Gentex Corporation

Good day and thank you for standing by. Welcome to the Gen Tech's fourth quarter and year end 2021 financial results conference call. At this time, all participants are on a listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. If you require any assistance, please press star zero. I want to hand the conference over to your speaker today, Josh Oberski. Director of Investor Relations. Please go ahead.

Thank you. Good morning and welcome to the Gentex Corporation fourth quarter 2021 earnings release conference call. I'm Joshua 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 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 the 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 fourth quarter and year-end 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.

Thanks, Josh. For the fourth quarter of 2021, the company reported net sales of $419.8 million, compared to net sales of $529.9 million for the fourth quarter of 2020. The company's revenue during the quarter was impacted by a 20% quarter-over-quarter reduction in light vehicle production in the company's primary markets of North America, Europe, Japan, and Korea. The industry-wide electronics component shortages further impacted the company's revenue negatively during the fourth quarter of 2021. During the quarter, the electronics component shortages primarily impacted the company's ability to meet customer demand for full display mirrors, integrated toll modules, and other advanced feature unit shipments. Up until the fourth quarter of 2021, The combination of the company's conservative inventory position, along with significant efforts to redesign affected products, allowed us to avoid having any meaningful shipment issues stemming from the industry-wide electronics component shortages. But in the fourth quarter, the shortages began to impact our customer shipments as well. During the fourth quarter, the company estimates that customer order changes driven by lower light vehicle production and electronic component shortages resulted in undershipments of about $85 million in revenue for the quarter. Obviously, impacting our customers by not being able to fully meet their demand is extremely disappointing. However, the team did a remarkable job of completing complicated redesigns in record time to avoid more significant customer shortages. Looking into 2022, we are forecasting growth in FDM based on pent-up demand as well as several new FDM program launches, which we expect to accelerate our growth into 2022 and 2023. The gross margin in the fourth quarter of 2021 was 34.3%, compared with near-record gross margins of 40.9% in the fourth quarter of 2020. The gross margin was primarily impacted by the lower quarter-over-quarter revenue, especially in the company's primary markets, as well as the lost revenue created by the electronics component shortages. Other factors impacting gross margin in the fourth quarter of 2021 were raw material cost increases, freight-related cost increases, labor cost increases driven by higher wages, and labor inefficiencies created by last-minute changes in customer demand and electronics component shortages. The fourth quarter of 2021 brought the perfect storm of lower revenue, significantly higher material costs, higher shipping costs, and higher labor costs and inefficiencies that negatively impacted gross margins more than we originally forecasted. While many of these headwinds will continue into the first half of 2022, we believe we have the ability to offset some of the impacts to gross margins as we move throughout the year. Operating expenses during the fourth quarter of 2021 were up 3 percent to $56 million when compared to operating expenses of $54.3 million in the fourth quarter of 2020. Income from operations for the fourth quarter of 2021 was $88 million, as compared to income from operations of $162.4 million for the fourth quarter of 2020. During the fourth quarter of 2021, the company had an effective tax rate of 5.8%, which was lower than our forecasted tax rate and was driven by increased benefits from the foreign-derived and tangible income deduction and discrete benefits from stock-based compensation. In the fourth quarter of 2021, net income was $84.2 million as compared to net income of $143.3 million in the fourth quarter of 2020. Earnings per diluted share in the fourth quarter of 2021 were 35 cents as compared to earnings per diluted share of 58 cents in the fourth quarter of 2020. For calendar year 2021, the company's net sales were $1.73 billion which was an increase of 3% compared to net sales of $1.68 billion in calendar year 2020, in a year where light vehicle production in the company's primary markets declined by 3%. For calendar year 2021, the gross margin was 35.8%, compared with the gross margin of 35.9% for calendar year 2020. For calendar year 2021, operating expenses increased 2%, to $209.9 million when compared to operating expenses of $205.9 million for calendar year 2020. For calendar year 2021, the company's effective tax rate was 13.3% as compared to an effective tax rate of 15.6% for calendar year 2020. Net income for calendar year 2021 was $360.8 million, up 4% compared with net income of $347.6 million in calendar year 2020. Earnings per diluted share for calendar year 2021 were $1.50, compared with earnings per diluted share of $1.41 in calendar year 2020, which represents a 6% increase on a year-over-year basis. I will now hand the call over to Kevin for fourth quarter financial details. Thanks, Steve.