Gentex Corporation

Good day, ladies and gentlemen, and welcome to the Gentex Report's fourth quarter and year-ended 2018 financial results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructors will follow at that time. If you require operator assistance during the program, please press star then zero on your touch-tone telephone. I would now like to introduce the host of this conference call, Mr. Josh O'Berski. You may begin.

Thank you. Good morning, and welcome to the Gentex Corporation fourth quarter 2018 earnings release conference call. I'm Josh O'Berski, Director of Investor Relations at Gentex, 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 with Thank you, Josh. For the fourth quarter of 2018, the company reported net sales of $453.4 million.

a decrease of 1% compared to net sales of $459.6 million for the fourth quarter of 2017. During the fourth quarter of 2018, plant shutdowns and changes to production schedules at OEMs as well as order adjustments at certain tier one customers negatively impacted quarterly unit shipments and revenue. At the beginning of the fourth quarter of 2018, vehicle production estimates from IHS market showed a net growth of approximately 2% in the combined regions of Europe, North America, Japan, and Korea and a slight decline for the China market. The actual unit production for these markets in the fourth quarter combined for a decline of nearly 6%. The total negative impact on company revenue as a result of the vehicle production shortfall and the Tier 1 adjustments to orders was approximately $30 million in the fourth quarter of 2018. For calendar year 2018, the company's net sales increased 2% to $1.83 billion compared to $1.79 billion for calendar year 2017, primarily as a result of a 6% increase in auto-dimming interior and exterior mirror unit shipments, which were partially offset by product mix headwinds, vehicle production shortfalls, and Tier 1 adjustments that primarily affected the fourth quarter of 2018. Thank you for joining us. particularly in our highest penetration and dollar content markets of Europe and North America. In the end, 2018 finished with our sales levels outperforming our underlying markets by over 4%. And when you consider the order adjustments of Tier 1 customers, this growth rate was very close to our stated goal of mid-single-digit outperformance versus our underlying market. The gross margin in the fourth quarter of 2018 was 37.9%. Thank you for joining us. The gross margin during the year was negatively impacted by approximately 30 basis points from tariffs that became effective during 2018. Other factors that impacted the gross margin during the year included the company's inability to leverage fixed overhead costs on the lower than expected sales levels and annual customer price reductions that were not fully offset by purchasing cost reductions. When considering the poor performance in light vehicle production and the lower than expected revenue that this produced, We were pleased with the fourth quarter gross margin of 37.9%. The gross margin expansion of 30 basis points from the third to the fourth quarter of 2018 was impressive given the overall lower sales level. Additionally, the fourth quarter gross margin would have further improved if not for the incremental 20 basis points of tariffs that began at the end of the third quarter. In fact, without the incremental tariffs in Q4, The gross margin expanded by 50 basis points from Q3 to Q4. The cost comparisons throughout the year are difficult given the tariff ramp up in the second half of 2018. But if we exclude the impact of tariffs throughout the year, then the gross margin of the company improved sequentially during each quarter of 2018. Operating expenses during the fourth quarter of 2018 were up 0.5% to $46.5 million when compared to operating expenses of $46.3 million in the fourth quarter of 2017. For calendar year 2018, operating expenses were $182.3 million, up 6.5% compared to $171.2 million in calendar year 2017. Net income for the fourth quarter of 2018 was $106.3 million, Thank you for joining us today. when compared to the fourth quarter of 2017. Net income for calendar year 2018 was $437.9 million, up 8%, compared with net income of $406.8 million in calendar year 2017, primarily driven by a lower effective tax rate for 2018. Net income in 2017 was positively impacted by $37.2 million as a result of the Tax Cuts and Jobs Act. When excluding these one-time tax benefits in 2017, net income increased by 18.5% for 2018 when compared with calendar year 2017. Earnings per diluted share in the fourth quarter of 2018 were 41 cents compared with earnings per diluted share of 46 cents in the fourth quarter of 2017. Earnings per diluted share during the fourth quarter of 2017 were positively impacted by 13 cents as a result of the Tax Cuts and Jobs Act that became effective during the fourth quarter of 2017. When excluding the one-time tax benefit during the fourth quarter of 2017, the earnings per share increased 24% in the fourth quarter of 2018 versus the fourth quarter of 2017. For calendar year 2018, earnings per diluted share were $1.62, which was a 15% increase year-over-year compared with $1.41 for calendar year 2017. Earnings per diluted share during 2017 were positively impacted by 13 cents as a result of the Tax Cut and Jobs Act. When excluding the one-time tax benefit in 2017, the earnings per share increased 26.6% for 2018 versus calendar year 2017. The company repurchased 3.3 million shares of its common stock during the fourth quarter of 2018 for a total share repurchase of $69.8 million in the quarter. For the year ended December 31st, 2018, the company repurchased 26.4 million shares of its common stock for a total of $591 million. I will now hand the call over to Kevin for the fourth quarter financial details.