Mark W. Newton - Senior Vice President, Secretary and Director Steven R.

Downing - Chief Financial Officer, Vice President of Finance and Treasurer Kevin C. Nash - Chief Accounting Officer and Vice President of Accounting

David Leiker - Robert W. Baird & Co.

Incorporated, Research Division Richard Michael Kwas - Wells Fargo Securities, LLC, Research Division Brad Erickson - Pacific Crest Securities, Inc., Research Division Steven L. Dyer - Craig-Hallum Capital Group LLC, Research Division Brett D.

Hoselton - KeyBanc Capital Markets Inc., Research Division Ryan J. Brinkman - JP Morgan Chase & Co, Research Division John Murphy - BofA Merrill Lynch, Research Division David Whiston - Morningstar Inc., Research Division

Thank you very much. Good morning, and welcome to the Gentex 2014 Third Quarter Earnings Release Conference Call.

Thanks for calling in. I'm joined today by Steve Downing, Chief Financial Officer; and Kevin Nash, Chief Accounting Officer.

This call is live on the Internet by way of an icon on the Gentex website at www.gentex.com. All contents of this conference call are the property of Gentex Corporation and may not be copied, published, reproduced, rebroadcast, retransmitted, transcribed or otherwise redistributed.

Gentex Corporation will hold responsible and liable any party for any damages incurred by Gentex Corporation 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 Reports Third Quarter 2014 Financial Results press release from earlier this morning, and as always, shown on the Gentex website.

Your participation in this conference call implies consent to these terms. Now to Steve Downing for the Q3 2014 financial summary.

Thank you, Mark. For the third quarter of 2014, the company reported net sales of $350.9 million, which were up 22% compared to net sales of $288.6 million in the third quarter of 2013.

The increase was led by strength in market penetration for our SmartBeam and Driver Assist camera systems, sales from the HomeLink acquisition as well as growth in our inside and outside electrochromic mirrors. The gross profit margin increased on a quarter-over-quarter basis in the third quarter of 2014 to 39.5%, compared with a gross profit margin of 36.7% in the third quarter of 2013.

The improvement in the gross profit margin is due to the impact of the HomeLink acquisition, improvements in product mix and purchasing cost reductions, which were partially offset by annual customer price reductions. Net income for the third quarter of 2014 increased 30% to $72.3 million compared with net income of $55.5 million in the third quarter of 2013.

Earnings per diluted share in the third quarter increased 29% or $0.11 to $0.49 per share, compared with earnings per share -- earnings per diluted share of $0.38 in the third quarter of 2013. During the third quarter of 2014, the company benefited from incremental research and development tax credits for calendar year 2013 in the amount of $1.8 million.

As a result, the effective tax rate in the third quarter of 2014 was 30.4%, down from 31.5% in the third quarter of 2013, and the incremental impact to earnings per diluted share for the quarter was approximately $0.01. The company expects that the effective tax rate in the fourth quarter will be approximately 32.5% based on current tax laws.

Automotive electrochromic mirrors unit shipments in the third quarter of 2014 increased 10% compared with the third quarter of 2013, primarily due to increased unit shipments of both the company's interior and exterior auto-dimming rearview mirrors in all of the company's primary markets. As a result, automotive net sales in the third quarter of 2014 were $341.8 million, up 22% compared with automotive net sales of $280.9 million in the third quarter of 2013.

Other net sales, which include dimmable aircraft windows and fire protection products, were $9.1 million in the third quarter of 2014, up 19% compared with $7.7 million in the third quarter of 2013. In May of this year, the company increased its quarterly dividend based on the significant improvements in the company's operating results.

The goal of the company is to return value to the shareholders, and historically, the dividends has been a significant part of this value and has moved in line with the company's increases in earnings. The major focus of our shareholder value is based on growth in our core business, including last year's acquisition of HomeLink and funding R&D and new technologies that will help drive growth over the next several years.

Additionally, the company repurchased 351,565 shares of common stock, totaling approximately $10 million at an average price of $28.44 per share. Also, on October 1, the company entered into an interest rate swap transaction with a bank to mitigate the company's floating interest rate risk on $150 million of the company's outstanding debt under its existing credit facility.

The interest rate swap has an effective rate of 1.89%, which will take effect on July 31, 2015, and has a termination date of September 27, 2018, which is the termination date of the company's existing credit facility. Now I'll turn the call over to Kevin Nash with Q3 2014 financial details.

Thank you, Steve. E, R&D expense for the third quarter of 2014 increased 13% to $21.7 million compared to the third quarter of 2013, primarily due to increased staffing levels, which continues to support the growth and development of new business as well as personnel additions that were part of the HomeLink acquisition.

SG&A expense for the third quarter of 2014 increased 4% to $13.7 million compared to the third quarter of 2013, primarily due to incremental employment costs and amortization expense related to the HomeLink acquisition. Other income for the third quarter was $800,000, down from $7.4 million in the third quarter of 2013.

The $800,000 was broken down as follows: gains on sales equity investments of $2.3 million; interest income of $400,000, which were partially offset by revaluation of foreign denominated bank accounts of approximately $1 million; and interest expense of $900,000. Now the balance sheet items.

Cash and cash equivalents were $433.5 million, up from $309.6 million as of December 31, primarily due to cash flow from operations. Cash flow from operations for the third quarter was $85.3 million compared with $51.4 million in the third quarter of 2013, driven by increases in net income and changes in working capital.

Year-to-date cash flow from operations was $227.5 million versus $223.7 million in 2013, also driven by increased net income, which was mostly offset by, again, working capital changes. Accounts receivable was $186.4 million as of September 30, up from approximately $143 million as of December 31, primarily due to the higher sequential sales level as well as timing of the sales within the quarter.

Inventories were $135.6 million, up from $120.1 million as of December 31, 2013, primarily due to increases in raw materials inventory in support of increased sales levels. Long-term investments were $104.1 million, down from $107 million as of December 31, primarily due to the continued realized gains throughout calendar year 2014 that were not reinvested.

Accrued liabilities were $74.5 million, up from $63.5 million as of December 31, primarily due to timing of certain tax and wage payments. Capital expenditures for the third quarter were $19.7 million compared with $14 million in the third quarter of 2013.

The company is lowering its guidance for 2014 capital expenditures from $75 million to $85 million down to $70 million to $80 million, primarily due to slower-than-expected timing of spending related to its previously announced manufacturing and distribution facility project. The company previously estimated that $5 million to $10 million would be expended in 2014, but the company now estimates that approximately $2 million to $5 million will be expended in 2014, with the balance to be expended in 2015 and 2016.

Depreciation and amortization expense for the third quarter was $20.2 million compared with $14.8 million in the third quarter of 2013, primarily due to amortization related to the HomeLink acquisition. The company continues to expect that depreciation and amortization for calendar year 2014 will be between $80 million and $85 million.

And lastly, on October 17, the company paid a quarterly cash dividend of $0.16 per share to shareholders of record of the common stock of the close of business on October 7, 2014. And now I'll turn the call over to Mark Newton for a product update.

Thanks, Kevin. Let's start with the market interest in cameras.

We have growth in automotive camera applications. Gentex invested early in the development of our own camera imagers, camera optics, camera systems and camera algorithms through technology acquisition back in the 1990s.

That 1990s technology acquisition was first applied in the digital sensing control of our automatic dimming rearview mirrors with 2 active light sensor cameras, one in front and one in the back of each interior mirror, now in production for more than 10 years with over 138 million inside mirrors shipped with these cameras. These interior mirror cameras also control the dimming of our outside EC mirrors with over 50 million outside auto-dimming mirrors shipped.

This camera-based digital control of our electrochemical dimming has been key to our market penetration based on high-quality product performance. Our second application for this camera technology was in forward lighting control with our SmartBeam camera system, now entering its 10th year of production with over 6.5 million SmartBeam systems shipped.

SmartBeam today is a family of camera products with features that include automatic high-beam assist, Dynamic Forward Lighting with high beams constantly on, LED matrix beam and a variety of specific detection applications, including tunnel, fog and such ADAS functions as lane detection, object detection and collision detection. Gentex is unique in the automotive industry with our SmartBeam camera system.

The camera chip is designed by Gentex, specifically for Driver Assist applications with our custom optics and Gentex algorithms written specifically for our camera chip. We package the control electronics inside the interior rearview mirror with our camera attached to the mirror mount to provide the smallest mechanical package in the industry with the greatest ease of service should the windshield have to be replaced.

Competing products attach their camera and electronics to the windshield, requiring those camera systems to be disassembled and then reassembled if the windshield is replaced. With SmartBeam, you simply detach the mirror, replace the windshield, then reattach the mirror.

Gentex manufactures our camera products in our manufacturing facilities here in Zeeland, Michigan. Our product announcement earlier this year of a new CMOS imager, our fourth generation camera chip, began production shipments in the third quarter of 2014 with the new SmartBeam.

This new camera system was developed specifically for automotive vision system applications requiring high dynamic range vision. High dynamic range vision is the ability to capture scene details in bright light and in dark conditions.

This new camera system allows us to see more in the camera picture and was designed specifically for the increasing requirements of new automotive safety applications. This new camera was developed with awarded business back in 2010, and we're happy to finally be able to talk publicly about it now.

Camera applications in automotive are typically awarded 3 to 5 years in advance of production due to the extensive requirements for performance and safety. A new video showing this latest technology from Gentex is now available on our website.

Also, with this new CMOS imager, we announced a new video camera system designed for today's advanced automotive display application requirements; our first video camera product announcement. In video applications, this camera system can present more detail in a video display.

You can see more in the display because the camera sees more detail in the picture. The reason we announced this new video camera can now be seen on our website with a new full-display mirror product.

The full-display mirror is an interior auto-dimming mirror with an auxiliary display that is the same size as the mirror that can be activated when the driver chooses. This full-display mirror was developed more than 5 years ago to address visibility concerns and new vehicle designs due to vehicle styling, backseat head rest or backseat passenger interference and viewing.

Our full-display mirror and video camera are designed as a system, and we look forward to detailing awarded business in the near future. A new video showing these new products is now also available on our website.

Gentex invested back in the 1990s in camera and display capability, technology and people because the company viewed cameras and displays as products that would someday be a growth opportunity as a complement to the mirror in visibility and safety. We believe now is that time.

In 2009, we even changed our public company description from the leading supplier of automatic-dimming rearview mirrors to the leading supplier of automatic-dimming rearview mirrors and camera-based safety systems. We intended to be an industry leader in all 3 products back then, mirrors, cameras and displays, and we have been, and we will continue to be.

We have growth in the expanding market interest in automotive camera applications. We have awarded business for the new camera products that we have just announced.

We have growth in mirrors and cameras in combination as a next step for our company. Now let's talk about HomeLink, another key to our growth.

The Gentex acquisition of HomeLink from Johnson Controls is now 1 year old. During this first year, we completed the product and engineering integration to our operations here in Zeeland, Michigan with no disruption in program launch or product development.

We completed the transfer of HomeLink manufacturing to our facilities in Zeeland, Michigan with no disruption in the shipment of orders. We launched Gentex OEM accessories as an aftermarket channel, a first for HomeLink, and immediately were awarded business.

We launched the new HomeLink product, a long-life battery-powered HomeLink, allowing us to expedite application opportunities by not requiring new vehicle wiring in order to add HomeLink, and immediately we were awarded business. And we announced HomeLink for applications outside of automotive, expanding beyond automobiles to all terrain, off-road, agricultural, construction and other type of vehicle applications, and again we're awarded business.

Next, new mirror styling with frameless designs. New interior mirrors with advanced styling to accent vehicle interiors that we announced in May at our Annual Shareholders' Meeting are now shipping to multiple customers.

These mirrors allow for advances in electronics and displays, consistent with what you see on the latest smartphones, tablet devices and computers, an entire product upgrade for our mirrors bringing with it new applications for our mirrors in the market. And in summary, the company is in the development and launch of new technology in all product areas with many new products announced since the beginning of this year with frameless interior mirrors, HomeLink, SmartBeam camera systems, video camera systems and now full-mirror video displays.

The company has been awarded business contracts with applications worldwide, extending to and beyond 2020 for this new technology. We look forward to further product announcements forthcoming.

Now back to Steve Downing for future guidance.

Thank you, Mark. Based on the October 2014, IHS production forecast and current forecasted product mix, the company estimates that net sales in the fourth quarter of 2014 will increase 10% to 15% compared to the fourth quarter of 2013 and estimates the gross profit margin to be 39.5% to 40%.

The fourth quarter of 2014 will be the first quarter with year-over-year comparisons that include HomeLink. The company estimates that our E, R&D and SG&A expenses for the fourth quarter of 2014 will increase 5% to 10% compared with the fourth quarter of 2013.

The company expects that realized gains on equity investments, including year-end mutual fund distributions, will be in the $3 million to $4 million range, depending on market conditions and the remaining unrealized gains in the portfolio. We can now proceed to questions.

Thank you.

I guess I want to start -- I guess, 2 things. First, on ASPs.

You have a great number, and even if you strip HomeLink out of the number, it looks like it's the first increase year-over-year in ASP since 2011. Can you -- I know you talked about it, it being mixed and active-safety features, but is there any detail you can provide in terms of what's behind that?

And then how sustainable that is?

Well, I think, if you look at the -- probably, the biggest contributor to that is -- as you're aware, we got about 18 months that we've been going through some losses in RCD. That has the -- probably the largest negative impact on ASPs during that period.

And what you're starting to see now is that as that reduction starts to lessen, it's not as much of a headwind on ASPs as what it had been in the past. Obviously, like we've announced previously, that will continue through the end of the year, those losses, and then beyond that, we're hoping to see some stabilization in that business, if not growth going forward in the RCD business.

So that's the first step. And then like you mentioned, the mix strength, as it relates especially to our camera products, has helped ASP significantly in this period.

Okay. And so that should be a sustainable level of ASPs then going forward, maybe even some upward pressure on it.

Yes. If you look at it right, I would say that in the fourth quarter, there's still some risk on ASP headwinds, primarily due to the remaining portion of the RCD losses playing out through the end of this year.

But beyond that, it's just going to be normal mix issues that are going to be the primary driver of ASP.

But as you grow your active-safety portfolio, that's going to have upward pressure on ASPs?

Yes, that's correct. But that is going to be partially offset by -- or in some instances, offset by growth in outside mirror business because that is below average ASP.

Our outside mirrors are below average ASP. But like we mentioned before, it's a great product mix for us.

And then the other item here is the Q4 guidance. The 10% to 15% revenue increase was flat vehicle production.

HomeLink has completely annualized, so it's -- it really doesn't have any impact on HomeLink. That's an acceleration in the pace of growth.

Is there any details you can give there in terms of shipments or increase in shipments that you have going there?

Well, if you look at -- like for instance, our outside mirror growth has been strong really over the last 12 to 15 months. It's a continuation of growth in outside mirrors, also in our -- like we mentioned before, on our camera systems, we have growth there.

So it's kind of -- and HomeLink is still growing. So even though, like you said, the year-over-year comps include HomeLink now, HomeLink product as one of the main portions of our product lineup, are continuing to grow as well.

So really, what this represents is not a single level of strength. It's really a strength in all of our key technologies.

Okay. And then the last item here is just on the capital spending and the push out there a little bit.

Do you have -- I don't think you've talked about what this next phase of capacity expansion is going to have, but where are you right now in terms of capacity utilization? And what are you adding to capacity?

And how are those dollars going to be spent? And how do those roll out over the next couple of years?

Well, I'd say, right now, we're probably running around 90%-or-so capacity utilization. In terms of what we're expanding on, the plant that we're working on is actually a flexible design, so we can expand.

That building will be capable to be expanded and to add capacity in whatever areas we feel are most beneficial at the time. So like we said previously, one of the advantages of starting this project earlier than we have historically is that it allows us to manage the spend a little better, and to have that flexibility going forward to be able to shift that facility to whatever needs become most apparent.

If you look at it, probably '16, before that comes online, we feel like, between now and then, we have plenty of capacity inside of our facilities through manufacturing improvements and efficiency gains to handle the next year, 1.5 year of capacity requirements.

And can you quantify what that impact on capital spending is going to be over the next couple of years as you do that?

Well, yes. I mean, if you look at 2015, we're working on those projections right now, so I'll probably shy away from giving you an exact number.

But by -- just as kind of a rough model, I would say, obviously, above what we spent this year, but not quite as high as what we were in, say, the 2011 and '12 time frame. So probably in between there somewhere is probably going to be where we fall out next year.

Just a follow-up on David's question there on the CapEx. So on '15, Steve, you just kind of gave us a feel for next year, but how much of that extends into '16?

Is the bulk of the spending going to occur in '15 and then you see -- you would theoretically see a more meaningful step-down in '16? Is that reasonable?

Yes. Yes, exactly.

So what I would expect as you'd see a step-up next year, and then hopefully, a slight reduction from the '15 level into '16 because most of that -- most of the brick-and-mortar project will be spent next year.

And then, Mark, on -- you spoke a lot about ADAS and the various products and technology you have. Is there any way to frame where you are with your backlog on that, for that -- those particular -- that particular product line, considering it's a hot topic among industry participants right now, and just to help us better understand your growth, your potential growth that could come from those products?

We've said publicly that our primary growth drivers right now are in the 3 areas, outside mirrors, SmartBeam, Driver Assist camera systems and HomeLink, and what we -- we're working to do in this conference call is to try to do a better job of explaining our long commitment to the product and hopefully add little more depth to the many technologies in this area that we've announced this year. Beyond that, one thing that is also mentioned in my comments is I did reference backwards when we were awarded this business.

And so as I said, camera awards are basically already committed 5 years out for the entire industry because that's how this has always been done. We've been an early participant.

One of the things that we do with our customers that hopefully you can see from our practice is we work to define long-term purchase agreements with our customers, whenever possible, to help us increase instability in planning and have more confidence in our growth, and make it more easy to define new product development together with automakers. And so with that, one of the things that we do, because we're increasingly an electronics technology company, is we guarantee them confidentiality in the products that they're developing.

So for us, as a company right now, we probably wouldn't want to quantify further than defining that we have these new products, we have awarded business with contracts worldwide beyond 2020 with multiple customers and probably leave it at that. I know that there are others in this space that are now giving a lot of specific guidance in these areas.

It has been our experience because we've honestly been doing it the longest that these products are option packages. And so their adoption is based primarily on consumer preference, and they're not free.

So effectively, since automakers sell these at a price, we talk a lot about product mix and how that gets supplied. We have been increasingly favorable through our history with our SmartBeam camera system and the increasing features we've been adding.

But we're always careful in guidance that we define. Is that probably fair, Steve?

That's very good. Yes, that's a fair statement.

But broadly speaking, it's fair to assume that whatever percentage camera technology makes up your -- makes up of your revenue base today, that you have visibility out to 2020, that number as a percentage of sales growth because that grows -- should grow ostensibly faster than the market.

We have awarded business out to that, but again, it's an option. So it varies on product mix application based on market conditions.

And so yes, I'll commit, and we're publicly stating that it's growing. We've announced a lot of new camera products this year and a full-display mirror product as well.

We're -- and announced as of today that we had awarded business to us some years ago on us that we haven't talked about until now. And so yes, it is a growth driver for the business.

It's among our top 3 growth drivers, together with outside mirrors and HomeLink, and that's probably the best that we should define that based on the agreements we have with our customers.

Okay. And then just the last one on buyback.

So it's good to see a little bit of a buyback here. Steve, could you clarify what the strategy is with buybacks at this point?

Going forward, how we should think about this?

Sure, I think, probably, the best way to think about the share repurchase side is, what we're looking for is opportunities when we view the share price at a very good price and given the historical ranges that we've traded in. The company's going to be opportunistic there.

Like -- we've been pretty clear, since the HomeLink acquisition, we've been focused on making sure we get back to the conservative balance sheet that Fred has operated the company under for a long time. So our primary focus is on producing cash flows and regenerating our cash position.

And then from there, we're also going to be situational and look at buying opportunities.

We should also add to that. Something we talked a lot in the last year since we became involved in this messaging.

The company is still very, very committed and very, very active in looking for opportunities in the acquisition space. And as a company, we historically have always grown based on product, whether product we developed or licensed or acquired.

That still is what we see as a more durable solution for the future as a business. And we also have always operated that way as a company.

We're looking for product opportunities as the primary driver for growth.

Yes, that's fair. I mean, I just wonder given where the multiple is right now relative to historical trend in your rather -- your bullish tone regarding the future of the business, why you potentially wouldn't be more aggressive at this juncture with buybacks considering where you are with valuation.

Well, I think like we said before, I mean, really, the position there is -- like Mark said before, is one of our focuses is making sure that we're ready in case there were other HomeLink opportunity or another product like that, that was available for acquisition. We want to make sure that we're in a financial position to be able to pull a deal off like that very quickly, like what we did with the HomeLink situation.

So first, just on mix and everything. When you kind of balanced the improving interior business here, and you talk about kind of being on the heels of RCD impact against kind of a potential for exterior growth to maybe slow a bit just due to interior growth generally coming in front of exterior growth.

Which of those factors is likely to be kind of a bigger driver of gross margins here going forward as we look out into next year?

The -- probably, the biggest driver honestly is just the overall product mix, especially as it relates to the mix between inside and outside mirrors. And then right behind that and probably very -- in a very close second is the amount -- is what the growth is in our SmartBeam product.

And how that plays out as a percentage of the total business. The other factors that do vary from time to time are which regions are doing well, what currency -- how currencies are holding up, like you saw on the quarter.

We had $1 million negative impact due to some foreign currency exchange. So those types of things are probably the single biggest contributors to our gross margins.

Also, we should probably add to this that even recently with -- in 2014, all the new product announcements for inside mirror design and inside mirror features, we don't see outside mirror growth slowing, basically, as part of our business. We are pleased that the growth that we're continuing to show is because of increasing penetration.

So basically we're on a flat production environment, generally worldwide, with minimal growth in vehicle production. The double-digit growth we've been able to demonstrate is due to the fact that we are adding new vehicle applications, increasingly in the B and C class segment, which is very exciting for us and a new growth area and the largest growth area for vehicle production forecasted going forward.

With that, we do, you're correct, typically lead first with an inside mirror on this, and then we begin to add features in outside mirrors. But it's important that we continue to publicly demonstrate and communicate our commitment to outside mirror growth and the continuation of the success we've had in outside mirror growth in the recent period.

I think, Brad, one other thing that I probably should mention too is any time we have a double-digit growth, that tends to be one of the key ingredients for us in maintaining or finding our way to try to improve gross margins.

Got it. That's very helpful.

And then, Mark, you just mentioned too, just around the production mix. Can you kind of talk about that mix maybe by vehicle segment you saw on the quarter as well as on the guidance?

Things seemed to look relatively in line for the year, but any particular segments where you're seeing slightly better, softer, kind of outlooks prior to maybe a quarter ago?

As a company historically, more than a quarter ago, as you might imagine, our products, again, sold as an option and applied as an option primarily by automakers, a higher feature performance with auto-dimming mirrors and auto-dimming mirrors with features. We were primarily segmented in B and A class vehicles, so full-sized luxury vehicles are our primary situation as far as market application.

We have increasingly -- particularly, over the last 2 years, through conscious and concerted effort, been targeting B and C class vehicles, which were subcompact and compact cars. Whereas those vehicles in -- prior to this period might have been lower-cost vehicles, now they're fuel-efficient vehicles.

And there's an increasing growth in this area, primarily based on new buyers, fuel-efficient vehicles who want technology, and it's been great for us. And so we have been growing probably fastest in that B and C segment, doing so with intention.

And if you look at the published IHS forecast for B and C class vehicles, it is the fastest-growing vehicle between now and -- vehicle segment between now and 2020. We're happy to be increasingly participating in it as probably our largest growth area.

So to put that -- to give you a little more detail there, I mean, if you actually look at the North American forecast for Q4, D is actually slated to be slightly down and E, only up a couple of percentage points. So on a Q4 and on overall market where that market looks like it's growing at 4% in Q4, most of that strength is coming from, like Mark said, B and C segment vehicle growth.

So if you actually look at our traditional markets, historically, B and D and E segment, if we were still only tied to those markets, we would have a hard time growing at these rates. Like Mark said, the penetration into B and C is what's allowed and equipped us to be able to grow at these types of rates.

Got it. That's great.

And then lastly, just around HomeLink. Can you kind of talk about the growth rate there relative to the ramp?

Obviously, you talked about in the last couple of quarters going in -- potentially in the new geographies like China as well as you mentioned the nonautomotive applications. I mean, do these opportunities kind of represent the potential to accelerate the HomeLink growth rate there?

And kind of when should we be seeing about the timing of those coming into the model more.

Sure. So if you look at the Q4 guidance, for instance, HomeLink is growing kind of in that range, at the higher end of that range that you see for the whole company.

But some of those other ideas that we've talked about on some of the awarded business that we have is not affecting Q4 performance. In other words, those numbers are not hitting there, any of that information yet.

So if you look at the potential for HomeLink in China, plus HomeLink in some expanding markets, that's probably a year or more out. And so for us, it's one of the growth opportunities that we can see on the horizon for the next several years in terms of our product roadmap.

Most of mine have been answered. A couple of questions.

One, there's been some speculation, I guess, in a variety of different areas over the last, I don't know, months, that at some point OEMs would look to do a way with the side mirrors, just kind of reduced drag and a fuel-efficiency push. Do you guys subscribe to that theory at all?

And then maybe how do you see that playing out?

That was one of the reasons we decided in my comments on product to give the whole -- remind everyone of the whole history of what Gentex had committed to with acquisitions back in the 1990s, specifically in cameras in this area. First of all, the regulatory activity in defining a specification for cameras to replace mirrors, that's been active also since the 1990s.

None of this is actually new. We, as a company, have always had an engineering presence in these regulatory bodies as they do the first step of trying to develop specifications.

So in the U.S. and then Europe and then in other markets internationally, we participate.

What we see right now is we do not see anything immediate for regulatory change, but as a company, we've always prepared for it. That was one of the leading reasons why we invested in cameras in the 1990s, both for forward sensing, like with our SmartBeam and Driver Assist camera systems as well as now our video camera products.

We intend to be a participant in this market should it occur. And what we're actually seeing with automakers right now -- because the key questions have not been answered, what do you do if the camera is blocked or if the camera doesn't function to give you the visibility that you need or if there's an electrical problem?

Right now, what we see in the industry is that cameras can be a complement to the mirror, in addition to, and we are seeing opportunity. That was basically what I meant when I said that we see opportunities, and we have growth in mirrors and cameras in combination as the next step.

We're very excited by it. Actually, we're really pleased that there's all this interest publicly in camera applications for automotive.

We've been doing this for a long time, and it's not been primarily an area of interest for this level of discussion. We're very happy that it is now because we're prepared to compete in this space.

Got you. That's helpful.

And then a bit of housekeeping. On the other income, I think you had indicated $3 million to $4 million of realized gains from your equity portfolio.

Is that -- I'm assuming that's not the entire other income level, you'll still have kind of interest expense, the interest income offsetting in the [indiscernible] questioning, is that right?

Yes, that's correct. We'll have -- w still have our interest income on our cash balances.

The statement was, to reiterate that, as we wound down our portfolio and our strategy changed, we're trying to give our best estimate at this time of our year-end mutual fund distributions and our realized gains, but the interest expense is not going away.

Right. What about the $1 million revaluation from this order [indiscernible]?

That's kind of out of control because that was based on -- primarily based on euro balances. And so the euro at the end of the quarter really took -- from essentially $1.30 down to $1.26.

And so based on our balances in our euro accounts, that will fluctuate, but currently, it would -- it's moved back the other way, so.

Okay. And then just going forward, I mean, will your equity portfolio be mostly wound down by the end of the year?

How should we think about that in the...

We -- basically, we took it from about $160 million down to $105 million to $110 million kind of range, so we lowered the overall amount of money that we had invested in the market. And then there were some opportunities there for some realized gains in really over the last 6 quarters as we prepared for the HomeLink acquisition.

And as we process the HomeLink acquisition, we freed up some of that money to use for the acquisition itself. So really, just a restructuring of that investment portfolio in terms of its overall size and then making sure we captured some of the gains that we have seen in the portfolio.

But we do still have embedded gains of over $10 million in that portfolio as of -- at the end of the quarter.

Okay. And then last question, and I know you don't guide out beyond the quarter, but philosophically, your operating expenses, E, R&D and SG&A, I mean, any -- do you sense any deviation there to the upside or to the downside in terms of the trajectory you're spending?

Do you anticipate that, that's going to grow at a rate less than sales, just philosophically?

Yes. That's our goal.

It's to try to be -- try to grow our expenses in line or slightly less than sales growth. So the goal there is to obviously not lose the operating efficiencies that we've successfully gained over the last 18 months.

So in terms of managing the overall business, it's to try to tie those 2 together, and make sure we're delivering not only the sales and gross profit margins, but also operating margin as well.

And gross margins, I'm assuming upward pressure as you get into more active-safety, HomeLink, et cetera. I mean, there's -- there wouldn't be a reason why that would soften at any point outside of the usual.

No. I mean, I think there's always opportunity for the margin to soften.

It's primarily mix-related though. I wouldn't say that it's -- that there's -- I wouldn't say -- I wouldn't clarify it as more of a tailwind.

I would actually say that anytime you go into the beginning part of the year, you're going to face customer price reductions, which primarily are front-loaded at the beginning of the year. Our purchasing cost reductions tend to not come in necessarily right at the first of the year.

They tend to trickle in over the first 3 to 6 months. And so the first quarter is always the hardest, usually from an annual price reduction standpoint.

So I would say that's probably the biggest single factor affecting margins going into '15.

I have a few different questions just related to, I guess, what I would call active-safety. My first question is kind of a 30,000-foot perspective, a lot of competitors in the space.

And so can you kind of describe what you think Gentex's primary advantages and/or disadvantages versus like a Mobileye or an Autoliv or a TRW or a Delphi or a Continental, something like that? What would you characterize as: here's what we think our major advantages are, and here's what we think our major disadvantages are?

Outstanding question. I'll go ahead and work on this one then.

We've been -- like I said, we've been shipping our SmartBeam product going on 10 years now. And when Gentex made the investment back in the '90s to participate with this product, lighting control was selected as the first application ahead of, say, lane detection or pedestrian detection at that time because lighting control was defined by automakers as a much bigger market.

And since we started, we were first coming forward primarily with forward safety cameras in automotive, and then later, increasing Driver Assist applications occurred. We have been participating in and around that space in Driver Assist for the entire 10 years.

Our experience effectively is this. Again, as I said in my comments, we do a very specific thing with our forward safety cameras, different than anyone else in the industry.

One, we use our own imager; two, we design our own optics. We have our own software, and our camera is off the glass.

It's attached to our mirror with electronics in the mirror. And we package that way, specifically.

And SmartBeam was created as what I would call a mid-level option package, or what we, as a company, and Mr. Bauer likes to call, a priceable feature.

And we've had very good success with it, such that our application rate historically on this product worldwide on average on vehicles that have the SmartBeam, it's at or around the 25% or higher application rate. We have also done the higher function -- multifunction Driver Assist applications as we publicly announced with Mobileye with Ford, Jaguar or Land Rover for the past few years.

Those roll-on vehicle platforms where we already had SmartBeam as an application, and the multifunction Driver Assist application was a higher end feature, more expensive option. Those application rates, in our experience, had been considerably lower than what we have with SmartBeam, generally in -- at or around 5% single digits.

And so we've been participating in this space for basically the majority of the 10 years that we've been selling the product. Now what's occurring and has been increasingly occurring with SmartBeam specifically is we're also taking pictures.

And our camera also sees not just the things for lighting control, like lights, the color of lights and the distance to lights, but we also see lines and lanes and trees and vehicles and pedestrians and all of those things, and we too can send information to the vehicle. So our camera development and our product marketing strategy for this product basically has been a bottom-up application, starting with and growing from the largest application base, which has actually been lighting control versus Driver Assist through that period, and it's continuing to grow with it.

And so we're adding features that right now define us as a competitor in this space. You are correct, there are a number of competitors, but we're not competing like they are.

We have real estate already with our SmartBeam application, have had with multiple automakers worldwide for many years. And that application for SmartBeam and lighting control continues, but our lighting control product is now adding features that are also consistent in this space with the ADAS functions.

And so right now, the reality of Driver Assist has always been that automakers are not going to give it away. It is the most expensive option package basically in these applications.

It's basically awarded 5 years out. We're publicly stating that we've got growth in this space and SmartBeam.

And SmartBeam now with advanced features with our fourth camera just starting production. In this third quarter, we started shipping in volume in this.

And so we're confident, and we look forward to detailing it further as vehicles are applied that we've got a product that competes in this space since we basically have been sharing vehicle applications versus Mobileye Tier 1s, Continental, Bosch, others, through our history.

So then my next question would be, as you think about the fact that you are being awarded the contracts 5 years out, you've got some very good visibility in your growth. So as I look across the space, I see a CAGR, growth CAGR of, I don't know, 25%, 30%, 35%, it kind of depends on who you talk to, but everybody thinks it's going to grow by a whole bunch.

So given you've been awarded business, they've been awarded business and so forth, what can you tell me about your growth rate, maybe versus that 25% to 35% range over the next several years that other people are suggesting? Or what can you tell me about maybe market share?

Or I don't know how you want to characterize it, but how can you maybe give us confidence that you really can compete and you're winning in this marketplace? I'm not saying you're not.

I'm just asking what would be the data points that you might point to, to say we're winning here.

You're absolutely correct. It does depend on who you talk to.

Now we've been doing this a long time, and a lot of the application numbers that have been publicly declared by others you might talk to, it is highly aggressive based on what we know in the market in these areas, to how these applications are applied. These are sold as options and the multiple function Driver Assist applications are a more expensive feature, and the take rates for it historically up to now on average is very low versus what we've experienced with our SmartBeam product.

And so the application take rates for SmartBeam as we add features to this now family of products with our fourth generation camera, we're seeing and we are targeting consciously, the company-imposed [ph] application continue in this. And so whereas there is a growth in the Driver Assist space and the industry, not just us, but the industry basically has awarded this 5 years out, we would publicly guide that there is conservative growth in this area.

There is very, very large interest right now, but again, the option is not free. And so that's -- I think probably publicly what we would feel comfortable saying at this point.

Yes. I think I would just to add that.

Currently, camera systems are probably about 10% of our overall revenue, so even if it's growing on a -- towards that higher range that some others have guided to, it still wouldn't have a huge impact to our overall growth rates as a company. And so that's one thing to keep in the mind and put in perspective there a little bit.

And then the -- and then when I think about your overall revenue growth rate, not just this segment, but just overall, you've typically talked about 8% to 10% growth target all in, with price downs, production and that sort of thing, if I remember correctly. Is that correct?

Is that still kind of what you're anticipating?

Yes. Our goal is to get to those low double-digit growth rates, so 10% is kind of the corporate target.

We believe the financial model and the team and how we develop product and what our R&D budgets look like, the business runs very well if we can get to that type of growth rate. And historically, we've had some -- there's been some ups and downs on automotive production that have added a tailwind or been a significant headwind.

We happen to be in one of those places right now. It's -- really, over the last couple of years, we've seen more headwinds than we have tailwinds in terms of automotive production.

And so the goal there is to be creative and find new products and technologies that'll help us grow even in a flat market.

Just looking a bit more at that strong 4Q revenue outlook, it seems like you're guiding to revenue growth somewhere, I guess, between 11% better and 16% better than the expected year-over-year change in like vehicle production, and that's more than the corporate target that you just referenced at. Can you talk about the drivers of this growth above the industry?

Does it relate more to mirror shipments in excess of the industry? Or is it more additional features in the mirrors, such as Driver Assist or due to HomeLink?

Can you help us with where the growth is coming from?

Sure. If you actually look at those growth rates, it's actually coming from kind of -- really, all the primary areas of the business that we've talked about.

If you look at our outside mirrors, we see continued growth in that part of the business. If you look at HomeLink, we see continued growth in that area of the business as well as our camera systems.

So when you -- and our inside mirror will continue to grow as well. So if you look at those primary areas on the technology side that we've been talking about really heavily for the last 12 months, those are the primary drivers of the business.

Okay. And you mentioned a small impact on gross margin, I think, due to currency.

I believe though that, right -- the majority of your contracts with overseas customers are priced in U.S. dollars.

Can you confirm that? And maybe what percentage are in U.S.

dollars?

95% probably.

Right. 90% of our sales are in USD.

Okay. So clearly, given that a large portion of your revenues are outside of the United States, I mean, that's fairly unique amongst U.S.-based auto parts suppliers.

I guess it insulates you to a degree from some of the adverse currency swings that we think are going to impact your peer group. Can you comment on that?

And just kind of what -- whether -- you think that practice is sustainable, right, if the U.S. dollar continues to strengthen?

Yes. I think, if you look at it though.

There's a couple of things that -- yes, we do take it as sustainable. I mean, if you look back a few years, we actually had more sales in foreign currency a few years ago than what we have today.

And there's a couple of reasons for that. I mean, one of the main reasons is why this model works, and it works for OEMs as well as us, is we produce all of our products here, and so the ability to keep our sales in the same currency as our production cost is obviously beneficial for the company.

On the customer side, one of the things that's been helpful to the model has been that as the North American market has grown over the last few years faster than the rest of the world production market, and a lot of OEMs have looked at putting manufacturing in the United States for sales here, it's been a great hedge for them where they have some of their cost denominated in foreign currencies to have some of their -- the advantage Gentex offers is that some of their cost denominated in U.S. dollars tends to be the right mix that they're looking for on the purchase side.

So we don't see any real headwinds on the currency side as it relates to OEMs trying to shift back significantly away from USD towards local currencies. And probably the biggest risk factor there is just how big China market gets as a percentage of our total of business.

Obviously, most of the products that we sell in China are then denominated in RMB, so that's the one currency. And because those makers there are buying for production, and then for sale those vehicles in China, and most -- almost all of those vehicles are staying in China, they're focused more on their currency.

So that is the one area of currency risk that we do have.

I have a few technology questions here because there's some really interesting stuff that seems like it's developing here. Being first, as you look at your camera systems right now, are any automakers using your camera systems for adaptive cruise control?

And is that a potential going forward?

We don't have production applications today for adaptive cruise control camera-based, but capabilities for features like that are what we're trying to indicate generally overall as a product.

Okay. And then just -- second question.

As we think of these full-display mirrors, I'm assuming the display fills up the entire mirror. I'm just curious how you manage glare when that -- when you have the full display on?

Is that something that's similar to the technology that using mirrors, or is that not necessary? I'm just trying to understand how the glare works when you have the full display on.

Well, first and foremost with a full-display mirror, the way we approach this application is you work to make a legally compliant FMB [ph] VSS-111 rearview mirror. And the same work that we always did in putting video displays in mirrors since 2007 -- shipping and production since 2007 applies here.

Ours is engineered together with our electrochemical element controlled by the digital cameras we have in the mirror with the element itself for brightness and intensity. Our products are engineered to be considerably brighter in capability to anything in the instrument panel many times.

We've always been this way. So those same things that made us successful initially with rear camera display back when it was an option before it was mandated in the United States, apply to the full-display mirror.

Now the full-display mirror is different in Rear Camera Display. It's engineered and designed, always was, not to compete with anything in the instrument panel.

This is a safety feature in addition to the mirror itself. If you like increased -- if you're tired looking at the head rest on your backseat and if you'd like increased visibility, video cameras increasingly being add in varying places on the outside of the vehicle and the shark fin antennas and outside high-mount stop lamps and spoilers or in high-mount stop lamps behind glass integrated in those areas, these are all the things that we're increasingly participating in now.

And so the glare control for our displays and our performance in it is the same high-quality that it was originally in our initial video displays. And we're willing to show it to anyone who would like to see.

I think one other thing I just kind of add to that is one of the parts that we're excited about is introducing our first video camera in combination with our full-display mirror that gives us greater control to tune that system. Any time you're displaying bright lights on a display has the potential to become a nuisance factor.

This was what's -- why we think that cameras in -- and displays in combination with mirrors is the right solution because every individual is going to have a different perception of what's comfortable, what they like to see in different lighting environments. The combination of the 2 products, we believe, meet that customer demand by allowing the consumer to choose what they prefer.

In other words, do they want auto-dimming on at a certain point in time? Do they want it to be -- do they only want in on full display on during the daytime and a traditional mirror at night?

Those type of factors are completely controllable by the consumer.

Okay. And then when we think about those mirrors, they sound like that's incremental content.

I mean, would you see the price for those mirrors significantly higher than just the self-dimming mirror?

Yes.

Okay. And then I would assume the margins and returns would be significantly higher as well?

They would -- I would say that the margins would be in line with our corporate profile, maybe slightly better.

Okay. And then just lastly, there wasn't much debt paydown in the quarter.

Obviously, you guys are cash-rich. Just curious how you're kind of balancing out the potential?

I mean, I know you mentioned -- talked about share repos before, but as far as taking debt down is -- it doesn't seem like it's a huge priority in the near term if you didn't pay it down -- you haven't been paying it down too aggressively. Just curious on that.

Yes. I mean, we're basically paying based on the amortization that's already established for the loans.

The real purpose there like we mentioned previously was to try to replenish the stock -- I mean, that cash stockpile to get ready for a future R&D investment, potential acquisitions and honestly just protect for the business in general market conditions that may exist in an automotive market that is unpredictable.

But could that future R&D investment be a big chunky one? It just -- that sounds a little bit different than the typical.

Well, it can be. Like, if you look at '08, '09, for instance, we went through a recession, but we had significant investment in new products and technologies that were going on at that same time.

Our balance sheet is what enabled us to take the -- to invest in the business instead of cutting into our R&D budget. That allows us to plan for a 5- to 10-year out horizon and keep the company on a growth trajectory.

Steven, still not totally clear on the reason for the falloff in other income. Are you saying there were no realized gains or losses in this quarter?

No. There was $2.3 million of realized gains on equity, but we have talked in the last call that it was going to go down to a more normalized level, but the big negative impact for the quarter was the $1 million on our euro balances, right?

That was a negative impact, so it looks lower than it would normally be. Historically, we've run in a $2 million to kind of $3 million, $3.5 million range on gains, both whether those are dividends and mutual fund distributions or interest income or just gains on the portfolio itself.

We had actually -- during the -- right before the acquisition and through the first probably 5 quarters of the acquisition, we had ramped that up anywhere from $6 million to -- $5 million to $7 million a quarter there for a while. And so what we're just trying to make sure we're guiding to is that we weren't going to be able to continue at that $5 million to $7 million a quarter in gains on the portfolio, and that was going to go back into more normalized levels historically.

And that's what that Q4 guidance looks like. It's pretty much a pretty standard kind of fourth quarter range for the company.

Okay. And can you give any updates, if there is one, on getting more mirror penetration ex Japanese and Chinese consumers for auto-dimming mirrors?

We have actually continued growth in that area of the business, especially if you look at the growth in our international markets, we're actually -- one of the things we're probably most excited about the business is the fact that we've been able to grow that business in markets, honestly in Japan and Korea, that have been really bad from a production environment standpoint. So when you see us growing in that market inside of the market that at times has been down 5%, 10%, especially in our key segments, we view that as very positive in terms of the ability of the product to still have consumer appeal, not only in North America, but internationally as well.

Is more of that growth coming on the Japan side or the Korean side?

I'd say it's pretty even honestly. I mean, we tend to grow in both of those regions.

And that's primarily been a focus of the company over the last 10 years as we've invested in sales and R&D resources in those foreign countries to make sure that we have the right people on the ground to help represent the product and support the customer.

Just 2 last things to circle back on that we've been talking about. First, on the RCD, I think originally when we talked about this 3 years ago or so, about half of that RCD volume was going to roll off.

Is that still a target of kind of what you're expecting to have happen?

Yes, that's exactly right, David. We saw about 20% -- a little over -- right around 20% loss in RCD business last year and about 20% this year.

And then if I understand from conversations we had before, I just want to affirm this, that you're still booking new business for RCD, correct?

Yes, we always were. Actually, the Kids Transportation Safety Act is just in the United States of America.

In the rest of the world, we continue to increasingly have penetration in those markets, sold in the same way as it was originally successful as an option. And so yes, that's continued to be the case.

The full-display mirror product that begins its initial production at the end of 2015 will begin to help us in some of those areas also as an additional application for video mirrors.

So you -- okay. So you just said that you're going to launch a video mirror here at the end of '15.

What's the scale of -- is there anything you can talk about in terms of scale of that, contracts and anything you can share?

Not specifically in this earnings release. We look forward to doing it in the future.

It was really -- it was tough for us. We were awarded this business back a few years ago when we were getting hurt by the Kids Transportation Safety Act application, and we couldn't talk about it.

We're happy to begin to talk about it now that we do have an advancing technology. It is growing in an application.

It does have growth and awarded business. We're going to talk about it further in the future.

Okay. Can you talk about how many customers you might have signed up?

We have some.

Thanks, everyone, for your participation in the call. We'll proceed now.

We've got a busy schedule of individual calls. Should you want to schedule a one-on-one, feel free to send me an e-mail at [email protected].

Thank you very much.