Gentex Corporation

Ladies and gentlemen, thank you for standing by, and welcome to the Gentex Reports first quarter 2020 financial results conference call. At this time, all participants' lines are in 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 is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Mr. Josh O'Berski, thank you. Please go ahead, sir.

Thank you. Good morning and welcome to the Gentex Corporation first quarter 2020 earnings release conference call. I'm Josh O'Berski, Gentex Director of Investor Relations, and I'm joined by Steve Downing, President and CEO, Neil Boehm, Vice President of Engineering and CTO, and Kevin Nash, Vice President of Finance and CFO. 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 Faith Harbor Statement included in the Gentex Report's first quarter 2020 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 get us started today.

Thank you, Josh. For the first quarter of 2020, the company reported net sales of $453.8 million, which was a decrease of 3% compared to net sales of $468.6 million in the first quarter of 2019. The impact of the COVID-19 pandemic and the resulting shutdown of the automotive industry in various parts of Asia, Europe and North America resulted in an estimated negative impact on net sales of approximately $40 million for the first quarter of 2020. The company's decrease of 3% in sales was in comparison to global light vehicle production levels that dropped 24% for the first quarter of 2020 when compared to the first quarter of 2019. For the first two months of the quarter, top line revenue growth was progressing in line with our forecasts, with modest negative impacts coming from reductions in China as a result of the pandemic. But by mid-March, the pandemic was negatively affecting European OEMs more significantly, and then the North American production environment was brought to a grinding halt. The vast majority of the $40 million shortfall in sales occurred during the last two weeks of March. For the first quarter of 2020, the gross margin was 34.5% compared to a gross margin of 36.2% for the first quarter of 2019. On a quarter over quarter basis, the gross margin was impacted primarily by lost sales due to the pandemic and annual customer price reductions. When compared to the first quarter of 2019, product mix improved, which partially offset some of the sales losses and price reductions. The improvement in product mix was primarily driven by full display mirror and exterior mirror growth. The gross margin for the quarter held up well when considering the significance of the lost sales and how quickly and unexpectedly the demand from our customers changed. During the first two months of the quarter, our gross margin was on pace to be in the range of our original annual guidance. Operating expenses during the first quarter of 2020 were up 7%, to $51.6 million when compared to operating expenses of $48 million in the first quarter of 2019. The increase in operating expenses continues to be driven by headcount and other resources focused on new product launches as well as research and development of new products. CES 2020 created significant interest in our existing and new technologies, and we continue to believe in the long-term value that our new product offerings and technologies will create for our customers and the resultant trajectory that this can create for our business. In terms of execution to our budget, operating expenses were in line with our original guidance, which were planned to increase at approximately the same rate of sales for the year. Income from operations for the first quarter of 2020 decreased 14% to $105 million when compared to income from operations of $121.6 million for the first quarter of 2019. The reductions in operating income were largely due to lost sales stemming from the pandemic and the overall lower gross margins in the quarter. Net income for the first quarter of 2020 decreased by 14% to $89.5 million when compared with net income of $104.3 million in the first quarter of 2019. The reduction in net income was from the lost sales due to the pandemic and the impact this had on gross margins. Earnings per diluted share for the first quarter of 2020 decreased 10% to 36 cents when compared to 40 cents for the first quarter of 2019, primarily as a result of the impacts of the pandemic on net income, which were partially offset by the impact of share repurchases. In the first quarter of 2020, the company announced a 4% increase in its dividend rate marking 10 straight years of year-over-year dividend increases. Also during the first quarter of 2020, the company repurchased approximately 7 million shares of its common stock at an average price of $25.48 per share. As of March 31st, 2020, the company has 13 million shares remaining available for repurchase under the previously announced share repurchase plan. I will now hand the call over to Kevin for first quarter financial details.