Gentex Corporation

Good day and thank you for standing by. Welcome to the Gentex First Quarter 2022 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 this 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 then 0. I would now like to hand the conference over to your host today, Josh Oberski, Director of Investor Relations. Please go ahead, sir.

Thank you. Good morning and welcome to the Gentex Corporation first quarter 2022 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 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 First Quarter 2022 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 I'll turn the call over to Steve Downing, who will get us started today.

Steve? Thank you, Josh. For the first quarter of 2022, the company reported net sales of $468.3 million, compared to net sales of $483.7 million in the first quarter of 2021. For the first quarter of 2022, Global light vehicle production decreased approximately 5% when compared to the first quarter of 2021. Additionally, light vehicle production in the company's primary markets of North America, Europe, and Japan and Korea declined by 11% on a quarter-over-quarter basis. These declines were primarily a result of the ongoing industry-wide component shortages and global supply chain constraints. The company has been dealing with the impacts of component shortages and supply chain constraints since the beginning of 2021, which is why our forecast for the beginning of this year was more conservative than the original IHS market estimates for light vehicle production. During the first quarter of 2022, we saw estimated light vehicle production decline by over 4% versus the beginning of the quarter. While the effects of the electronic component shortages improved slightly during the first quarter of this year, Our concerns about the lingering impact on light vehicle production were well-founded. Our first quarter 2022 sales improved sequentially from the fourth quarter of 2021, but were still below the levels suggested at the beginning of the quarter based on IHS market estimates and the release data from our customers. Despite the lower than planned sales levels in the first quarter, the industry backdrop and the underproduction of light vehicles over the last year should create the opportunity for an improving sales environment as we move throughout the rest of 2022. For the first quarter of 2022, the gross margin was 34.3% compared to a gross margin of 37.9% for the first quarter of 2021. Gross margins were impacted in the quarter by raw material cost increases, elevated freight expenses, labor cost increases in response to a tight labor market, lower than expected sales levels, and ongoing customer order volatility. Considering the inflationary pressures in our business right now, the gross margin was within 70 basis points of our annual guidance range for gross margin performance, despite the fact that sales for the first quarter are expected to be at the lowest level of the year. The company is in active discussions with our customers about the inflationary aspects of our business, and how to best formulate long-term collaborative relationships that provide the opportunity to minimize the impact of these inflationary pressures on our business model while preserving the ability to grow through the introduction of new innovative products. We fully expect that these discussions will extend throughout calendar year 2022 and even into 2023. Operating expenses during the first quarter of 2022 increased by 15 percent to $57.1 million compared to operating expenses of $49.6 million in the first quarter of 2021. ER&D expenses during the first quarter of 2022 increased 16% compared to the first quarter of 2021, primarily due to additional staffing and professional fees related to new product development and the ongoing product redesigns necessary to mitigate electronics part shortages. On a quarter over quarter basis, SG&A expenses were up primarily due to increases in outbound freight expense and the return of in-person customer meetings and trade show related expenses. Income from operations for the first quarter of 2022 was $103.3 million compared to income from operations of $133.7 million for the first quarter of 2021. During the first quarter of 2022, the company had an effective tax rate of 15.3%, which was primarily driven by the benefit of the foreign-derived intangible income deduction and discrete benefits from stock-based compensation. Net income was $87.5 million for the first quarter of 2022, compared to a net income of $113.5 million for the first quarter of 2021. The change in net income was primarily the result of the quarter-over-quarter changes in sales, gross margins, and operating profits. Earnings per diluted share for the first quarter of 2022 were 37 cents compared to earnings per diluted share of 46 cents for the first quarter of 2021. I will now hand the call over to Kevin for the first quarter financial details.