Gentex Corporation

Good day, and thank you for standing by. Welcome to the Gentex Reports fourth quarter and year-end 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 that session, you will need to press star 1-1 on your phone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded, and I would now like to hand the conference over to your speaker today, Mr. Josh Oberski, Director of Investor Relations. Sir, please go ahead.

Thank you. Good morning and welcome to the Gentex Corporation Fourth Quarter 2022 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 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 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 Fourth 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 fourth quarter of 2022, the company reported net sales of $493.6 million, an increase of 18% when compared to net sales of $419.8 million for the fourth quarter of last year. The fourth quarter of 2022 revenue included cost recoveries from customers of approximately $15 million. Light vehicle production increased by 7% quarter over quarter, and the company's primary markets of North America, Europe, and Japan and Korea, which equates to an 11% revenue outperformance versus the company's underlying markets. The gross margin in the fourth quarter of 2022 was 31.2%, compared with a gross margin of 34.3% in the fourth quarter of last year. The gross margin in the fourth quarter of 2022 was primarily impacted by raw material cost increases, unfavorable product mix, and increased manufacturing costs stemming from labor cost increases and inefficiencies created by customer order volatility. The cost increases were partially offset by cost recoveries during the quarter. The fourth quarter produced sequential improvements in gross margin of 140 basis points versus the third quarter of 2022 as a result of customer cost recoveries during the quarter, as well as some improvements in leveraging fixed costs. However, margins in the quarter were negatively impacted by sales that came in below our original forecast for the quarter, unfavorable product mix, and increases in manufacturing costs. Heading into 2023, we continue to see strong demand for our products, which should result in record revenue performance for the year and will assist our ongoing efforts focused on margin recovery throughout 2023 and 2024. For the calendar year, we expect margins to begin the year in the range of the fourth quarter margin profile and then improve as the year progresses, ultimately ending at a weighted average margin of 32 to 33% for 2023. Operating expenses during the fourth quarter of 2022 were up 7% to $59.7 million when compared to operating expenses of $56 million in the fourth quarter of last year. Income from operations for the fourth quarter of 2022 was $94.1 million as compared to income from operations of $88 million for the fourth quarter of last year. During the fourth quarter of 2022, the company had an effective tax rate of 9.7%, which was driven by provision to return adjustments, as well as increased benefits from the foreign-derived intangible income deduction and discrete benefits from stock-based compensation. In the fourth quarter of 2022, net income was $86.2 million as compared to net income of $84.2 million in the fourth quarter of 2021. Earnings per diluted share in the fourth quarter of 2022 were 37 cents as compared with earnings per diluted share of 35 cents in the fourth quarter of 2021. For calendar year 2022, the company's net sales were $1.92 billion which was an increase of 11% compared to net sales of $1.73 billion in calendar year 2021 and represented the highest annual sales in company history. Light vehicle production in 2022 increased by 3% when compared to last year in the company's primary markets, but total revenue for the year outperformed the underlying market by 8%, despite the many supply chain challenges and customer order volatility encountered during the year. For calendar year 2022, the gross margin was 31.8% compared to a gross margin of 35.8% for calendar year 2021. The largest impacts to gross margin on a year-over-year basis were increased raw material costs, increased manufacturing costs, higher freight and logistics costs, and certain previously agreed to annual customer price reductions. For calendar year 2022, operating expenses increased 14% to $239.8 million when compared to operating expenses of $209.9 million for last year. For calendar year 2022, the company's effective tax rate was 13.8% as compared to an effective tax rate of 13.3% last year. Net income for calendar year 2022 was $318.8 million, down 12% compared to net income of $360.8 million last year. Earnings per diluted share for calendar year 2022 were $1.36 compared to earnings per diluted share of $1.50 last year. I will now hand the call over to Kevin for fourth quarter financial details.