Ladies and gentlemen, thank you for standing by and welcome to the Gentex reports Third Quarter 2019 Financial Results Call. At this time, all participants' lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator instructions] Please be advised that today's conference maybe recorded.

[Operator instructions] I would like to turn the call over to Josh O’Berski. Please go ahead, sir..

Thank you. Good morning and welcome to the Gentex Corporation third quarter 2019 earnings release conference call. I'm Josh O’Berski, Gentex's Director of Investor Relations, and I'm joined by Steve Downing, President and CEO; Kevin Nash, Vice President of Finance and CFO; and Neil Boehm, Vice President of Engineering and CTO.

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 2019 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, I’ll turn the call over to Steve Downing, who will give the third quarter of 2019 financial summary.

Steve?.

Thank you, Josh. For the third quarter of 2019, the Company reported net sales of $477.8 million, which was an increase of 4% compared to net sales of $460.3 million in the third quarter of 2018.

The 4% growth was accomplished despite global light vehicle production declining approximately 3% in the third quarter of 2019 when compared to the third quarter of 2018. The actual global light vehicle production levels also worsened in excess of 3% for the third quarter of 2019 when compared to IHS Markit’s mid-July forecast.

For much of the year, actual light vehicle production levels have fallen well short of estimates and this trend unfortunately continued in the third quarter of 2019. The lower than expected vehicle production was despite the fact that the third quarter of 2019 had easier comparisons than last year.

Additionally, the GM strike limited sales by 2% in the quarter. Our total growth rate of 4% means that we effectively outperformed our underlying markets by 7% to 9% during the third quarter of 2019. For the third quarter of 2019, the gross margin was 37.7% which improved when compared with the gross margin of 37.6% for the third quarter of 2018.

The gross margin in the third quarter of 2019 was negatively impacted by tariffs that in total represented 110 basis points of headwind. On a quarter-over-quarter basis, the tariff impact on the gross margin for the third quarter of 2019 was 50 basis points higher than the tariff impact in the third quarter of 2018.

In total, the gross margin in the third quarter of 2019 improved 10 basis points versus the same quarter last year despite the fact that, the impact of tariffs created a 50 basis point headwind on gross margin versus last year.

The gross margin performance was driven by a mid-single-digit growth rate, positive product mix, better-than-expected purchasing cost reductions and the team's success in mitigating some of the escalating costs related to tariffs that have been impacting the company.

Operating expenses during the third quarter of 2019 were up 15% to $52.2 million, when compared to operating expenses of $45.6 million in the third quarter of 2018.

Operating expenses ran slightly ahead of our expectations for the third quarter of 2019, but we believe the fourth quarter will be more in line with the growth rates from the first half of 2019 and within our annual guidance range.

The increases in operating expense in the quarter were driven by headcount and other resources required to fund development and launch of new products, travel and other resources associated with mitigation of tariffs, increased legal and professional fees associated with the minor acquisition of new technology and our ongoing focus on tax planning.

Income from operations for the third quarter of 2019 increased 1% to $128.1 million, when compared to income from operations of $127.4 million for the third quarter of 2018. Net income for the third quarter of 2019 increased by 1% to $111.9 million compared with net income of $111.3 million in the third quarter of 2018.

Earnings per diluted share for the third quarter of 2019 increased 5% to $0.44, when compared to $0.42 for the third quarter of 2018, primarily as a result of a 6% reduction in diluted shares outstanding from share repurchases due to the continued execution of the company's previously disclosed capital allocation strategy.

During the third quarter of 2019, the company repurchased approximately $3.6 million shares of its common stock at an average price of $27.07 per share for a total of $96.6 million of share repurchases.

To-date for calendar year 2019, the company has repurchased approximately 11.4 million shares of its common stock at an average price of $23.11 for a total of $262.7 million of share repurchases.

As of September 30, 2019, the company has approximately 22.5 million shares remaining available for repurchase pursuant to its previously announced share repurchase plan.

The company intends to continue to repurchased additional shares of its common stock in the future in support of the previously disclosed capital allocation strategy, but share repurchases may vary from time to time and will continue to take into account macroeconomic issues, market trends and other factors that the company deems appropriate.

I'll now turn the call over to Kevin for the third quarter financial details..

Thanks, Steve. Automotive net sales in the third quarter of 2019 were 464.3 million compared with automotive net sales of 449.2 million in the third quarter of 2018.

The 2% quarter over quarter growth in automotive sales was driven primarily by strength in full display mirror unit shipments and an 18% quarter-over-quarter increase in exterior auto-dimming mirror unit shipments.

This growth in revenue was partially offset by previously announced product headwinds of approximately 350 basis points when compared to the same period last year. Additionally, the third quarter of 2019 was impacted by approximately 200 basis points and lost sales due to the GM strike.

Other net sales in the third quarter of 2019, which includes dimmable aircraft windows and fire protection products were 13.5 million, an increase of 22% compared to other net sales of 11.1 million in the third quarter of 2018, primarily as a result of increased dimmable aircraft windows shipments.

During the third quarter of 2019, the company's effective tax rate was 15% which is up slightly from 14.7% for the third quarter of 2018. However, this rate is down from 16.4% tax rate for the first half of 2019.

The effective tax rate was driven below the statutory rate in both quarters due to the foreign derived intangible income deduction, tax planning strategies and discrete benefits related to stock-based compensation. Now for balance sheet update.

The following balance sheet items represent a comparison versus December 31, 2018, which are also included in today's press release. Cash and cash equivalents were 260.2 million, compared to 217 million.

The increase is primarily due to cash flows from operations, which was partially offset by share repurchases, dividend payments and capital expenditures. Short-term investments were 207.2 million, up from 169.4 million and long-term investments were 103 million, compared to 138 million.

Fluctuations in the two were driven by changes in fixed income investment maturities within the portfolio. Accounts receivable increased 39.6 million to 253.1 million, primarily due to the higher sales in the quarter and timing of sales within each of the quarters.

Inventories as of September 30 increased by 13.4 million to 238.7 million, accounts payable increased by 2.5 million to 95.3 million, and other current liabilities increased 10.6 million to 86.9 million, primarily as a result of increases in accrued wages. Now for some cash flow highlights.

Cash flow from operations for the third quarter of 2019 were 110.5 million compared with 105.8 million during the third quarter of '18, and year-to-date cash flow from operations was 382.9 million for 2019 when compared with 398.2 million in 2018. The differences in each of the periods were primarily due to changes in working capital.

Capital expenditures for the third quarter of 2019 were 11.2 million compared with 16.9 million in the third quarter of '18 and year-to-date 2019 capital expenditures were 56.7 million compared with 68.08 million in 2018.

And depreciation and amortization for the third quarter was 26 million compared to 24.8 million in third quarter of 18 and year-to-date depreciation and amortization was 79.3 million compared with 80.1 million in 2018. I'll now hand the call over to Neil for product updates..

Thank you, Kevin. In the third quarter of 2019, there were 16 net new nameplate launches of our interior and exterior auto-dimming mirrors and electronic features. Of the total launches approximately 60% had advanced features.

The percentage of new launches with an advanced feature was slightly higher than our current ratio of advanced feature products to base auto-dimming products. Advanced feature launches in the quarter were led by new launches of HomeLink, where there were seven net new nameplate launches.

During the third quarter, we launched base interior-dimming mirrors on five new nameplates for domestic China OEMs. These nameplate launches represent further penetration of our core other dimming technology into the China market.

During the third quarter, there was one new nameplate launch for full display mirror, and we continue to forecast that we will be launching seven additional nameplates in the fourth quarter. We're also excited to announce that during the third quarter, we were able to secure our 10th OEM customer for full display mirror.

Our final launch update for today is in regards to our aerospace business. During the third quarter, we made our first production shipments of electronically dimmable windows to Boeing for the 777x program.

This program represents our second commercial aircraft program and while our dimmable windows technology is optional on the triple seven, we're excited about the successful launch. The 777 launch is the first aerospace program for Gentex, where we were sourced as a Tier 1 supplier into the aerospace industry.

This launch is a testament to the hard work of our chemistry, engineering and manufacturing teams, because not only did we achieve full certification as an aerospace supplier, but we also accomplished this while launching our brand new generation three dimmable technology.

We believe that the launch of the 777 and our status as a Tier 1 supplier in aerospace will continue to provide growth opportunities for us. I'll now hand the call back over to Steve for guidance and closing remarks..

Thanks, Neil. Today, we provided revenue and margins guidance in our press release, specifically for the fourth quarter of 2019 due to the GM strike and the estimated impact this will have versus our previously forecasted fourth quarter revenue and gross margin.

The following information reflects the company's best estimate of the impact of the General Motors strike as well as changes to IHS Markit’s estimate for light vehicle production in the fourth quarter.

We are using order changes over the last several weeks from GM as the basis of our calculations, and we estimate the impact to be approximately $7 million to $8 million in lost sales, per week of the strike.

Given the lost sales to date for the fourth quarter of 2019 and our estimate of additional lost sales before the strike ends, the company now estimates that the revenue will be between $430 million and $455 million for the fourth quarter of 2019.

Based on the updated net sales guidance, the company is estimating that the gross margin for the fourth quarter will be between 35% and 36%.

Our full year estimates for calendar year 2019 are based on the mid-October IHS Markit light vehicle production forecasts, current forecasted product mix, expense growth estimates, actual performance to the first nine months of 2019 and estimates regarding the impact of the GM strike.

Given these inputs, the company updated certain of its previously announced annual guidance ranges, which were published this morning in our press release and are summarized below.

Net sales between 1.84 billion and 1.87 billion, gross margin between 36.6% and 37%, operating expenses between $198 million and $200 million, tax rate between 16% and 16.5%, capital expenditures between $90 million and $100 million and depreciation and amortization between $104 million and $107 million.

Lastly, 2020, light vehicle production forecast have continued to worsen as the year has progressed. However, the company is making no changes to its previously announced net sales estimates for calendar year 2020, which is estimated to be over and above the foregoing 2019 net sales estimates in the range of 3% to 8%.

The third quarter of 2019 was a challenging vehicle production environment, but the company delivered growth that outperformed our underlying market by approximately 7% to 9%. Our third quarter growth rate was very strong given the industry headwinds and the Gentex product specific headwind that serve to limit our growth.

Additionally, our gross margin on a year-over-year basis was exceptional, and increased by 10 basis points year-over-year, despite a 50 basis point increase in the margin effect of tariffs.

The entire team at Gentex delivered solid results due to our focus on sales growth, cost discipline that led to margin stability, tariff offsets and tax efficiencies. This hard work combined with our disciplined approach to capital allocation led to a 5% increase in EPS for the quarter.

As we move into the fourth quarter, we're expecting to remain in a tough production environment due to ongoing issues in light vehicle production levels globally and the impact of the strike at GM.

Overall, we remain optimistic that the growth of our core technologies will continue to provide growth rate above global vehicle production levels in 2020.

As we execute the strategies we have put in place for next year, we believe they will deliver sales and margin performance throughout the year that when combined with the execution of our capital allocation strategy will continue to create value for our shareholders.

In closing, we will be exhibiting the NBAA from October 22nd through the 24th, at SEMA from November 5th through 8th, and at CES from January 7th through the 10th. As always, please know that you are all welcome to come see us at these shows to experience our products and to see the progress we're making with our technology.

If you are interested in visiting us at any of these events, please feel free to contact Josh O'Berski to schedule a time. Thank you for your time today and can now proceed to questions..

[Operator Instructions] Our first question comes from Chris Van Horn from B. Riley FBR. Your line is now open..

So, it seems like the lower guidance on the gross margins of roughly 50 basis points in the top-line.

Could you maybe break that out? Is it mainly due to the strike? Is it also some of the production estimate changes? And then, how do you view maybe that GM production being made up, if at all in the fourth quarter and maybe into 2020?.

Yes, I think if you look at the majority of that gap is driven by the lower sales on a year-over-year basis, especially versus what we are forecasting looking at Q4 before the strike happened.

So, the vast majority of that is due to the overall lower sales level, and then obviously the mix change given what we had at GM and the business that we have there, which does bolster gross margins..

Okay.

And then the production from GM that was sort of lost due to the strike, do you see that being made up?.

That was really looking at probably making that up over most of 2020 based on what we have seen from ISS. They were running pretty full tilt building into that strike. So, we don’t expect the ton of volume coming back in Q4, but maybe we will get some luck and we will be able to do that. But I think ISS is modeling recovery in 2020..

And then, how about volumes for full display mirror, you had mentioned in the past 500,000 number, any sort of commentary around that?.

Yes, we still believe even with the strike and GM being kind of our launch one of our largest customers for that product that we will still be above that number for the year..

And then last one for me for now. On the aerospace side, 13.5 million, really strong number continues to go up here.

Do you think about that as kind of a run rate going forward? Was there anything during the quarter that was a significant order? Or how do we think about that business right now?.

Here is a little extra volume given the 777 launch, so it’s kind of system fell for that new launch, so that could be a little higher than the normalized run rate. The one thing that we do see is there are some natural fluctuations in volumes throughout the year in the aerospace industry or at least on the Boeing business.

So, I wouldn’t necessarily try to model it flat, but I would say that there should be a slight step up both in the 787 production volumes, as they have grown and they have gone to the longer version of the 787, that’s obviously more windows on that planes, that helps, and then launch of the 777 should help overtime as well..

Our next question comes from John Murphy of Bank of America. Your line is open..

This is Aileen Smith on for John. First question, can you provide any more detail around the company specific product? You said in the press release, it doesn’t sound just as this related to GM.

So can you give any insight as to what's going on there whether it's isolated to anyone product or geography?.

Thanks Aileen. Yes, this is the stuff we’ve been talking about for couple of years now.

Really, the biggest impact, probably two thirds of that impact is related to the driver assist feature with Mobileye rolling off and continuing to cause headwinds, another 100 basis points to that is really related to SmartBeam, and then last little bit is additional legacy features compass for microphone that we’ve also talked about as kind of rolling off over or had a little bit of headwind on the compass side, but it's really the same story that we been talking about all year.

And then with the drop in the North American production throughout the year it’s kind of exacerbated itself a little bit..

And second question, can you walk us through your operational response to the GM strike specifically at what week into the strike did you get adjustments to purchase orders? And were you able to build inventory at all to the strike to avoid taking production downtime? Or does your production go down nearly one for one with GM?.

No. So, well, two things. When the strike happened immediately, we continued to ship for a few days versus when the strike occurred. So, the impact our Q3 was a little less, but it will be a little bit more and that’s what we're modeling in Q4 that because we know the strike started, but then we continue to ship for a few days.

In Q3, we're expecting that once GM comes back online, there will be another few days where we won't need to ship because we already have the inventory that we shipped in Q3. So that's why were modeling a little larger impact in Q4 than what was in Q3 plus the total number of days down in Q4 is obviously higher.

Sorry, Aileen, yes that second part of that question..

The second part of the question was just, were you taking production down nearly one for one?.

Yes, we had not -- we did not have to take our production down. If you look at the growth in the third quarter, we still grew 4% on growth with other customers and in the other parts of the business.

So, we didn't have any like temporary layoffs or sending workers home for lack of work because we were quite busy in the quarter despite the issues with GM..

And last question, can you describe how your teams are managing? What's been constant erosion in third quarter production schedule? We're now about a year or over a year into the secure and transfer is just a function of being a bit more conservative in your internal production assumptions versus what you're seeing in terms of customer releases?.

Yes, I think it's an ongoing battle. We continue to build our schedules on a weekly basis based on our releases. Fortunately for us, we have had growth throughout the year.

So, it has sent down a little bit of, if you look at our CapEx, it has lightened from if you go back to 18 months kind of slow down some of the need for capacity growth on a longer term basis. But we continue to be in a tight labor market, and so our teams are fully staffed and working over at around 80% to 100% of capacity already.

So, it's been -- we just had to shift and be flexible about what we're building and we've been accustomed to that being in the automotive industry for a long time. So, it's just continuing to keep a close eye on order changes, and if their magnitude increases and our teams have done a fantastic job of managing through that..

I think, Aileen, if you look at what one of the biggest concerns you have is obviously not be able to keep up with order changes. So you're spot on, I mean, there's a lot of chaos that occurs when these type of changes are happening.

Given what we build and our approach we are able to carry a little extra inventory, so we try to model out what we think is going to be needed. Fill the head a little bit just to make sure we can support our customers..

Our next question comes from James Picariello of KeyBanc Capital Markets. Your line is open..

Just going back to the GM strike impact, I mean, if we just do the really simple math of 7.5 million a week for the year, I mean that would annualize GM as a customer close to 20% of your total sales.

So, I mean, it's my understanding that GM was less than 10% last year so just wondering, if you could help bridge that?.

Sure. If you look at the 7 million to 8 million, so the $7.5 million midpoint there, we know that's a little higher than then for annualized run rate because of the launch of GM vehicles in the back half, especially, launch of some of the new trucks and SUVs.

So, we know they tend to run a little richer product mix when those new vehicles are launching. And for us that that higher ASP is really driven by our full display mirror launches with GM.

And so when you look at, if you look at an overall basis, what GM was last year on a percent of sales versus the model going forward, they are going to have an uptick in their overall percentage of our total business, given the number of vehicles we're shipping FDM on currently for GM..

Now, if you follow what we've talked about publicly, right around half of our nameplates of the full display mirror are with General Motors. So, that's why the impact in Q3 and Q4 was pretty severe every noticeable..

And we had a lot of strength in outside mirrors and they are high level of HomeLink. So when you put the content per vehicle up against other OEMs, it stacks up right up there..

And how many weeks for the strike are you are baking in for the fourth quarter?.

Basically what we modeled in was four full weeks in October..

Yes, got it. Okay, and then just on the sustained strength in the domestic exterior mirror shipments, I mean, and also we're also seeing a pick up now internationally in the quarters.

I was just wondering I thought maybe the rough estimate was, as you lap the last year share gain win domestically that the exterior mirrors be up maybe mid to high single digits, but clearly, there was a sustained strength in the growth rates.

So, can you kind of talk about what drove that and what your expectation is in the fourth quarter?.

I think when you look at it, it definitely was higher than we expected for the quarter in terms of that percent growth in outside mirrors. When we model going forward though, and remember, a lot of that was driven by some takeover business and some OEM issues where they're struggling with deliveries from another supplier.

So, one of the things that we are focused on was making sure we supported those customers and those deliveries. As you move forward, we wouldn't expect those growth rates to continue at those levels. We think those were much more moderated in 2020..

Okay. If I could sneak one, one small one, you’ve mentioned the release some legal and professional fees tied to a new technology that you acquired.

Can you just speak to that real quick?.

Yes, it was something that we've been interested in for a while. I prefer not to mention what the exact technology is. It is actually phased acquisition that will take a period of a couple years before that will play out completely, but it's definitely a materials play and something that company has been interested in a long time.

We think it is longer-term, five to ten years from now, something that is very interesting to us and could help enable a lot of the products that we're working on..

Our next question comes from the line of Ryan Brinkman of JP Morgan. Your line is open..

I think that the mid-October IHS forecast update assuming that the GM UAW workers would return to their jobs on November 1st, which is probably putting an assumption when they made that forecast. And you just mentioned that, you assumed four weeks of stoppage in October.

Although shortly after their forecast was released is when GM and the union has reached their tentative agreement.

So, what is your current as of today thought process as to when those workers do return to their jobs, maybe mid-next week or so? And if that's the case then could there be some upside to the softer 4Q outlook that you released today?.

Yes. So, two factors there, one of them -- yes, I would assume that's what we were kind of predicting based on the announcement yesterday and then looking at then looking at our information. We would've guessed that, they will hopefully be back to work sometime mid or late next week.

But remember, because in Q3, when the strike occurred, GM continued to release parts from supply base. So, we shipped for a few days, even though the strike was already underway in September. We're expecting it will take a couple days after they're back to work before they start accepting shipments again from the supply base.

So that would put us kind of into next week maybe at the beginning of the following week before we believe we will be shipping with GM again..

And then just lastly, I wanted to ask about there has been so many developments, potential development on the China trade and tariff front just in the last couple months here.

How are you viewing the current -- was it roughly 110 or so basis point headwind relative to tariffs? How do you think that's going to evolve as we move into next year?.

That's a great question. We -- our supply chain teams do a great job of staying on top of that. Obviously, whenever Trump tweets that there is a trade deal on the surface, we follow up and then it looks like you know on the back end there's still modeling, potential increases. We have list three schedules to increase in January up to 30%.

There is list 4A which our guys call a Christmas list, that's potentially out there, but has been delayed. As Steve talked about on his previous calls, we're evaluating all of our options as it relates to international trade, as we also allude to.

Our exports to China are starting to become as big of an impact as our imports of raw materials coming in from China. So, we're forming our strategy currently and glad to be sharing that if things continue to escalate.

Hopefully, obviously, we would hope that this would all get settled down and we have reduced cost but we're certainly being impacted as you saw in the quarter, 110 basis points that will continue to ramp up further in 2020, if nothing changes..

Yes, we would expect a slight increase in 2020 versus what we've encountered so far in 2019 base-off what's in place right now. The important part to notice there, if we look at the dollar amounts, our purchasing and logistics team have done a great job of offsetting a lot of those.

The tariff -- annualized tariff run rate would be much higher, if we had made a lot of the changes we made from the supply side. So, we continue to look at that and I would say, modeling 2020, we're modeling just slightly over that 110 basis points of headwind for next year..

Our next question comes from David Kelley of Jefferies. Your line is open..

Just wondered if you could provide some more color on the elevated OpEx in the quarter, I think you referenced product development and some launches.

Were there any specific callouts in Q3? And do you expect that to normalize going forward?.

Yes, I think, if you look at breakdown half to two thirds of that is wage related because of all the launch activity we have going on. We talked about full display mirrors. We have another eight launching or seven launching in Q4. Next year is a busy year, so we are staffed for that build but we're focused on new technologies.

And so, there's been a focus on building that out, but like we called on the press release to avoid some of these tariff that does come at a cost, so our business development teams, some of our leadership teams have been traveling to our suppliers in some of those cases. So there is cost elevated there.

Some of the smaller things that we didn't talk about really were, we are having elevated freight cost that we had all years. So, we didn’t call out in press release, but all those things are kind of additives, but the biggest piece is supporting the engineering development activities that we have going on now and into support growth in the future..

And then maybe to switch gears a bit and maybe another market outlook question. Your 2020 guidance here is unchanged.

Can you talk about what you're seeing in Europe currently and clearly, there are number of moving parts, just thinking about regulations coming down the pike next year that although don't directly impact you guys, but just from a customer relationship standpoint, any thoughts on changing production outlook and as it relates to your European exposure?.

Yes, absolutely. If you look at, we do very well with our European customers, so it's something that we watch very closely. Probably the most concerning part of the forecast our IHS update has been that a lot of the German OEMs are showing some weakness and their production both in '20 and beyond.

And so, we keep an eye on that when we look at all those IHS updates, we still believe will be in that 3% to 8% range next year. So it's obviously a little concerning you hate to see your customer struggle, but it's one of the things that we watch very carefully and keep our eye on.

But as of right now, we haven't seen anything that would imply that we need to change our guidance for 2020..

[Operator instructions] Our next question comes from David Whiston of Morningstar. Your line is open..

In the press release, you called out some purchasing cost reductions being better than expected.

Are you able to speak a little more specifically how you went about getting that?.

David, that’s a great question. If you remember when we talked about 2019 in the beginning of the year IHS was still running pretty strong growth, and so there was a lot of constraints on the passive electronics.

With the slowdown, we got a little bit of help from that, but we also tasked the teams to go back to work with the suppliers and they delivered. So that's been a positive benefit for us a lot of the different commodities.

And then, the last piece as we some of our precious metal cost that we talked about we're not as much of a headwind is what we initially projected. So all in all that's really the driver of all the better purchasing cost reductions..

And you mentioned going upstream to suppliers events.

Is that surely a pricing discussion? Are there other ways you guys can help your costs out without having to try and squeeze them on price?.

Yes, so I mean it's the way that we approach this with all of our suppliers as we work to have a relationship.

And knowing that we grow, we go on a journey with them to say, that if you're going to come along for this ride, we have expectations, but we'll promise you that we’ll provide you volume and growth and its ability to have that growth with us, and so we've had a different focus over the last 18 months to really engage with them on a different level..

When I think internally, one of the things that really helped us is, we invest a lot into our process development and industrial engineering applications. What that's allowed us to do is help offset some of those precious metal costs by reducing our usage.

In other words, being more efficient with the process of how we do it, and there's been a lot of inventions that have taken place that have allowed that to occur given the precious metal increases that we've seen.

The team's been working on this for a couple years now and some of those really hit home this year and that's definitely helped our cost basis significantly..

Shifting gears over to EVs in terms of things like target like bolt and you have a lot more BEV coming to market from a lot of your customers going forward.

Is there any major challenge in integrating your mirror into BEV compared to internal combustion vehicle or that's even easier?.

No, there is not any major challenges, I think from it's a standard still got a 12-volt area section that we would be utilizing like many other components. And so, from a standard mirror integration, that would be very simple when compared to the standard combustion engine..

I think what's interesting about battery electric vehicle that most people don't think about though is when you talk about a vehicle having to package batteries it does reduce the cabin changes in order to hit the efficiencies they're looking for in the range typically as a roof lines come down the where the seats are moved up.

It does tend to shrink like rear windows and the design of the vehicle which makes some of our newer technology maybe even more applicable on a BEV vehicle than what it would be on a traditional ICE..

And last question on just an update on how difficult or easier, is it compared to few years ago to get software engineering talent to come out to Western Michigan versus choosing the California, East Coast?.

Yes. I think that's going to forever be a challenge on. I mean, I can't say that we have an issue right now the team has been doing a great job in recruiting process.

We have changed how we've gone through and the method and the types of people that we're bringing in to do software always will be a challenge from in competition with other companies as well as the West Coast. But, right now, are doing really well, sustaining and hiring and adding additional heads as needed..

Our next question comes from [Peter Cowell] of Broadway Capital. Your line is open..

Hey, guys. Thanks for taking my question. With respect to the 2020 guidance of plus 3% to plus 8%, so, it looks like in 2019, you had something like 9 or so million dollar headwind from the GM strike in the third quarter, and you are talking about a $30 million headwind in the fourth quarter.

And it also sounds like that volume probably comes back in 2020. So, if I look at 2019 having a 40 or so million headwind from the strike and 2020 having a $40 million tailwind, that's a nice percentage growth rate change you will have next year. So, my question is like, you are not really changing the 2020 guidance.

So, like, if the strike hadn't happened, would you have had a lower 2020 outlook or you know why shouldn't your 2020 outlook from a growth rate perspective be higher now than it was when you kind of give that guidance in the third quarter? Thanks..

Yes. No, we wouldn't have had to change our guidance, if it weren't. If you look at just the strike issue by itself, what I would say is, you have two kind of offsetting trends happening. Number one is, sales pushing from '19, some of the sales pushing from '19 and '20.

Our historical experience with issues like this is that, not 100% of those sales don't come back the following year, it's in other words, like some of what's been this by GM will probably just be fall out permanently.

And that's really just based on how consumers consume and it's the fact that GM vehicle weren't available that may have purchased something else or way or move on. The other part of that, there was really was been offsetting portion for 2020 is the drop in IHS guidance globally.

And if you look at that, I mean, you're talking about last few months especially, I think it’s somewhere in the neighborhood of $3 million or $4 million vehicles that have come out of the global vehicle production estimates for 2020 in the last three or four months. And so, that forecast has been changing pretty drastically.

And so, those would be kind of the offsets, right. If you would see some push out of '19 into '20 sales, which is a positive, and then you'd see a little bit of a reduction from the estimates dropping in global light vehicle production..

There are no further questions. I'd like to turn the call back over to Josh O’Berski for any further remarks..

Thank you. As Steve mentioned, we have a handful of analysts coming to visit our booths during SEMA and CES, and if anyone is interested in attending, please let me know. Thanks for your time and questions. This concludes our call. Have a great weekend..

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect..