Good morning, ladies and gentlemen. Welcome to the Gentex reports Second Quarter 2016 Financial Results Call. Today's call is being recorded. And I would now like to turn the meeting over to Mr. Josh O'Berski with Gentex, Investor Relations Manager. Please go ahead, sir.

Thank you. Good morning and welcome to the Gentex Corporation second quarter 2016 earnings release conference call. I'm Josh O'Berski, Investor Relations Manager, and I'm joined by Steve Downing, Senior Vice President and Chief Financial Officer; Kevin Nash, Vice President and Chief Accounting Officer; and Neil Boehm, Vice President of Engineering. 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, rebroadcast, reproduced, retransmitted, transcribed, or otherwise redistributed. Gentex Corporation will hold responsible and liable any party for any damages incurred by Gentex Corporation and 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's Safe Harbor statement included in the Gentex reports second quarter 2016 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 second quarter 2016 financial summary.

Thanks Josh. For the second quarter of 2016 the Company is pleased to report net sales of $423.8 million, which was an increase of 12% compared to net sales of $379.3 million in the second quarter of 2015. The 12% sales growth was driven by a 13% quarter-over-quarter increase in auto-dimming mirror unit shipments, while overall automotive light vehicle production in the second quarter of 2016 increase 3% when compared with the same quarter of 2015. The gross profit margin in the second quarter of 2016 was 39.4%, compared with a gross profit margin of 38.4% in the second quarter of 2015. The quarter-over-quarter increase in the gross profit margin was driven by purchasing cost reductions and favorable product mix, which more than offset annual customer price reductions. Income from operations for the second quarter of 2016 increased 19% to $128.7 million when compared to income from operations of $108.1 million for the second quarter of 2015. Other income decreased to a loss of $1.1 million in the second quarter of 2016 compared with other income of $2.3 million in the second quarter of 2015, primarily due to a reduction in realized gains on the sale of equity investments during the most recently completed quarter as compared to the same quarter of last year. Net income for the second quarter of 2016 increased 16% to $86.5 million compared with net income of $74.6 million in the second quarter of 2015. Earnings per diluted share in the second quarter of 2016 increased 20% to $0.30, compared with earnings per diluted share of $0.25 in the second quarter of 2015. The increase was primarily driven by increases in net income, but were assisted by the Company continuing to execute a consistent capital allocation strategy, which resulted in a lower diluted share count on a quarter-over-quarter basis. During the second quarter of 2016, the Company repurchased 3.1 million shares of its common stock at an average price of $15.48 per share. As of June 30, 2016, the Company has approximately 3.3 million shares remaining available for repurchase in the plan. The Company intends to continue to repurchase additional shares of its common stock in the future depending on macroeconomic issues, market trends and other factors that the Company deems appropriate. On May 19, 2016, the Company announced that its Board of Directors approved a 6% increase in its dividend rate and subsequently declared a $0.09 per share dividend, which was paid on July 20, 2016 to shareholders of record as a common stock at the close of business on July 7, 2016. We believe the second quarter of 2016 is representative of the Company's stated strategy of delivering sales growth through the income statement to the bottom line by maintaining financial discipline while continuing to invest in the future of the Company. I’ll now turn the call over to Kevin Nash for second quarter financial details.

Thanks Steve. Automotive net sales in the second quarter of 2016 were $414.4 million, an increase of 12% compared with automotive net sales of $370.5 million in the second quarter of 2015. As Steve already mentioned, this increase was driven by a 13% increase in auto-dimming mirror unit shipments quarter-over-quarter. Other net sales in the second quarter, which includes dimmable aircraft windows and fire protection products, were $9.4 million, an increase of 7% compared with $8.8 million in the second quarter of 2015, primarily due to increases in dimmable aircraft window shipments. The R&D expenses increased 3.4% and SG&A expenses decreased 0.9% for the second quarter of 2016 to 23.1% and $15 million respectively. SG&A expenses decreased primarily due to severance-related costs that occurred in 2015, which were partially offset by increases in current year staffing levels and benefits. The tax rate during the second quarter was 32.2% which varied from the statutory rate of 35% primarily due to the domestic manufacturing deduction. Based on the Company’s forecast and current legislation, the Company continues to expect its tax rate to be between 31.5% and 32.5% for calendar year 2016. Now for some balance sheet items. The following balance sheet items represent a comparison versus December 31, 2015, which is also included in today’s press release. Cash and cash equivalents were $499.5 million a decrease of $52.1 million from $551.6 million, primarily due to purchases of short-term investments, capital expenditures and share repurchases, but was partially offset by cash flow from operations during the six months. Short-term investments were $145.3 million, up from $4.5 million as a result of $130 million of CD purchases during the second quarter. Accounts receivable was $219.4 billion, up from a $196 million primarily due to the timing of sales. Inventories were $176.2 million, up slightly…

Thank you, Kevin. In the second quarter of 2016 there were 26 new nameplate launches of our inside and outside electrochromic mirrors and electronic features. The unique part of the second quarter is the shift in the types of launches the Company has experienced. Over the past three years approximately two/thirds of launches have been base interior and exterior auto-dimming mirrors with no added electronic features. However, in the second quarter of 2016, of the 26 nameplate launches, approximately two/thirds of them were advanced feature launches. Historically, the Company has been able to demonstrate that it has delivered higher-than-average contribution margins when it's not only growing unit penetration, but also adding electronic content faster than unit growth. Over the next several years we continue to be excited about the overall growth story, especially when considering the total potential content per unit that our newest features, like full display mirror and integrated toll module, have enabled. At CES in January 2016, Gentex introduced the integrated toll module and began marketing this new product to OEMs. We continue to work on the hardware and integration of this product and are seeing definite interest from several OEMs regarding this new technology. We continue to see evidence that this product can represent another growth channel for the Company over the next several years. As previously announced, Gentex continues to work on the development and launch of our full display mirror products for our first - for customers. We believe this product idea is very relevant for OEMs, as evidenced by the fact that we continue to see market interest; not only from our initial launch customers, but also from other OEMs. We continue to believe that we will see additional program awards for full display mirror in the coming year. The interest in this product is also evidenced by the fact that several other companies have begun to show product concepts meant to address a similar use case. Gentex is unique in our product offerings because we are able to combine all relevant technologies into one product including our electrochromic technology. Gentex continues to market a very unique, customized solution to the OEMs that we believe provides tremendous value for not only the OEM, but also the consumer. And although we can never guarantee that there will not be competing program awards, we believe our product addresses all scenarios and thereby provides a unique solution that combines mirror displays, electronics, electrochromics, and the full suite of our other electronic technologies. Now back to Steve Downing for remainder-of-the-year guidance and closing remarks.

Thanks, Neil. Our guidance for the balance of calendar year 2016 is based on the mid-July 2016 IHS production forecast for the remainder of calendar year 2016, which is expected to be up 3% for the second half of the year versus the second half of calendar year 2015. Based on the information we have received to date, we are increasing the lower end of our net sales estimate from $1.64 billion to $1.68 billion. This means that our full-year guidance for 2016 is now $1.68 billion to $1.72 billion. Based on actual results for the first six months, currently forecasted sales and product mix, the Company estimates that the gross profit margin will be between 39% and 39.5% for calendar year 2016. This updated gross margin guidance is an increase to the bottom end of the guidance range from 38.5% to 39%. Based on the actual expenses for the first six months of the year, the Company also estimates that operating expenses will be between $150 million and $158 million for calendar year 2016. And with that we can now proceed to questions. Thank you.

Thank you. [Operator Instructions] And we will take our first quarter from Christopher Van Horn with FBR & Company.

Good morning, guys. Thanks for taking the call and congrats on the quarter.

Thank, Chris.

Could you just comment - it looks like the international unit shipments really accelerated in the second quarter. Could you comment specifically, was that more further penetration, was that market driven? Maybe a combination of both? And then was there any regions or customers that really stood out?

Well, if you look at, yes I mean it's kind of driven by both. The European market has been doing a little better on the production side really for the last couple years, but if you look back over that history what you'll really see though is our penetration has been increasing in those foreign markets at an higher-than-average rate. And so really it's across the customers and across the regions. It's pretty typical success for us right now, what we've been experiencing over the last couple of years in terms of growing in those foreign markets.

Then how about China specifically? Could you comment a little bit on the pipeline and how you see that ramping?

Sure. The China market started to come back. The forecasts have been all over the map really, over the last year and a half especially, on what was going to happen on production in China. As we look out over the next couple of years we see a more normalized growth rate from a production standpoint, but from a content perspective we look – we are pretty optimistic about what we see in the future from a content standpoint in the China market. It's only really been the last several years that we have been kind of actively marketing some of our newest features in the China market. And so we continue to believe that we can outpace the production growth rates in the China market with content.

Got it. And it sounds like this quarter two-thirds of the shipments had more advanced technology on it. I think that's up from what you've said in the past where you've been kind of at 50%. Is there any tech - advanced tech feature that's really standing out to you when you look at the shipments?

Yes. Just to clarify, when Neil talked about two-thirds that was really new launches, so the shipment balance is still in that 50/50 range. The unique thing about the second quarter was 26 nameplate launches; it was overweight on advanced features and electronics. So not a big shift on the quarter from a base versus advanced feature though, really that's an indicator of the next several years.

Right. Any feature that really stands out, like HomeLink or SmartBeam? Or was it just, generally speaking, there's just more content?

Yes, HomeLink and SmartBeam both were two of the larger ones that had growth in that launch execution for this quarter.

Okay, great. Thanks a lot, guys.

Thanks.

Thank you, Chris.

And we’ll take our next question from Rich Kwas with Wells Fargo Securities.

Good morning, gentlemen.

Good morning.

Good morning, Rich.

Just on gross margin, so nice performance here. You upped it into – the guidance into the upper half of the range. As we think about the second half of the year, you get productivity savings; the price downs are largely done. Any other puts and takes as we think about the second half of the year as it relates to mix and what you are seeing on the volume side by region?

Yes. The real thing you have to – you're exactly right about the first half of the year is where we are normally fighting through kind of price reductions and working through the purchasing cost reductions, trying to offset those. The second half of the year primarily rests on the side of mix and that's – we wouldn't change that outlook really for the second half of this year any. It's really going to come down to kind of what feature mix looks like in inside and outside mirrors and then also on electronic content versus base.

And then when you are over 10% growth like, we talked about, historically, you tend to leverage your overhead costs a little better.

Okay. So it's going to come down to volume and then just what the take rates on some of the more advanced features are to get you to the upper end of the range?

That’s correct.

And then on the SG&A, the operating cost reduction, I know you cited the year-over-year severance that you are going against in this past quarter. But as we go through the balance of the year, anything that's noteworthy on what you are doing on the cost side that has brought that down? I know currency in the past has been favorable on that front, but that's kind of more neutral these days. But just wanted to get your thoughts on operationally anything noteworthy there.

Yes. I think the biggest thing on the year-over-year basis that is helping push it down was really last – the effect of the stock-based compensation coming down. So true wages are up; but we did the split and the way we handle our brands going forward and the lower stock price, you've kind of capped or lowered that stock-based compensation on a year-over-year basis. So it's kind of masking the real growth there.

Okay.

But we are investing heavily in trade shows and marketing, and so SG&A would've been up considerably more without the year-over-year severance.

Okay. And then just a bigger picture question. So in the last couple months there's been reports indicating around or at least rule changes in some jurisdictions around being – allowing for mirrorless vehicles. And I know you get asked this a fair amount, but are you seeing I guess a question for Neil. Are you seeing anything from the OEMs in terms of [coding] activity, bidding activity that is substantially different as you think about later in the decade? Because I imagine you've got to be quoting stuff for 2018, 2019, 2020 at this point and just curious what you are seeing out in that timeframe.

Sure. I will hit it first and I think Neil will probably jump in, too, with a few comments. When we look in that next vehicle cycle, there isn't really a change in what we are quoting. One of the things that we like to point out is the awards. When we talk about outside mirror awards that happen on a quarter-over-quarter basis, really what you are talking about are programs that are designed to last probably five to six years average. Really the stuff that we are quoting out for an SOP two years from now, we would expect to be a five- or six-year life. Anything in that time period we're not seeing a change at all in the quote process, the volume of quotes, the programs that are being awarded. And that's kind of an important point that you bring up is there is a lot of discussion around this and mainly what OEMs are doing at this stage are evaluating concepts. That's why when we talk about full display mirror and what Gentex's play is in that space, we're pretty excited about the technology that we have in-house. And we think our products are very relevant on a go-forward basis and are actually helping OEMs enable to look into what that future of the vehicle will be in 15 years, let's say.

Okay. Thank you.

And we’ll go to our next question from David Leiker with Baird.

Hi, good morning. This is Joe Vruwink for David.

Good morning, Joe.

Hi, Joe.

If the recent launches are – or I guess can be thought of as accretive to maybe ASP, if more features less of the base mirrors, when you get to a point where your overall business is skewing towards the high – I know it already is high feature, but some of the recent launches it skews more that way. And does that maybe change the revenue versus shipments dynamic? I'm thinking how this quarter revenue growth was a bit below shipment growth. Does it eventually reverse the other way and you see accelerating revenue growth?

Yes, so if you look at really the last three years since we started – really started working through those RCD losses, really what you would see is there's been a last three-year or four-year history, which has been a hair unique for Gentex, is really units kind of outpacing revenue growth. This quarter was much closer to even, which is a move in the right direction for us over what the last few years have been. We believe in the next couple years you will start to see that change course again and start to go in a more positive direction from an ASP standpoint. Really what we like to talk about is less about ASP, because if we're doing our jobs really well we continue to grow our base mirror business at about the same rate because that becomes then the platform through which we can offer features. But longer-term, as FDM starts to become more significant from a volume standpoint and now that the RCD losses are over and we start to see growth in a lot of these other electronic features, we are hoping to start increasing that dynamic. The other thing that we do like to point out is, if you actually look at content per vehicle, we have done a better job than what that simple ASP calculation would indicate, which is why we tend to talk about content and the content and number of platforms that we are on and how we are making progress on those – with content on platforms.

Okay, great. If I may be shift gears a little bit, the guidance for the year and what it implies for the second half, I think it implies 10% revenue growth. You are assuming 3% end-market growth, so that's a smaller outperformance gap than you saw in the first half. Am I thinking about that right? And is there any reason – do you just grandfather some pretty strong launches in the back half of last year? Anything why that would be stepping down?

Well, it's not really stepping down per se I mean really what you're looking at is just like you said; you're looking at kind of year-over-year comps and you know kind of it's the trailing half of a year that already started with launches at that same level. More importantly, when you look at production growth we look at it pretty simply and we talk about it as 3% in markets. Really you need to dig deeper to understand where that growth is coming from. A lot of the markets we're talking about, we've seen strong growth in things like box trucks or other things that are tracked in terms of production volume that really aren't target markets for us. So when you look generically at a region and you see growth rate of 3% that doesn't mean that our target market is growing at 3%. So you have to dig a little deeper to see that really we don't see a significant change at all from what our growth rate is on a relevant market basis.

Got it, understood. And then my last question. In the past there's been all these rule of thumbs for shipments do this, gross margins do this, product mix matters, et cetera, plants coming online. It seems like Gentex is executing much more consistently regardless of mix, regardless of plants coming online. Is that a fair statement? And what has changed in recent history to allow you to do that?

Well, a couple things. First and foremost, the size of the Company helps. Obviously, with a much larger business now you can absorb some of those increases and not have them make the same level of impact that they would've made historically. So part of it is just size. The other part is discipline and how we run the business now we try to be, obviously, very focused on making sure that we don't destroy shareholder value when we are trying to get our production and capacity in place, so we're much more careful; we think through that process. Usually it's a two-year out plan that we are executing and obviously the financial results are a big part of that plan to make sure that how we come on board and onboard capacity is done in a more efficient way.

Great, I’ll leave it there. Thank you.

Thank you.

We’ll go to our next question from Brett Hoselton with KeyBanc.

Good morning, gentlemen.

Good morning.

Good morning, Brett.

Good morning.

First, I wanted to start off with just a question on HomeLink? And wondering how do we think about where we are at in terms of HomeLink, and I've got two specific questions. One is can you address the potential disintermediation in HomeLink here in the United States relative to smartphones and that sort of thing? I mean I don't really think that's going to happen, but what are you seeing in the marketplace? And then secondly, more importantly, I know you are targeting China as a growth market. How do we think about the ramp-up of China as a growth market? Where are you at in terms of contract wins and does the HomeLink device have to be attached to the mirror, interior mirror in the China market, or is it also sold separately as it is here in the United States and elsewhere?

Sure. So let me answer a couple and Steve will jump in when he gets a chance; this is Neil. So in regards to the HomeLink in comparison to a phone app, I think one of the things that is really important to remember is 90%-plus of garage door openers that are in the market today are direct transmit devices, which is what HomeLink functions and operates with. And it's going to be a 10-year or 15-year cycle before the home automation and garage door openers can get to a point before they even have any reasonable volume out there to be of interest. We believe really that the HomeLink product has a strong path and actually one of the technologies we are working on is how to bring some of that home automation in the HomeLink product together as a future product path, to give the consumer the home automation aspects they're looking for while maintaining that direct transmit with HomeLink. There's many situations and scenarios where the app functionality does not work and that a direct transmitting device, like the HomeLink product, is required and important. In regards to how you can get it, HomeLink is available outside of a mirror today. Roughly about 40% of the HomeLink products are in-mirror and about 60% are out-of-mirror, approximately. So that is available in the market today in the way we ship it to OEMs. Then in regards to China, we are still actively developing products and in launch on programs for that market. Right now they are targeted for late this calendar year for production, so the beginning next year on some low-volume products.

Brett, just so you know, that go-to-market strategy in China, primarily what we are targeting is joint venture OEMs who already have a location established in their vehicles, their global execution, of whether that's in an overhead or visor or in the mirror. And so what our plan and strategy is in the China market is to use that same location and geography to help minimize the amount of tooling and redesign that's needed for those vehicles.

Okay, that makes sense. Then as far as the SmartBeam product is concerned, you know the bear thesis at this point in time; Global Light takes over the world. But how are we thinking today and how are the OEMs thinking today relative to some of the issues that some of the automated vehicles have had recently, specifically Tesla?

We are always careful about speaking for OEMs. We are more than happy to talk about what we think we can sell to OEMs, but we usually tend to be a hair careful speaking on their behalf. What I would say is, when you look at our SmartBeam strategy, we still believe that there is a very relevant market for that product longer-term. Most OEMs have changed their strategy from five years ago, which was a mono camera strategy, saying hey, we only want one forward-facing camera. We will never do more than one. Most OEMs now have acknowledged that there may be multiple cameras. A lot of OEMs have talked about six, seven, or eight cameras on a vehicle doing different things, and that's where we believe the Gentex strategy will play really nicely with the future of the car and the evolution of cameras and automation because we have a relatively low-cost camera with our own algorithms that are designed to do certain feature sets that become very important for other autonomous type features. So obviously, autonomy works really well when it can see well in well-lit conditions. We believe our lighting system is the best in the market and we're pretty interested about seeing who we can work with, which OEMs. I think the interesting part in Q2 as Neil talked about, one of the strongest launches during the quarter were SmartBeam launches in Q2. So the bear thesis that somehow SmartBeam is dead already, what we are doing is we are actively launching new SmartBeam programs right now and continuing to work on the evolution of that product to make sure it's relevant 10 years and beyond.

Then finally - and that kind of leads into my final question, which is just as we think about the 26 launches here in the second quarter in the two-thirds advanced feature launches; if you look out over the next year to two years or so, how do we think about that mix? Should we think about the second quarter as being somewhat of an anomaly and a lot higher percentage of new feature launches than normal, and it's going to revert back to even more normal level or lower level? Or should we think about that as the new norm where we are going to see a lot more advanced feature launches going forward?

I think we are always careful to talk about things forward-looking because it's difficult to predict exactly how those will go. What we would tell you is that our OEM customers are definitely interested in electronic content. Our goal and our aspiration is obviously to continue to grow that electronic content to be a higher percentage of launches. At the same time, we don't want to minimize the fact that the base auto-dimming feature still grows. We have a lot of new launches happening and that - because that is our platform today, and we believe there's a lot of consumer and OEM value created there. What we are looking for, though, is we like it when we can have not only auto-dimming features, but then offer an OEM a wide variety of electronic content off of that platform. And that strategy is starting to show evidence of working. Our goal and hope is that it continues to, but it's difficult to predict, say, in the next 12 months to 18 months if that's going to be a consistent ratio or if it's going to move back to the historical levels. The important part to note there is, regardless of whether it's at the historical level or this new higher level, anywhere in that range is a positive for our shareholders.

Thank you very much, gentlemen.

Thanks, Brett.

Thanks, Brett.

We’ll take our next question from Jason Rodgers with Great Lakes Review.

Good morning, guys.

Good morning, Jason.

Hello.

Just to follow-up on SmartBeam. Wondering if there are any changes on the regulatory front that could be a positive for SmartBeam, as well as your progress with SmartBeam in China.

Nothing that's recent. At the end of last year, [NISA] came out looking for some new rating systems in the NCAP or North American market in the five-star rating. Included in that was points for automatic high beam control or our terminology is SmartBeam. That legislation or not legislation, sorry, that information came out. Comment period was completed and now we are awaiting information and feedback from NISA on what their final ruling is going to be on that.

The interesting part, though, is that all of that is designed around – would be a positive for Gentex in our lighting systems. Historically, the North American market has undervalued lighting and lighting features. This would start to hopefully correct that. More importantly, and what we've been after for a long time, is hopefully a world where our dynamic forward lighting would be an allowable feature in the market. Really in the North America market today you're getting kind of a watered-down version of what we are capable of versus what we are shipping into the European market. We think once our what we refer to as dynamic forward lighting were allowable, we think it could definitely help the marketing aspects of that product.

Then the China effort for SmartBeam?

Yes, so China – really the China effort is somewhat a function of those joint venture OEM strategies, where they are already deploying SmartBeam. It's an allowable feature there. The best part of that marketing is sitting down in a market that was new for us a few years ago, working with our local business development team, speaking to OEMs about the relevance of this product, why it makes sense for the consumer, building that business case for the OEMs in China. What we've seen is we've seen a lot of launches in that market for that product and we're excited about the growth prospects. Lighting is a challenge, like street-level lighting is a challenge, there and we think our product helps offset some of those issues.

Okay. And then looking at the full display mirror, would you expect to announce additional OEM wins for the FDM before the end of the year?

Yes, we're hoping so. Really that's a function, though, of – it may not be before the end of the year. And the only reason why we say that is oftentimes we have wins and new programs awarded, but it's up to the OEM on how they are going to market that feature. If you look at how GM, for instance, has rolled this out on Cadillac, it has been a feature that they've promoted pretty heavily. And so we are just always careful in working with our OEM customers to make sure that we are following their lead as relates to their product strategy on new vehicles.

And then looking at 2017 is the guidance still for a 6% to 10% increase in revenue?

Yes.

All right. And then finally the new facility is that on track to be completed by the end of the year?

Yes. Actually a portion of it is done already, so we are starting to use it for a distribution center. The actual manufacturing portion of that should be up and running hopefully by, if not end of the year, shortly or pretty early into first quarter.

Thanks a lot.

Thank you.

Thanks.

And our next question comes from David Whiston with Morningstar.

Thanks, good morning. I know it seems like over the past few years you guys have talked about wanting to add exterior capacity and, just going back to some earlier questions today on the call, is there any concern about exterior growth perhaps slowing in light of these new rules coming from places like Japan and Europe and possibly eventually the United States?

No, I mean if you look at – if you look at the launches over the last couple of years and you look at the growth rates we’ve been posting really over the last 18 months on exterior mirrors, I mean those are five, six, seven-year programs. And so with the new launches that we have currently rolling out, I mean between outside mirrors and outside mirrors with advanced features, of those 26 launches, eight of those launches were outside mirror program awards. So we still feel strongly that outside mirrors are very relevant, for sure in the next 10 to 15 years. And the goal is for us to participate, as it relates to camera monitoring systems, with our full display mirror project and other products that we have available in that time period. But it does not change our outside mirror growth story that we have continued to put up for a long time now.

Okay. And on operating expenses, is there more you can do at this point for the second half of the year to offset annual customer price reductions or all those actions already taken in first half?

As it relates to operating expenses, I think we had a pretty optimal quarter. Typically most of the customer price reductions is showing through the gross margin side of it. And like Steve said earlier, typically the first half of the year you are fighting through old inventory and getting to offset your customer price reductions this year was a little unique. We've done a little bit better, but we would tend to do better on leveraging our overhead costs and operating expenses when sales are growing above the 10% range, like we saw in Q2. We are continuing to invest in the business and that's a key part is we would expect that margin is probably pretty optimal right where it sits. Our goal is to continue to invest and manage it, but I wouldn't expect it to go much higher than where it would be in Q2.

Okay. And on Brexit, I know you don't have a lot of foreign currency exposure because of how you guys get paid, but have you had any conversations, particularly with your German three customers as to their thoughts on UK demand for S Classes, E Classes, 5 Series type vehicles?

No, I mean most of our customers I mean first and foremost, we think that trend would be out quite in the future so we wouldn’t - typically our OEMs wouldn't be talking to us about that at this stage. I mean it would be pretty early to start having those discussions. More importantly, when you look at it we don’t know that it changes demand I mean obviously exchange rates and affordability become an issue once that occurs, but if you look at our overall forecast from where we are at with OEMs I mean IHS came out with a new production forecast of what the impact from Brexit is. It was a fairly modest impact longer-term. And so really what we're looking at - the bigger issue is going to be macroeconomic issues that will happen in that time period, more so than Brexit by itself. So we're not expecting a huge impact to our business due to that.

Okay. Thanks, guys.

Thank you.

We will go to our next question from Ryan Brinkman with JPMorgan.

Hi, this is Samik here on for Ryan. The first question I had was coming back to the guidance and the upward [trajection] in guidance in 2016. Did want to get a sense of how much of that is probably driven by better-than-expected production and how much of that is better-than-expected take rate. And probably just going back to the earlier question, I'm trying to give a sense of how this impacts where you land in terms of the 6% to 10% guidance for 2017; how much of this helps your guidance in 2017?

Sure. If you look at the current calendar year performance and you look at what the production is up in the regions, that's a pretty good indicator of how much was production-based. The delta is pretty much outperformance. Like I mentioned earlier, you do have to dig a little deeper when you look at production numbers in a region. Some of those markets aren't relevant to us, so really what you want to do is look at production kind of by segmentation in each of those regions. And then when we look through - like box trucks, for instance, for us tend not to be a very big part of our business. We don't do a lot of business there. So to answer where production growth is coming from, you can adjust that production growth rates in those regions to remove those. Also, we are pretty new in our A and B segment execution so we don't have a tremendous amount of volume in those segments today. So if growth is only coming from there, then you can see then that our growth rates are more on the content side and penetration side than on the pure production side. When you look on a forward-looking basis, the same story holds up. When you look at that, we will perform - outperform production growth rates. Really in the Company's history that’s been the trend. That has not changed. It varies from quarter-to-quarter on a percentage basis of how much we are outperforming the market, but it's usually been in that kind of mid-to-high single-digits outperformance to production.

Okay, got it, got it. And going back to the full display mirror, and correct me if I'm wrong, but it does sound from your comments that you are seeing some competitive products out there and you think your solutions are unique in the marketplace. So maybe if you can share some details on how your products are unique and what are the creative protections around it that would be helpful.

If you look at our product, what's unique about it is combination of technology – so electrochromics as a core, more importantly, mirror. The original product concepts that a lot of Tier 1s were talking about were pure displays with no failsafe, no redundancy, no mirror integration. Getting past that first step is incredibly difficult, combining a display and reflective surface into one product not easily achieved. Beyond that then you take that next-level. Now how do you not only combine a display with a reflected surface in a mirror, but also add the concept of electrochromics makes it even harder. So when you look at our product lineup and the physics and the thin films and the coating side, what we had to achieve to be able to make that product look the way it does and perform is very hard to do. We believe all those features are relevant to the consumer and so you don't want to take away one feature in order to replace it or supplant it with another. I think what has been sticky with our customers so far is that fact that we are not taking a feature a way to introduce another one; that we are able to integrate all these technologies into one housing and make that usable for the consumer. And so that product is unique in that regard. The other one is that, in typical Gentex fashion, we did kind of create this model, this product, this scenario so fortunately we feel like we are kind of setting the trend. And if we keep that up and keep spending money on R&D efforts, new technologies and new concepts that we can continue to outpace the marketplace.

Got it, got it. Final question, the TransCore. I mean your venture with TransCore was announced I think earlier this year. So six months down I'm sort of wondering what your M&A pipeline looks like or what your next sort of tie-up looks like in terms of adding growth opportunities for your electrochromic mirrors.

Yes. So we continue to investigate a lot of different technologies and really what we are looking for there is kind of fundamental technology. Not necessarily chasing income statements, but really looking at what does the car of the future look like 10, 15 years from now? What type of technologies are going to be relevant in that environment and how do we find something that is a good fit strategically with our product and our geography and where we are at? So obviously nothing to announce today, but we continue to look and investigate and look through opportunities there.

Okay. Thanks for taking our questions. Thank you.

Thank you.

Thank you, Samik.

And we’ll go to our next question from John Murphy with Bank of America Merrill Lynch.

Good morning, guys. This is actually Aileen Smith on for John.

Hey, Aileen.

Hey, Aileen.

Just a first question. We had traditionally thought of your interior mirrors being a higher-price, lower-margin product and your exterior mirrors being lower price and higher margin. But you call it in your press release that one of the drivers of the gross margin in the quarter was favorable product mix and we actually saw interior mirror growth outstrip exterior. So I just wanted to check is there something incorrect in the way we had been thinking about interior versus exterior mirror pricing and margins? Or is it really just the accretion from advanced features on interior mirrors that are helping that margin performance and perhaps changing the margin differential between interior and exterior?

Well, yes and no. You are fundamentally right in that obviously outside mirror growth rates being higher than average are going to be a positive trend. Anytime outside mirrors growth rate is happening it does lower the kind of ASP that a lot of analysts still calculate, but at a higher margin typically. When you look, though, at inside mirrors, it's really a tale of kind of two cities. The first is base auto-dimming tends to be a lower price, lower margin. And when we can add electronic content is when we typically get back to A) obviously higher ASPs, but then more importantly kind of typical margins for Gentex. And sometimes higher depending on what those features are.

Okay, that helpful. And can you give us a little bit more detail on your expectations for the full display mirror? I know that you mentioned to announce some or you expect to announce some new wins for that product over time, but can you disclose right now what level of shipments you are currently preparing for? I just kind of want to get a sense of how large that market could grow to over time and what percent of the business it could represent for you guys.

Sure. The only thing – we’ve actually given this previously. I think it was on last quarter's call we discussed a little bit about several years out what we are kind of preparing capital for and trying to prepare from a production capacity standpoint. And what we said is kind of in that 2019 time period or 2020, if we weren't doing 0.5 million units or so of this product we'd probably be disappointed with that performance. So right now it's not a significant portion of the business at all. We are just in launch with our first OEM on a couple platforms and really over the next 18 months is when we start to get A) more OEMs and B) more platforms up and running. And so it's really 2016 and 2017 are kind of the start and build the foundation for that growth story and then it's really 2018, 2019 and 2020 when it starts to accelerate.

Great. And then just a final, more theoretical one. In the world of a fully-autonomous vehicle where the driver doesn't need to be fully engaged during the driving experience, whether that's 10 years out or 30 years down the line, which of your products do you see ultimately succeeding in that type of market? Is it the full camera display mirror or are there other market opportunities that you are looking towards to secure a position in that environment?

Well, if you look at our fundamental strategy, it's interesting. You look at what is HomeLink? It's a vehicle-to-point or vehicle-to-home communication device. If you look at the TransCore integration of integrated toll module, that's kind of a point – vehicle to infrastructure and it's also a vehicle-to-infrastructure product that is transactional. If you look at our electrochromic technology, it has the ability to be relevant regardless of whether the car is autonomous or not. There is situations under which most OEMs or hopefully many OEMs will be looking at saying, even though you may not be required to drive, you may want to drive. In those situations increasing comfort and convenience, not just safety, is incredibly important. So when you look a lot of the products we're investing in and we’re spending time and efforts on. Neil mentioned the HomeLink strategy about bringing in more kind of cloud-based technology and co-mixing it with our HomeLink product. We believe all those technologies are relevant in the car of the future, even if you are not driving it.

Great, that's very helpful. That's all from me. Thanks, guys.

Thank you.

Thanks, Aileen. End of Q&A

And it appears there are no further questions at this time. I'd like to turn the conference back to Mr. Josh O'Berski for any additional or closing remarks.

Great. Thank you everyone for joining the call, good questions. And if you have any further follow-ups, please just don’t hesitate to reach out. Have a great day.

This concludes today’s conference. We appreciate your participation. And you may now disconnect.