Gentex Corporation

Good day and thank you for standing by. Welcome to the Gentex second quarter 2021 financial results conference call. At this time, all participant lines are in listen only mode. After the presentation, there will be a question and answer session. To ask a question during the session, you will need to press star then one on your telephone keypad. Please be advised that today's conference may be recorded. If you require operator assistance, please press star then zero. I'd now like to hand the conference over to Josh Oberski, Director of Investor Relations. Please go ahead.

Thank you. Good morning and welcome to the Gentex Corporation Second Quarter 2021 Earnings Release Conference Call. I'm Josh Oberski, 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 and can be reached by going through the Gentex website and at ir.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 second quarter 2021 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 second quarter of 2021, the company reported net sales of $428 million, which was an increase of 86% compared to net sales of $229.9 million in the second quarter of 2020. On a quarter over quarter basis, global light vehicle production in the company's primary regions of Europe, North America, Japan, Korea, and China increased 36% when compared to the COVID-19 impacted second quarter of 2020. However, when compared to the mid-April 2021 IHS market light vehicle production forecast in the company's primary regions, actual light vehicle production in the second quarter of 2021 declined approximately 1.1 million units, or 7%, as a result of industry-wide part shortages and global supply chain constraints. The largest deviation from the forecasted production within the quarter came in North America, which saw an actual light vehicle production decline in excess of 15% compared to the mid-April 2021 forecast. The reduction in light vehicle production compared to forecast was led by certain OEM customers that deploy high levels of the company's product content, including both interior and exterior auto-dimming mirrors and other electronic features such as full display mirror and home link. In total, the impact from the shortfall in vehicle production compared to forecast led to an estimated mirror unit shipment reduction of approximately 2 million units versus the company's beginning of the quarter expectations. While we are very pleased with the net sales increase of 86% over the COVID-19 impacted second quarter of last year, we are still experiencing tremendous volatility and order cancellations as our customers continue to deal with the impact of the ongoing part shortages that are affecting our industry. The initial forecast for the second quarter was for sales to be one of the largest quarters in the company's history, but the continual changes and releases in orders resulted in the push out of approximately 2 million units. The unit shipment changes were most severe in North America, where our dollar content per vehicle is above the corporate average. We estimate that the total impact to revenue in the quarter was about $80 million. As we move through the second half of the year and into 2022, we encourage that the overall demand for vehicles and our products should still provide opportunities for the company to continue to outperform the underlying market. For the second quarter of 2021, The gross margin was 35.4% compared to 19.1% for the second quarter of 2020. Compared to the COVID-19 impacted second quarter of 2020, gross margins improved due to higher sales levels, significantly better overhead leverage, the structural cost savings put in place by the company last year, and positive product mix. While the gross margin for the second quarter of 2021 improved significantly versus last year, it was well below our initial estimates for the quarter. The lower than forecasted gross margin was primarily driven by the significant reductions in expected sales during the quarter, our inability to offset fixed and variable overhead costs due to the lower sales, lower than expected price reductions on raw materials, and higher than expected incoming freight costs. The good news, however, is that despite many of the challenges in the quarter, our analysis shows that if sales had hit our initial forecast, then gross margins would have been very close to our previous annual guidance range. Operating expenses during the second quarter of 2021 increased by 2% to $51.7 million, compared to $50.7 million in the second quarter of 2020. Income from operations for the second quarter of 2021 was $99.9 million, compared to a loss from operations of $6.7 million for the second quarter of 2020. During the second quarter of 2021, the company had an effective tax rate of 15%, or $15.3 million, which was below our annual guidance range and was primarily driven by the benefit of the foreign-derived intangible income deduction and discrete benefits from stock-based compensation. Net income was $86.5 million for the second quarter of 2021, compared to a net loss of $2.4 million in the second quarter of 2020. The increase in net income was driven by the quarter-over-quarter increases in sales, gross margins, and operating profits. Earnings per diluted share for the second quarter of 2021 were $0.36 compared to a loss of one penny for the second quarter of 2020. The increase in earnings per share is the result of the higher net income when compared to the second quarter of 2020. I will now hand the call over to Kevin for second quarter financial details. Thank you, Steve.