Gentex Corporation

Good day and thank you for standing by. Welcome to the Gentex second quarter 2023 financial results conference call. At this time, all participant lines are in listen only mode. After the 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 host today, Josh Oberski, Director of Investor Relations. Please go ahead.

Thank you. Good morning and welcome to the Gentex Corporation Second Quarter 2023 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, CTO, and Kevin Nash, Vice President of Finance and CFO. This call is live on the internet and can be reached by going through 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 Report's second 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.

Thanks, Josh. For the second quarter of 2023, the company reported net sales of $583.5 million, compared to net sales of $463.4 million in the second quarter of last year, a 26% quarter-over-quarter increase and a new quarterly sales record for the company. For the second quarter of 2023, global light vehicle production in North America, Europe, Japan, Korea, and China increased approximately 18% when compared to the second quarter of last year. So far, 2023 has proven to be the opposite of the last few years with year-to-date sales levels coming in higher than our beginning of the year forecast. As a result of the improvement in light vehicle production, fewer supply chain challenges, and the continued strong demand for our products, this quarter resulted in an outperformance of 9% compared to our primary markets, which include North America, Europe, Japan, and Korea. The company's growth is being driven by penetration rates of our core electrochromic technology, continued growth in our full display mirror product line, and adoption of other value-add features in the market. For the second quarter of 2023, the gross margin was 33.1% compared to a gross margin of 32% for the second quarter of last year. The second quarter of 2023, gross margin increased on a quarter-over-quarter basis as a result of the significantly higher sales levels manufacturing improvements, cost recoveries from OEMs, and improvements in freight-related costs and product mix. Some of these improvements were partially offset by increased raw material and labor costs as compared to the second quarter of last year, but still resulted in a 110 basis point increase in gross margin on a year-over-year basis. When compared to the first quarter of 2023, the gross margin in the second quarter increased from 31.7% to 33.1% as a result of better overhead leverage from the higher sales levels, customer cost recovery is realized in the second quarter, and improvements in overtime costs, which helped offset certain incremental raw material cost increases that took effect in the first half of 2023. Late last year, we formulated our plan for margin recovery that we estimated would take until the end of 2024 to complete. So far, I'm very pleased with our progress and believe we are well on our way to accomplishing the goal of achieving a gross margin of 35 to 36% by the end of next year. Operating expenses during the second quarter of 2023 increased by 5% to $65.8 million compared to operating expenses of $62.6 million in the second quarter of last year. Operating expenses increased quarter over quarter, primarily due to staffing and engineering related professional fees, which were partially offset by lower outbound freight expenses. Our operating expenses started to ramp as expected during the second quarter and will continue to build throughout the rest of the calendar year as we add resources focused on new product research and development, new business awards, and VAVE initiatives for cost optimization of our bill materials. Income from operations for the second quarter of 2023 was $127.3 million. a 48% increase when compared to income from operations of $85.8 million for the second quarter of last year. During the second quarter of 2023, the company had an effective tax rate of 15.1%, which was primarily driven by the benefit of the foreign-derived intangible income deduction. Net income for the second quarter of 2023 was $109.2 million compared to net income of $72.4 million for the second quarter of last year, which represents a 51% increase. 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 second quarter of 2023 were 47 cents, a 52% increase when compared to earnings per diluted share of 31 cents for the second quarter of 2022. I will now hand the call over to Kevin for some financial details.