Gentex Corporation

Good day, and thank you for standing by. Welcome to the Gentex Reports first quarter 2023 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'll need to press star 1-1 on your telephone. 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. I would now like to hand the conference over to your speaker today, Joshua Berski, Director of Investor Relations.

Thank you. Good morning and welcome to the Gentex Corporation First Quarter 2023 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, 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 2023 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 first quarter of 2023, the company reported net sales of $550.8 million compared to net sales of $468.3 million in the first quarter of 2022. which was an 18% quarter-over-quarter increase and a new quarterly sales record for the company. For the first quarter of 2023, global light vehicle production in North America, Europe, Japan, Korea, and China increased approximately 6% when compared to the first quarter of 2022. Many of the supply chain issues that held back the industry during last year have improved, and the demand for our products combined with the increased light vehicle production led to record revenue in the quarter. While light vehicle production is still below pre-pandemic levels, demand for the company's products resulted in a 12% outperformance versus the underlying market. For the first quarter of 2023, the gross margin was 31.7% compared to a gross margin of 34.3% for the first quarter of last year. The gross margin was impacted by raw material cost increases and labor cost increases, which were partially offset by improvements in freight-related costs and price increases to customers. As compared to the fourth quarter last year, the gross margin increased sequentially from 31.2% as a result of the higher sales levels, improvements in freight-related costs, favorable product mix, and price increases to customers that carried forward into this year. These tailwinds more than offset the potential margin decline coming from the one-time benefit of cost recoveries in the fourth quarter and the higher labor costs that became necessary last year. calendar year 2022 was marred with significant gross margin impacts from raw material cost increases, supply chain stresses, labor cost increases, volatility, and overall inflation that resulted in significant downward pressure on our margins and profitability. In the fourth quarter of last year, we began the process of stabilizing and improving gross margins by realizing one-time cost recoveries for calendar year 2022 and securing sustained price increases that carried into the first quarter of this year. Gross margins hit a low point in 2022 during the third quarter when they fell to 29.8%, but in the fourth quarter, we secured one-time cost recoveries that improved margins to 31.2%. In the first quarter of 2023, we further improved gross margins to 31.7%, even without the benefit of any one-time cost recoveries. Our plan for margin recovery is based on a timeline that covers 2023 and 2024 and is designed to achieve a targeted margin profile of 35 to 36% by the end of 2024. Based on our progress in the last two quarters, I believe we are well on our way to accomplishing this plan. Operating expenses during the first quarter of 2023 increased by 8% to $61.5 million. compared to operating expenses of $57.1 million in the first quarter of 2022. Operating expenses increased during the first quarter of 2023, primarily due to staffing and professional fees, which were partially offset by lower outbound freight expenses. Our operating expenses for the first quarter of 2023 are slightly below our forecasted range for the full year, but we plan for those expenses to ramp up throughout 2023 in support of our product development strategy, new business awards, VAVE initiatives, and our expected growth rate for this year and next year. Income from operations for the first quarter of 2023 was $113.3 million, compared to income from operations of $103.3 million for the first quarter of last year. During the first quarter of 2023, the company had an effective tax rate of 15.9%, which was primarily driven by the benefit of the foreign derived and tangible income deduction. Net income was $97.6 million for the first quarter of 2023 compared to net income of $87.5 million for the first quarter of last year. The increase in net income was primarily the result of the quarter over quarter increases in net sales and operating profits. Earnings per diluted share for the first quarter of 2023 were 42 cents, compared to earnings per diluted share of 37 cents for the first quarter of last year. I will now hand the call over to Kevin for financial details.