Gentex Corporation

Good day and thank you for standing by. Welcome to Gen Tech fourth quarter and year-end 2023 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 1-1 on your telephone. You will then hear an automated message advising you 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 fourth quarter and year-end 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 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 fourth quarter and year-end 2023 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 2023, the company reported net sales of $589.1 million. an increase of 19% compared to net sales of $493.6 million for the fourth quarter of last year. The fourth quarter of 2023 revenue included one-time cost recoveries of approximately $5 million. Light vehicle production increased by 6% quarter over quarter in the company's primary markets of North America, Europe, Japan, and Korea, which equates to a 13% revenue outperformance versus the company's underlying markets. The gross margin in the fourth quarter of 2023 was 34.5% compared with a gross margin of 31.2% in the fourth quarter of last year. The increase in gross margin in the fourth quarter of 2023 was positively impacted by recurring price increases to customers and one-time cost recoveries, which together positively impacted the gross margins by approximately 100 basis points on a quarter-over-quarter basis. The additional improvements in gross margin came from the higher sales levels, improved leverage on overhead expenses, purchasing cost reductions, lower inbound freight expenses, and improvements in overtime-related costs. The fourth quarter of 2023 produced significant year-over-year gross margin improvements as well as a sequential improvement in gross margin compared to the third quarter of this year. Our team has done an excellent job of working with our customers to execute both temporary and permanent price increases to help offset the inflationary cost environment that has negatively impacted Gentex over the last two years. I'm very pleased with the progress we have made in our gross margin recovery plan during 2023. And as we head into 2024, the next phase of our gross margin recovery plan will focus on bill of material reductions, throughput improvements, and overtime and scrap cost reductions. The improvements we have made in 2023 combined with our targeted improvements for 2024, provide the roadmap of how we plan to achieve our target of a 35 to 36% gross margin by the end of the year. Operating expenses during the fourth quarter of 2023 were up 18% to $70.6 million compared to operating expenses of $59.7 million in the fourth quarter of 2022. Operating expenses increased quarter over quarter primarily due to staffing and engineering-related professional fees. As we ramp up our development and launch capabilities, our planned R&D expenses are trending higher, but remain in line with our expectations and continue to increase in line with our overall sales growth rates. We are focused on adding technical bandwidth across many different disciplines to help execute the significantly higher number of launches needed to accomplish our recent and forecasted growth. While launch activity has been driving an increase in R&D, we also continue to invest heavily in research activity focused on new products and technical capabilities, while also ensuring that the technical team is in place to help drive product redesign that will optimize the cost structure of existing bills of material. We expect our R&D levels to be elevated throughout 2024 as the pace of innovation and launch of new products remains at the highest rate in company history. Income from operations for the fourth quarter of 2023 was $132.8 million, compared to income from operations of $94.1 million for the fourth quarter of last year. During the fourth quarter of 2023, the company had an effective tax rate of 13.9%, which was driven by benefits from the foreign-derived intangible income deduction, discrete benefits from stock-based compensation, as well as provision to return adjustments. In the fourth quarter of 2023, net income was $116.9 million compared to net income of $86.2 million in the fourth quarter of last year. Earnings per diluted share in the fourth quarter of 2023 were 50 cents compared with earnings per diluted share of 37 cents in the fourth quarter of last year. For calendar year 2023, the company's net sales were $2.3 billion, an increase of 20% compared to net sales of $1.92 billion in calendar year 2022, representing the highest annual sales in company history. Light vehicle production in 2023 increased by 12% compared to last year in the company's primary markets. The company's revenue outperformance in 2023 versus the underlying market was driven by growth in FDM and exterior auto-dimming mirror unit shipments, as well as continued penetration of base interior auto-dimming mirrors. For calendar year 2023, the gross margin was 33.2% compared to a gross margin of 31.8% for calendar year 2022. Gross margin improved for the year by 140 basis points, primarily due to price increases and cost recoveries, lower freight costs, product mix, and improved overhead leverage created by the growth in revenue. For calendar year 2023, operating expenses increased 11% to $266.9 million compared to operating expenses of $239.8 million last year. For calendar year 2023, the company's effective tax rate was 15.2% compared to an effective tax rate of 13.8% for calendar year 2022. The increase in the tax rate in 2023 was primarily driven by a reduced benefit from the foreign-derived intangible income deduction compared to last year. Net income for calendar year 2023 was $428.4 million, up 34% compared to net income of $318.8 million last year. Earnings per diluted share for calendar year 2023 were $1.84 compared to earnings per diluted share of $1.36 last year. I'll now hand the call over to Kevin for some financial details. Thanks, Steve.