Gentex Corporation

Good day, ladies and gentlemen, and welcome to Gentex Reports' first quarter 2019 financial results. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Mr. Josh O'Berski, Director of Investor Relations. Sir, you may proceed.

Thank you. Good morning and welcome to the Gentex Corporation First Quarter 2019 Earnings Release Conference Call. I'm Josh O'Berski, Gentex Director of Investor Relations, and I'm joined by Steve Downing, our President and CEO, Kevin Nash, our 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 Report's first 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 first quarter of 2019 financial summary. Steve?

Thank you, Josh. For the first quarter of 2019, the company reported net sales of $468.6 million, which was an increase of 1% compared to net sales of $465.4 million in the first quarter of 2018. This growth was in contrast to global light vehicle production that declined approximately 7% in the first quarter of 2019 when compared to the first quarter of 2018. Additionally, the actual global light vehicle production levels worsened in excess of 3% for the first quarter of 2019 when compared to IHS markets' mid-January forecast for the first quarter of 2019. The first quarter of 2019 started off in a very similar fashion to the second half of 2018, with vehicle production forecasts being optimistic about growth, but with actual results coming in well short of those forecasts. A production environment like this obviously makes forecasting difficult and continues to be a reason for our conservative outlook for the remainder of the year. Despite these vehicle production volume headwinds and certain company specific product headwinds, our revenue outperformed our underlying markets by approximately 8%. Our growth was driven by very solid performance of the full display mirror, which helped us overcome the significant volume reductions in our primary industry. For the first quarter of 2019, the gross margin was 36.2%, which was down when compared to a gross margin of 37.1% in the first quarter of 2018. The gross margin during the quarter was negatively impacted by approximately 90 basis points due to tariffs that became effective in the second half of calendar year 2018. Our ability to maintain our gross margin profile on a quarter-over-quarter basis if not for the 90 basis point impact from tariffs required a tremendous effort from the team to overcome the headwinds created from our annual customer price reductions and the inefficiencies from the slower growth rate. The resiliency in the gross margin was supported by improved product mix during the first quarter of 2019, driven by growth in full display mirror and a 9% growth rate in exterior auto dimming mirrors. Operating expenses during the first quarter of 2019 were up 9% to $48 million compared to operating expenses of $44.1 million in the first quarter of 2018. Operating expenses are in line with our stated expectations for 2019 as we continue to focus on increasing our growth rate through additional launches of full display mirror, integrated toll module, and additional auto-dimming mirror applications. Our operating expenses are also focused on new product innovation that will allow us to expand our product portfolio in the areas of connected car, digital vision, and large area dimmable devices. We remain confident in the long-term growth opportunities of these product areas based on the high level of OEM engagement we received at CES in January and that has continued since that time. Income from operations for the first quarter of 2019 decreased 5% to $121.6 million versus $128.5 million last year. The decrease was primarily due to increased operating expenses and lower gross margin dollars. Other income increased to $3.3 million in the first quarter of 2019 compared to $3.2 million in the first quarter of 2018, primarily due to decreased interest expense. During the first quarter of 2019, the company's effective tax rate was 16.5% up from 15.6% during the first quarter of 2018, primarily driven by a decrease in tax benefits related to stock-based compensation. Net income for the first quarter of 2019 decreased 6% to $104.3 million, compared with net income of $111.2 million in the first quarter of 2018 driven by increased operating expenses and an increased tax rate on a quarter over quarter basis. Earnings per diluted share in the first quarter of 2019 remained at 40 cents in line with earnings per diluted share of 40 cents in the first quarter of 2018 as a result of a 7% reduction in diluted shares outstanding from share repurchases. During the first quarter of 2019, the company repurchased approximately 4.7 million shares of its common stock at an average price of $20.37 per share for a total of $96.3 million of share repurchases. As of March 31, 2019, the company has approximately 29.1 million shares remaining available for repurchase pursuant to the previously announced share repurchase plan. The company intends to continue to repurchase 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 will now hand the call over to Kevin for the first quarter financial details.