at an average price of $34.43 per share, and as of June 30, 2024, the company has approximately 13.2 million shares remaining available for repurchase from the previously announced plan. We remain committed to repurchase additional shares in support of our capital allocation strategy, but share repurchases will vary from time to time and will take into account macroeconomic issues, market trends, and other factors that we deem appropriate. Looking at the balance sheet, the balance sheet comparisons mentioned today are as of June 30, 2024, as compared to December 31, 2023. Cash and cash equivalents were $260.2 million, compared to $226.4 million.
Short-term and long-term investments combined were $323.6 million, up from $299.1 million, which includes fixed income investments, as well as the company's equity and cost method investments. Accounts receivable was $306.6 million, down from $321.8 million, due to the timing of sales within the quarter. Inventories were $463.5 million, up from $402.5 million, and accounts payable increased to $206 million from $184.4 million. Looking at preliminary cash flow items for the quarter, second quarter 2024 cash flow from operations was $129.3 million, up from $120.9 million in the second quarter of last year.
Year-to-date cash flow from operations was $259.1 million, compared to $241.8 million for calendar year 2023. Capital expenditures for the second quarter were $31.8 million, compared with $47.5 million for the second quarter of last year. Year-to-date capital expenditures were $63.6 million, compared to $90.3 million for calendar year 2023. Depreciation and amortization for the second quarter was $24 million, compared with $24.8 million for the second quarter of 2023. Year-to-date D&A was $47.9 million, compared with $48.9 million for year-to-date 2023. I'll now hand the call over to Neil for a product update.
Neil Boehm (CTO)
Thank you, Kevin. Like the first quarter of 2024, the second quarter was an extremely busy launch quarter, with 32 net new nameplate launches of our interior and exterior auto-dimming mirrors and electronic features. Over 65% of these net launches were advanced feature launches, with Full Display Mirror, HomeLink, and outside auto-dimming mirrors leading the way. As we look forward at the third quarter, we anticipate that this heavy launch rate will continue. Now, for Full Display Mirror update. We're excited to announce that during the second quarter, we began shipping Full Display Mirror to 3 new OEM customers, bringing our total to 19. We're now shipping Full Display Mirror for the Acura ZDX, the Citroën Berlingo, and the Peugeot Partner. The addition of these OEM customers helps to further demonstrate the global appeal of this technology, as well as its acceptance on different vehicle architectures.
In addition to the new OEM customer launches, we continue to see great growth and expansion of our technology at our existing customers. We are currently shipping Full Display Mirror on over 115 nameplates globally, and despite the impacts of the second quarter, we're still on track to achieve our 2024 FDM unit shipment guidance of shipping an incremental 500,000 FDM units above the 2023 unit shipments. The first half of 2024 has been extremely busy, as we've launched more projects than ever before. We're excited about the continued growth we're seeing with our technologies and appreciate all the hard work and dedication that the team at Gentex is putting in to ensure we execute flawlessly.
Also, while we're launching a lot of products and technologies, we continue to evaluate opportunities to reduce the bill of materials on existing programs, as well as execute the VAVE launches we are currently having in process. These changes are critical for our margin recovery and stabilization plan as we move into 2025 and beyond. I'll now hand the call back over to Steve for guidance and closing remarks.
Steve Downing (CEO)
Thanks, Neil. The company's current forecast for light vehicle production for the third quarter of 2024 and full years 2024 and 2025 are based on the mid-July 2024 S&P Global Mobility Forecast for light vehicle production in North America, Europe, Japan, Korea, and China. Light vehicle production in these markets is expected to decrease by approximately 5% for the third quarter of 2024 versus the same quarter last year. For calendar year 2024, light vehicle production in these markets is now forecasted to decline by approximately 2% when compared with light vehicle production in calendar year 2023. Light vehicle production for calendar year 2025 is forecasted to increase by 2% versus the calendar year 2024 forecast in these markets.
Based on this light vehicle production forecast and actual results for the first six months of 2024, we are making certain changes to our previously provided guidance for calendar year 2024 as follows: Revenue for the year is expected to be between $2.4 billion-$2.5 billion. Gross margins for the year are expected to be between 34%-34.5%. Operating expenses are still expected to be between $295 million-$305 million. Our estimated annual tax rate is forecasted to be between 15%-16%. Capital expenditures are expected to be between $175 million-$200 million, and depreciation and amortization is forecasted to be between $95 million-$100 million.
Additionally, based on the company's updated forecast for light vehicle production for calendar year 2025, as well as year-to-date actual results for calendar year 2024, the company is updating calendar year 2025 revenue estimates to be approximately $2.6 billion-$2.7 billion. The company continues to be on pace for record revenue in 2024 and 2025, despite the recent changes to light vehicle production environment, vehicle mix, and regional mix that impacted our performance in the second quarter. Additionally, tremendous work has been accomplished on our gross margin improvement plan, despite the temporary step back during the second quarter of this year. We fully expect to achieve our ultimate goal of a 35%-36% margin for the company, even if there is a slight delay in achieving those results.
Given the market conditions, we have adjusted our estimates for 2024 and 2025 based on the impact of the second quarter of this year, but we continue to forecast strong growth and profitability as we head into the second half of this year and prepare for 2025. That completes our prepared comments for today, and we can now proceed to questions.
Operator (participant)
Thank you. At this time, we'll conduct a question-and-answer session. As a reminder, to ask a question, you'll need to press star one one on your telephone, wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Luke Junk of Baird. Your line is now open.
Luke Junk (Senior Research Analyst)
Good morning, everyone, thanks for taking the question.
Steve Downing (CEO)
Good morning.
Luke Junk (Senior Research Analyst)
Just start with the guidance, Steve. Hoping you could just square some of your expectations in the back half of the year. On the top line, it looks like you're essentially taking the 2Q miss versus your expectations out of the revenue guidance. Can you just maybe talk about what you're seeing in July thus far, and in schedules more broadly relative to how you're guiding the back half, both overall sales and then the mix impacts to gross margin with them out as well? Thank you.
Steve Downing (CEO)
Yeah, thanks, Luke. Well, yeah, one of the things that definitely I'll start kind of with the Q2 impact, and we referenced in our prepared comments that, you know, a lot of the shortfall that happened in the quarter, almost, you know, 60%-70% of it was in June, pretty unexpected. When you look at the data that you even put together in your report about what happened in June from a production standpoint, a lot of our largest customers, so, you know, GM, Volkswagen, Toyota, those are very, they were very significantly impacted in the month. If you look further down that list, other large customers, you know, Hyundai, Kia, BMW, Stellantis, these were all, you know, pretty significant customers for us that faced some serious headwinds in June. They were very different.
The actual orders were very different than the releases coming into the quarter. If we look out now in the second half, we look at the same OEMs, expectations of their production levels and take rates of our products and some of the new launches that Neil referenced, we continue to see a lot of strength in the back half of this year. So you know, taking into account the 5% drop in production for the third quarter and the fourth quarter forecast for light vehicle production is still showing down kind of 2%-3% across the board. But we look at that, and we look at what our take rates are, what our forecasts and releases show, we're still seeing a pretty significant outperformance in the back half of this year.
You know, we're, we're taking a very hard look at all that release information and the customer data, but we still believe we're gonna get back to that strong outperformance in the back half.
Luke Junk (Senior Research Analyst)
And then similarly, could you maybe talk about line of sight to ramping FDM volumes, specifically in the back half? You know, appreciate the, the confirmation of still 500,000 incremental units for the year overall, especially thinking about new launches to the extent, you know, you mentioned that, you know, these are already live. Should we think of those as really already in flight at this point, which would reduce the launch risk, or is there still some potential movement on timing which could impact FDM specifically?
Steve Downing (CEO)
No. If you look at the launch side, pretty much everything stayed on time during this process. I think the single biggest risk factor is what's happened macro and when it comes to FDM, is what's happening macroeconomically, and is the trim level, you know, forecast that an OEM puts out, an expectation of take rates for a high-end product like an FDM, are those gonna hold given the interest rate environment? So far, we haven't seen a drastic change from any of our customers in terms of take rates of FDM. In fact, I'd say over the last 18 months, the trend has been slightly better than forecasted take rates on FDM. This one that obviously impacted June was primarily driven just about overall production, not really about changes in take rates.
Luke Junk (Senior Research Analyst)
Got it. And then maybe for Kevin, just relative to how this all flows through to EPS, how should we think about other income in the back half of the year? Appreciate, you know, it's hard to predict some of these market-related things, but at a high level, should we be still thinking there's some mark-to-market risk that could offset underlying interest income, and just any way to better calibrate that piece of the P&L? Thank you.
Kevin Nash (CFO)
Yeah, I think most of the impact from mark-to-market adjustments has been realized. If you look at, you know, we have a public company holdings, that I think that are fairly discounted at this point. We will have some of our tech investments that will be ongoing offsets to our other income, but, you know, that should be, you know, we would expect those to be about $2 million per quarter.
Net income going forward, if you look at our fixed income portfolio, offset by the ongoing tech losses. So that's kind of where $1 million-$2 million of income in the back half of the year per quarter, outside of mark-to-market, but I think that should be mostly realized at this point.
Neil Boehm (CTO)
Yeah, and most almost of the risk out of the portfolio has already been expensed in the second quarter.
Luke Junk (Senior Research Analyst)
Got it. I'll, I'll leave it there. Thank you.
Operator (participant)
Thank you. One moment for our next question. Our next question comes from the line of Josh Nichols of B. Riley. Your line is now open.
Josh Nichols (Senior Research Analyst)
Yeah, thanks for taking my question. I wanted to kind of touch on one thing, FDM is, you know, you talked about you're still on track to kind of hit the targets for this year, despite some cuts to the light vehicle production forecasting. You've been seeing more and more take rates and, and, and new customers, particularly in, like, larger larger OEMs and stuff that's more midstream, as opposed to just higher end than what we've seen historically. What's your expectation longer term for FDM, and how do you think about the addressable market as it becomes more mainstream and not just a higher level product offering, and how that could kind of supplement growth, not just this year, but longer term over the next two, three years?
Steve Downing (CEO)
Yeah, Josh, that's a, that's an excellent point and a great question. I think, you know, one thing's for sure, the launches, especially this quarter, you start talking about volume OEMs introducing this product. They're not gonna be at the same take rates as a, as a higher end OEM or a luxury vehicle, or even trucks and SUVs. However, it starts to open the door for much higher volume opportunities by hitting the volume brands. And so a very exciting... We knew this was coming. Obviously, we've been working on it for quite some time to get these vehicles launched. The one thing that's interesting, and I'd say that's probably the most favorable part of FDM, is the fact that it doesn't really have a geographical bias.
A lot of our products are focused on certain markets, you know, whether it's HomeLink or, you know, other features that are very specific to an industry or a region. FDM is really a globally accepted product, and so it opens up a lot of opportunity for us. We do believe over the next several years, that FDM will continue to be a tailwind to our growth story.
Josh Nichols (Senior Research Analyst)
Thanks. And then, you're also working on some other technology offerings. You talked a lot more at your Investor Day. Just curious, like, your thoughts about what the progress the company has been making in terms of driver monitoring, right? I think at least one OEM was expected to launch at some point this year, dimmable glass longer term, and, and how that's trending and what the expectations are as we kind of continue to think beyond the current year.
Neil Boehm (CTO)
Sure, absolutely. Yep, we're still on target for this calendar year with an OEM on driver monitoring, and then into 2025 and 2026, there are some additional projects that are in launch as well. So we're seeing some good momentum, some good progress, and, you know, using our geographic real estate in the vehicle to be able to execute that. So great momentum there. Large dimming devices is moving forward really well. We've talked pretty openly in the past about a lot of technical challenges and issues and the, you know, the push to get there. We're making really good progress there, you know, and I think that in the next couple of years, you know, we'll be excited to talk about where we can see that getting deployed and executed.
And we're also, you know, one of the things we talked about at CES this year and showed a lot of demonstrations on, is large dimmable visors. Great momentum from CES. A lot of customer interest in that product, using dimming technology, right, that we've been working on and developed, and the processes that we've been working on, even with large area devices, to help deploy visors from to the vehicle. So we're excited about where it is. There's still some, you know, technical challenges and hurdles, like there always are, and that's why it's hard to do and why, you know, to be successful at it, we solve the problems, and will give us an advantage. So we're excited about where they can lead us in the next couple of years.
Josh Nichols (Senior Research Analyst)
And then last question for me, just a follow-up, just because the driver monitoring is more near term. I'm just kind of curious, when you look at the market opportunity there, even if it's just in Europe, where there's, like, different regulation, that's likely to expedite adoption relative to some other regions, what's your thoughts on the opportunity for how big that product offering could be if we look a few years down the line for the company? Is it gonna be a material growth driver? I'm just curious how you think about that, driver monitoring market.
Steve Downing (CEO)
Yeah, I think it has the opportunity to be material to the overall growth of the business. You know, the beginning, if it's a baseline feature set, it will be slightly below corporate average margin profile because it is a more competitive product, but the revenue dollars are definitely significant and can and will really, over the next few years, provide some tailwind to our growth story.
Josh Nichols (Senior Research Analyst)
Appreciate it. Thank you. I'll hop back in the queue.
Steve Downing (CEO)
Thanks.
Neil Boehm (CTO)
Thanks, Josh.
Operator (participant)
Thank you. One moment for our next question. Our next question comes from the line of Ryan Brinkman of JPMorgan. Your line is now open.
Ryan Brinkman (Lead Automotive Equity Research Analyst and Managing Director)
Hi, great. Thanks for taking my question. I was hoping you could elaborate a little more on some of the customer or vehicle segment or product mix headwinds you faced during the quarter that contributed to the softer revenue than one might have expected, just looking at the headline production numbers. I know one of the things that changed the most during the quarter was lower production of battery electric vehicles, so curious if that might have been a driver. And then, what gives you confidence that maybe some of these headwinds might be more temporal in nature when you look at the full year?
Steve Downing (CEO)
Yeah, if you look at our primary headwind was really driven by some of our largest customers were very impacted in the month of June. And in fact, what's the disparate part of the quarter was in April and May, those same customers were absolutely hitting their numbers or very close to their numbers. So what happened in June was very unusual in terms of what the impact was, how severe, how quickly, and then obviously, the million-dollar question is, how long lasting are those impacts? Are they permanent trends? Were they one-time adjustments? From everything we're seeing, right, and I always hesitate to be optimistic or after something like that happens, but, you know, based on what we're seeing, it seems as though production will go back to pretty much an ordinary course.
And the data so far in July also suggests that. Right now, as we sit here at this point, July is off to the start we had expected. We're right in line with where we expect the month to come out. So, whatever happened in June, definitely appears to be, at least at this stage, to be a one-time event. One of the things we are watching, though, is that those OEMs that were most impacted and that affected us the most, we're making sure that we're keeping an eye on releases, take rates, looking at the data as it rolls out to make sure if we see anything start to happen or repeat, that we can adjust quicker to those changes than what we were able to in June.
Ryan Brinkman (Lead Automotive Equity Research Analyst and Managing Director)
That's very helpful. Thanks. And then lastly, could you just maybe provide an update on some of the smart home fire protection products and strategy that you talked about at CES earlier this year? I know you were looking to maybe sign one of the big box retailers at some point during the year, maybe this summer. Any kind of update there?
Neil Boehm (CTO)
I'll give you a quick update relative to the product launch. So the initial target was launching in the last half of in Q3 here. Right now, we're looking at the first part of Q4 is when the launch will actually go. We've had some development challenges in some of the testing on some of the features that we're working through right now, and should be ready to go in the middle of Q4 to actually go to production.
Ryan Brinkman (Lead Automotive Equity Research Analyst and Managing Director)
Great. Thank you.
Operator (participant)
Thank you. One moment for our next question. Our next question comes from the line of James Picariello of BNP Paribas. Your line is now open.
James Picariello (Senior Equity Analyst)
Hey, good morning, everybody.
Kevin Nash (CFO)
Good morning.
James Picariello (Senior Equity Analyst)
I want to ask about, I want to ask about your, your base interior mirror volumes. You know, look, your, your largest customer is Toyota, as a percentage of sales. They, they just announced last night that their production, global production, August through October, was gonna be down 2% year-over-year. I'm just curious, based on the timing, the lag between your sourcing with, you know, with a key OEM customer like that, is it possible that you've already experienced that type of forward-looking decline, and that's showing up in your weak, you know, first half volume shipments?
Steve Downing (CEO)
Yeah, I would say you're spot on. If you're talking about, you know, planned production reductions or volumes from an OEM perspective happening starting in, you know, July or August, you know, more than likely, given the lead times, especially with the international shipment piece, you know, we're gonna see a lot of that play out four to eight weeks in advance of when an OEM actually experiences those pullbacks. So it is highly, highly likely that what we experienced in June was a leading indicator of some pullbacks from certain OEMs in the second half of this year.
James Picariello (Senior Equity Analyst)
Yeah, and, like, just to follow up on this and to get your perspective, again, going back to the base, or not base mirror, but your interior mirror shipments, right? Down 5% through the first half, year-over-year. Industry production, global LVP has not been down 5%. You know, we obviously covered the Toyota dynamic, but yeah, just what's - what is going on in these first half volume trends based on your customer mix? I mean, I imagine your total customer mix isn't... Right, I mean, we could track it. It's not down 5%. So, yeah, what's truly happening here? Thanks.
Kevin Nash (CFO)
Well, if you remember, when we talked about first quarter results, there was a couple of key Detroit automakers that were essentially halted production for the entire first quarter. And so, I mean, you're having a little bit of that carry over into the second quarter as they have heavy dealer inventories that are still carrying through. But, we know that if with our vehicle mix and where we're highly contented in North America, we know that growth is coming from FDM. So you're not necessarily gonna see unit growth in the North American market. It's gonna be content growth, and that's how we grow the top line. So it's nothing more than seeing specific OEMs having overweight production loads as they try to manage their inventory.
Steve Downing (CEO)
Well, and I think, I think, regional mix is one of the comments we made at the end of the prepared comments, and that's an important one to look at. If you look at Q2 on a year-over-year basis, Europe was down 5%, Japan, Korea was down 4.5%. And so if you look at our primary markets, right, being Europe, North America, Japan, Korea, so North America was relatively flat in total production volume. But, you know, you look at the weighted average of the other two-thirds of that, of our primary markets being down basically 5%. That was the single biggest impact.
The other one is that obviously, the business that we do have in China is primarily weighted on base auto dimming, and that's a very volatile market, much tougher to predict than the rest of the world. And so those are the primary contributors to why you see IEC volumes being down on a year-over-year basis.
James Picariello (Senior Equity Analyst)
Yep, makes sense. Thank you, guys.
Kevin Nash (CFO)
Thanks, James.
Operator (participant)
Thank you. One moment for our next question. Our next question comes from the line of John Murphy of Bank of America. Your line is now open.
John Murphy (Managing Director)
Good morning, guys. Had questioning sort of on similar lines as everybody else, but maybe just... Can you talk about the potential content and take rates on your different products, particularly FDM, on EVs versus ICE vehicles? And is sort of this sort of deluge of EV delays and, you know, pushdowns on volume to the right something that might impact the business short term or potentially even long term? I'm just trying to understand sort of the delta you see on opportunity between ICE and EVs.
Steve Downing (CEO)
Yeah, I think if you look at the impact of FDM and you look at our take rates, the interesting part there is that, we actually don't have a huge exposure to EVs for FDM. If you look at FDM, trucks, SUVs, a lot of, a lot of the weight is more towards that side, so we're set up really well in the future as it relates to the impact. The impact of EVs, especially on the Tesla model, is really, the OEC impact. So, you know, we don't have the IEC business at Tesla. We do have a tremendous amount of business on outside auto dimming mirrors and HomeLink product with Tesla, and so those are kind of your risk factors.
If you look at the rest of the EV manufacturers, especially, the traditional OEMs, really, our take rates are very similar on EVs, on a per technology basis, very similar on EVs versus what we see on ICE vehicles. And so we're not anticipating this push out or slowdown in BEV rollout, impacting our FDM, and that's really why we wanted to reinforce our, our outgrowth this year on FDM and the picking up the 500,000 units. We really wanted to focus on that, because despite some of the trends that are happening between ICE and BEV, we still feel comfortable with our take rates and where our FDM trajectory is taking us.
John Murphy (Managing Director)
That's very helpful. And then just a second question. I mean, we're not expecting this, but, you know, God forbid, you actually see, sort of a continued weak volume environment, going forward. And like you said, that's not what we're expecting, and I don't think this is really rational, but there's always... You know, you have to consider the risk to the downside. Is there opportunity internally, sort of on a micro basis, to take cost out or operate more efficiently? I mean, you guys are usually pretty good at that. I'm just curious if there's room there.
Steve Downing (CEO)
Yeah, and you really started to see it already in the second quarter. We were able to limit the amount of overtime we were working during Q2 because of the lower volume side. There's obviously, you know, if this unfortunately continued, we'd expect to operate in a zero overtime environment, and then obviously be focused on throughput. In a more controlled or a slower processing platform like that, we would also expect, like, scrap and yield costs to drop. Obviously, freight and some of those other expenses are things you can look to optimize when the business slows down slightly. So there's plenty of opportunity in a lower production environment for us to continue to cost optimize. It's kind of a wild transition, right?
If you look at coming out of last year, where we're behind almost the entire year, working overtime like crazy, and then finally starting to stabilize throughout the beginning of this year. June was, June was a weird month. In fact, if you look, there was actually quite a few shipments that we had built for delivery that OEMs didn't pick up at the end of the quarter, which also impacted things. Those are always difficult, right? When OEMs kind of bail towards the end of a quarter, end of a month, it's always a tricky environment, right? You have releases you're building to. You build those products. Whether they choose to actually pick them up or not is entirely up to them. It's one of the, one of the abnormalities of our industry, for sure.
We're watching, though, and if you look at pretty much since the end of June, most customer behaviors have returned to normal. And so that's why, you know, we're cautiously optimistic about what's gonna happen and roll out through the second half of this year.
John Murphy (Managing Director)
And just one last real quick one. I mean, the stock's down a fair amount here, far below the $34-$43 you bought it back in the second quarter. Are you in a blackout period? Can you get more aggressive, you know, quickly? Because it seems like an interesting pullback here.
Steve Downing (CEO)
Yeah, we are, we are today, but, let's just say Monday, we won't be. And honestly, we think this is a way overreaction to what just happened, especially when you look at our second half guide, which if you take the midpoint of that guide, we're actually implying a, you know, a 10% growth rate in the back half of this year. So, despite obviously what happened and some one-time charges on some write-downs, the quarter wasn't that bad. If you actually look at cash generation on the business in Q2, it was better than last year. So we feel really good about where we're at, and whenever the market overreacts, you tend to see us get a little more aggressive.
John Murphy (Managing Director)
Okay. Thank you very much, guys. Have a great weekend.
Kevin Nash (CFO)
Thanks, John.
Steve Downing (CEO)
You, too.
Operator (participant)
Thank you. We'll wait for next question. Our next question comes to the line of Mark Delaney of Goldman Sachs. Your line is now open.
Mark Delaney (Managing Director and Senior Equity Analyst)
Yes, good morning, and thank you very much for taking my question. The first one is about the second half's 2024 revenue guidance. So Steve, you mentioned some normalization in customer behavior, and you're using customer schedules as an indicator for how you're guiding the second half of the year. I did want to better understand, given the gap you saw in June between schedules and actual sales, is there any extra conservatism you're using in the second half of this year, you know, some sort of haircutting you're doing relative to those schedules that's perhaps a bit more than typical, that's baked into the second half, 2024 guide?
Steve Downing (CEO)
Yeah, I'd say we're you know, we modeled this both, you know, to full customer orders and our internal forecast, you know, based off of the global forecast. We also look at customer orders and behavior. In all these scenarios, we keep kind of popping back to the numbers that we provided today for the guide. One of the things that's interesting there is, you know, you look at what happened in the month of June, and if you take the rest of the year out of it, so the first six months of the year, that was an abnormality that happened in the month. It's always interesting when something like this happens, and you can't put your finger on exactly what that issue was.
But what we're seeing in terms of customer behavior, releases, and for light vehicle production forecast for the second half, you know, we truly believe that these numbers are achievable. Normally, when IHS comes out and they have... Or S&P, sorry. When S&P comes out with their production numbers, we usually are a little more conservative than they are when it shows growth. I would say we're still doing that. It's not, it's not a drastic change, but I would say, you know, normally, a 1%-2%, like, is kind of our pessimism that we build into most, most of their forecasts, and so that's pretty consistent with what we're doing in the second half guide.
Mark Delaney (Managing Director and Senior Equity Analyst)
Very helpful, kind of mixed. Thanks for that. My second question was to better understand the gross margin expansion opportunity. Part of that, that was coming from improved input costs. I think supply redesigns is also as well as trying to get some improved pricing from some of your materials and from your suppliers. Maybe you can provide an update on how that's tracking, and have you been affected at all with those efforts by some of this volatility in the industry? Thank you.
Kevin Nash (CFO)
Yeah, so great question. If you look actually through the quarter, comparing it to last quarter or last year's second quarter, PPV or cost reductions on our input side really performed as we had hoped, kind of like what we had talked about at the beginning of the year. It stepped up from the first quarter of this year, sequentially and last year. I mean, it contributed about 150-200 basis points to the positive on the gross margin. Unfortunately, with the sales levels the way they were, you know, that a lot of that was offset by fixed overhead and the mix weakness that we talked about in the prepared comments, as it related to FDM and outside mirrors.Outside of that, yeah, we're really happy with how the purchase cost reduction have contributed to the margin expansion so far this year.
Mark Delaney (Managing Director and Senior Equity Analyst)
Thank you.
Kevin Nash (CFO)
Thanks, Mark.
Operator (participant)
Thank you. One moment for our next question. Our next question comes from the line of David Whiston of Morningstar. Your line is now open.
David Whiston (Senior Equity Analyst)
Thanks. Good morning. It sounds like the pullback was really across the board. It wasn't just in crossovers or just SUVs primarily, correct?
Steve Downing (CEO)
That's correct.
David Whiston (Senior Equity Analyst)
Okay. It sounds to me, too, that your customers really didn't give you any explanation as to what happened in June?
Steve Downing (CEO)
No, unfortunately, they only tend to talk to us when they need us to do something that helps them. So yeah, there's... It's unfortunately very quiet from the OEM side in terms of what happened. I think personally, if I'm guessing, I'm gonna say that there was a lot of... The inventory on dealer lots has definitely improved, so I think there was a portion of it that was, "Hey, inventory is there.
We're not, we're not gonna necessarily try to shove as many cars through this environment and kind of right size." The other part of it is, I believe, is that probably from an overall, raw material side, if, if you're an OEM, I think they probably had been building inventories given the shortages that happened over the last couple of years, and they're probably at a point where they're at a, a level of, like, normalcy when it comes to inventory. So I think there's probably a little bit of both things happening that drove this kind of one-time change in, in shipment.
David Whiston (Senior Equity Analyst)
Okay, so what about the Stellantis news this week, that they want to pull back pretty hard in the second half of this year? That doesn't concern you for your meeting your revised guidance?
Steve Downing (CEO)
No, it does. I mean, it's one of the things that's honestly, it's partially reflected inside of the global light vehicle production data, is assuming that there is some pullback with them in the second half of this year. How severe that is? The comments are tough because if you look at where they're at, I mean, if that's in France, if that's more in Europe for, you know, volume vehicles, that's not gonna impact us nearly as much as if it's, you know, Dodge, you know, Dodge or Chrysler vehicles, where we have better content. So the question isn't just about whether or not they're gonna pull back. The question is, in what markets and on what vehicles and what platforms?
David Whiston (Senior Equity Analyst)
Okay. And just finally, what drove the aircraft window increase?
Steve Downing (CEO)
Really, this is them just finally starting to build planes again. The last couple of years have been very little revenue with Boeing, especially. Now we're actually into the launches with Airbus as well. So Boeing getting back on their feet in terms of 787 production, a little bit on the 777 side, and then the Airbus A350 product as well.
Kevin Nash (CFO)
We're in refresh cycles on some of the original planes, so you get a little bit of aftermarket, not aftermarket, but refurb-
Steve Downing (CEO)
Replacement sales.
Kevin Nash (CFO)
replacement sales of existing planes.
David Whiston (Senior Equity Analyst)
Okay. Thanks, guys.
Steve Downing (CEO)
Thank you.
Kevin Nash (CFO)
Thanks, David.
Operator (participant)
Thank you. One moment for our next question. Again, as a reminder to ask a question, you'll need to press star one one on your telephone. Our next question comes from the line of Ron Jewsikow of Guggenheim Securities. Your line is now open.
Ron Jewsikow (Director and Lead Auto Analyst)
Good morning, and thanks for taking my question.
Steve Downing (CEO)
Good morning. Hey, Ron.
Ron Jewsikow (Director and Lead Auto Analyst)
Maybe just first want to clarify the comment that if revenues came in line with your expectations, that your gross margins also would have been in line with plan. I guess we're calculating like a 79% incremental margin versus the first quarter on the gross profit line. So the downside, at least optically, does look like there's a bit more than just revenue downside. Anything any color you can provide on whether mix or some operational challenges caused by the late changes to schedules that you saw in June? And I guess also, it sounds like that's normalized into July, but just kind of to repeat that it has.
Steve Downing (CEO)
Well, I think if you, if you take the $50 million, and you look at a contribution margin of 45%-50% on those, on those incremental sales, you can model out pretty closely. That gets us roughly in line, by itself, gets us pretty darn close to in line with Q1 gross margin performance. The mix issue that we talk about was really OECs being weaker than expected, and that's not because... Not, not saying that they were down and certain- you know, not talking about just the fact that it's down, it's really the percentage of total revenue driven by OECs. So whenever that's a higher percentage, obviously that's a tailwind. That's what we were expecting, was, you know, the amount of OEC as a percentage of sales basis being stronger than it was. So that's the one big factor.
The other was the regional mix. If you look at Q2, like I mentioned before, regional mix, right? Europe was down 5%, Japan, Korea was down 4.5%, China was up 7.7%. So given the fact that we're underweight China, and that that was really the only growth story in the quarter from a LVP standpoint, obviously, that didn't set up well for us. If you look at basically our primary markets, North America, barely up, like up 1% or something, and then Europe and Japan, Korea, both down close to 5. That's really the regional mix issue. And then the product mix issue was OEC being a little light, FDM on a percentage of sales being lighter than we expected.
Those are the single biggest drivers of the margin weakness.
Ron Jewsikow (Director and Lead Auto Analyst)
Okay. No, that makes sense. And the drop in tax rate being driven by Foreign-Derived Intangible Income, I think that implies foreign shipments are tracking better, at least as a percentage of the business relative to North America. Is there anything you would call out? You called out the China business being up this quarter, at least for base mirror, but anything that's driving the lower tax rate, or is there kind of other noise in that line?
Kevin Nash (CFO)
I mean, it's a combination of the FDII. We have some discrete benefits from stock-based compensation, R&D tax credits. I mean, the biggest reason that gets us from 21 down to 15 is FDII. I wouldn't say it's heavily outperformed or higher or lower than what we were initially expecting. It just ends up pushing us a little bit lower on the guide, and it tightens up for the year.
Ron Jewsikow (Director and Lead Auto Analyst)
Okay. And then for FDM launches, I think last quarter, Neil and the team called out one more launch customer this year, and you had three this quarter. So is the expectation for any additional customers as we move through this year, or is there a timeline for the next customer that you can provide?
Neil Boehm (CTO)
Yeah, I'm looking here. I think it looks like... Well, there's a little bit of hesitation on my side 'cause it's looking like it's later this year, we'll see an additional one. It, it might move into the beginning part of next year.
Ron Jewsikow (Director and Lead Auto Analyst)
Okay.
Neil Boehm (CTO)
Right now, it looks like we'll have an additional one late this year or early 2025, and there could be an additional one in 2025 then as well.
Ron Jewsikow (Director and Lead Auto Analyst)
Okay. Thanks. Appreciate that, and I'll hop back in the queue. Thanks for taking my questions.
Kevin Nash (CFO)
Thanks, Ron.
Neil Boehm (CTO)
Thanks, Ron.
Operator (participant)
Thank you. I'm showing no further questions at this time. I would now like to turn it back to Josh O'Berski for closing remarks.
Josh O'Berski (Director of Investor Relations)
Thank you, everyone, for your time and questions today. Hope you have a great weekend.
Operator (participant)
Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.