Gentex Corporation

Good day, and thank you for standing by. Welcome to the Gen Tech Report's third quarter 2023 financial results. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will 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, Josh Oberski, Director of Investor Relations. Please go ahead.

Thank you. Good morning and welcome to the Gentex Corporation Third 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 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 Report's third 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. Steve?

Thanks, Josh. Before we jump into the quarterly summary, I wanted to take a few minutes to discuss the war in Israel. As you may be aware, Gentex made an acquisition in early 2021 of Guardian Optical Technologies based in Tel Aviv. And since that time, we have been growing our technology presence in Tel Aviv, which is primarily focused on using AI to create innovative products focused on driver and in-cabin monitoring. We have also recently partnered with a company named Atisky, which is also headquartered in Israel. We remain close contact with our team and partners in Israel, and are thankful to report everyone on those teams, along with their immediate families, are safe as of our latest report. It is important to note, however, that while our team is safe, several of our team members and partners have already experienced loss of friends and extended family members. As a Gentex team, we continue to keep our employees and partners in our thoughts and prayers and are constantly looking for ways to show our support for their safety and the safety of their families and friends. For the third quarter of 2023, The company reported net sales of $575.8 million compared to net sales of $493.6 million in the third quarter of 2022, a 17% quarter-over-quarter increase. For the third quarter of 2023, global light vehicle production in North America, Europe, Japan, Korea, and China increased approximately 5% compared to the third quarter of 2022. While the last few years have been negatively impacted by labor and supply chain issues that limited our ability to meet customer demand, the last several quarters have improved significantly. The growth in the third quarter is a continuation of the unit and content growth we experienced during the first half of this year and is indicative of the success of our technology platforms, including the launch rates and increased take rates of our full display mirror products. In terms of performance metrics, our unit growth in the third quarter outperformed the underlying market by 5%, while our revenue beat the market by 12%. For the third quarter, the gross margin was 33.2% compared to a gross margin of 29.8% for the third quarter of last year. The third quarter gross margin increased by 340 basis points on a quarter-over-quarter basis as a result of the higher sales levels, improvements in freight and tariff-related costs, cost recoveries and price increases from customers, and improvements in product mix. However, some of these improvements were partially offset by increased raw material costs, labor costs, and scrap and yield loss increases as compared to the third quarter of last year. When compared to the second quarter of this year, the gross margin in the third quarter improved from 33.1% to 33.2%. We continue to make progress on our margin recovery plan that we estimated would take until the end of 2024 to complete. In the six months following the close of the first quarter, we have seen gross margins expand 150 basis points as the gross margin grew from 31.7% during the first quarter of 2023 to 33.2% in the third quarter. Obviously, I'm very pleased with the progress made so far in calendar year 2023, but we still have an incredible amount of work to do in the fourth quarter of this year and in 2024 in order to accomplish our goal of achieving a gross margin of 35 to 36% by the end of next year. Our focus for the next 18 months will be on achieving improvements in our material costs and supply chain expenses, but we'll also include targeted improvements in our operations by increasing throughput, lowering scrap and yield loss, and reducing overtime expenses. Operating expenses during the third quarter increased by 14% to $69 million, compared to operating expenses of $60.4 million in the third 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 are trending in line with our expectations, with increases primarily focused on R&D. as we continue to add technical capabilities and bandwidth to support the increased level of launch activities while also continuing to expand our research into new technologies. The amount of work that our team has accomplished in our advanced research areas is promising and will ultimately lay the groundwork for growth in future years. R&D expenses are expected to continue at an elevated pace for the rest of this year and throughout calendar year 2024, as we invest in innovative products and technologies, new business awards, and VAVE initiatives for cost optimization of our bill of materials. Income from operations for the third quarter was $122.4 million, a 41% increase when compared to income from operations of $86.8 million for the third quarter of last year. During the third quarter, the company had an effective tax rate of 15.9%, which was primarily driven by the benefit of the foreign derived intangible income deduction. Net income for the third quarter was $104.7 million compared to net income of $72.7 million for the third quarter of last year, which represents a 44% 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 third quarter were 45 cents, a 45% increase compared to earnings per diluted share of 31 cents for the third quarter of last year. I'll now hand the call over to Kevin for financial details.