Gentex Corporation

Ladies and gentlemen, thank you for standing by and welcome to the GENTAX Report's third quarter 2019 financial results call. At this time, all participant lines are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star 0 to reach an operator. 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 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. 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 market'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 a 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 a minor acquisition of new technology, and our ongoing focus on tax planning. Income from operations for the third quarter of 2019 increased 1% to $128.4 million. $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 44 cents when compared to 42 cents 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 30th, 2019, the company has approximately 22.5 million shares remaining available for repurchase Thank you, Steve.