Gentex Corporation

Good day and thank you for standing by. Welcome to Gentex Report 3rd Quarter 2021 Financial Results Conference Call. At this time, all participants 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. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Joshua Oberski. Please go ahead, sir.

Thank you. Good morning and welcome to the Gentex Corporation third quarter 2021 earnings release conference call. I'm Joshua 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 to 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 Reports third quarter financial 2021 financial results press release from earlier this morning and is always shown on the Gentex website. Your participation in this conference call implies consent to these terms. Now we'll turn the call over to Steve Dowding, who will get us started today.

Thanks, Josh. Hopefully your phone is not broken. I'll just drop it on the floor. For the third quarter of 2021, the company reported net sales of $399.6 million, compared to net sales of $474.6 million in the third 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 decreased 23% when compared to the third quarter of 2020. Additionally, when compared to the mid-July 2021 IHS market light vehicle production forecast in the company's primary regions, actual light vehicle production during the third quarter of 2021 declined in excess of 3.1 million units, or 19%, as a result of the ongoing industry-wide part shortages and global supply chain constraints. The largest shortfall in light vehicle production for the third quarter of 2021 came from the European and North American markets. which together experienced actual light vehicle production levels that declined by approximately 27% compared to the third quarter of 2020. The reduction in light vehicle production compared to forecast was led by several 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. While we have been dealing with the impacts of supply chain constraints throughout the first half of 2021, the effects of the electronic component shortages worsened during the third quarter of this year. In fact, the change in OEM schedules during the quarter was estimated to have negatively impacted demand by at least 2.5 million mirrors during the quarter. We estimate that the lost revenue on these units was approximately $125 million. Despite these challenges, our team has done a remarkable job of securing components as well as providing unique solutions for our customers that included complete redesigns in order to avoid constrained components to help minimize the impact to OEM production schedules. For the third quarter of 2021, the gross margin was 35.3% compared to a gross margin of 39.7% for the third quarter of 2020. Compared to the third quarter, The gross margin was primarily impacted by the lower sales level stemming from the 23% quarter-over-quarter decline in light vehicle production in the company's primary regions. However, the gross margin was also impacted by lower-than-expected price reductions on raw materials, increases in freight and other supply chain-related costs, as well as some component cost increases. While the gross margin for the third quarter of 2021 was below our original forecast, we were pleased with the overall performance of the company, given the significant reduction in sales versus our forecast coming into the quarter. Since the beginning of the pandemic, we have worked hard as an organization to reduce overhead costs, which helps stabilize our profitability in the third quarter, despite this unpredictably large change in revenue. In fact, our estimates show that had the sales level been in the range of our original forecast for the quarter, then our gross margins would have been very close to our previous guidance for the second half of 2021. Operating expenses during the third quarter of 2021 increased by 7% to $52.7 million compared to operating expenses of $49.4 million in the third quarter of 2020. Income from operations for the third quarter of 2021 was $88.2 million compared to income from operations of $138.9 million for the third quarter of 2020. During the third quarter of 2021, the company had an effective tax rate of 15%, which was primarily driven by the benefit of the foreign-derived intangible income deduction and discrete benefits from stock-based comp. Net income was $76.7 million for the third quarter of 2021, compared to net income of $117.1 million in the third quarter of 2020. The change in net income was primarily the result of the quarter-over-quarter change in sales, gross margins, and operating profits. Earnings per diluted share for the third quarter were $0.32, compared to earnings per diluted share of $0.48 for the third quarter of 2020. I will now hand the call over to Kevin for third quarter financial details.