Gentex Corporation

Good day, and thank you for standing by. Welcome to Gentex Reports' first quarter 2024 financial results conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you 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, today's conference is being recorded. I would like to hand the conference over to your speaker today. Joshua Berski, please go ahead.

Thank you. Good morning and welcome to the Gentex Corporation first quarter 2024 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 Report's first quarter 2024 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. Before we jump into our prepared remarks, I wanted to take a moment to address our upcoming annual shareholder meeting and the proxy vote. Glass-Lewis has recently released their proxy voting recommendations for Gentex. Their analysis lacked factual and logical accuracy on multiple fronts. I would like to briefly address a few of these items. Regarding board oversight of cybersecurity and human capital, both of these items are detailed in our proxy. Oversight for these functions are part of the audit committee's listed duties. They are included on page 12 for cybersecurity and page 18 for human resources. Regarding our company-reported percentages of racial and ethnic minorities on the Board, we follow NASDAQ's guidelines for disclosure. This information is included on our website, in the Board of Directors section, and at ir.gentex.com, and also included each year in the back of our annual reports. Regarding the recommendation to vote against our nominating and Corporate Governance Committee Chair, Ms. Leslie Brown, due to a lack of female representation on the Board, we encourage shareholders to ignore a glass list. Since 2016, when Ms. Leslie Brown joined our board as our first female board member in the company's history, Gentex has continued to identify and nominate qualified, capable, intelligent thought leaders to our board. In this process, we have added seven new board members to our board, and the new director nominee, Dr. Bill Pink, will be our eighth new board member if elected in this year's vote. Each of these new members and our current new director nominee have exemplary backgrounds, capabilities, and experience. Of these new members, two have improved the board's gender diversity, and three, including Dr. Pink, if elected, have improved the board's racial diversity. If we assume that all of our director nominees will be elected as identified in the proxy, this means that five of our last eight member additions will have improved diversity. We believe the work Ms. Brown is doing, as evidenced by the sustained growth in diversity on our board, is indicative of her performance and the company's progress. Glass-Lewis's recommendation to vote against a female board member because there are not enough female board members is as illogical as it sounds. We hope that Glass-Lewis updates their policies to consider the Chair's gender in this process, as well as the progress we've made as a company toward increasing diversity on our board. I would welcome any calls with investors who use Glass-Lewis for their proxy voting recommendations, and am happy to clarify Gentex's position on items contained within these reports. I will now hand the call over to Steve Downing for our prepared remarks. Steve? Thanks, Josh. We got that out of the way.

For the first quarter of 2024, net sales increased 7% versus last year to $590.2 million, despite the fact that actual light vehicle production declined by 3% in our primary markets. It's also important to note that light vehicle production declined from the beginning of quarter forecast, which resulted in revenue levels being approximately $20 million lower than our original expectations. Despite the lower than expected light vehicle production, Revenue for the quarter was not only a company record, but also represented a 10% outperformance versus the underlying market. The revenue growth in the first quarter was driven by strong content growth because of higher launch rates and increased take rates of our full display mirrors and other advanced features, and strong growth in our outside auto-dimming mirror business, which has been the case for the last several quarters. The work we have been executing to increase our total number of features including investments in additional electronic technologies, is beginning to provide additional revenue growth opportunities while de-risking the business by reducing our dependence on light vehicle production. For the first quarter of this year, the gross margin was 34.3%, which was an increase of 260 basis points versus the first quarter of last year. The increase was the result of raw material cost reductions, higher sales levels, customer price changes made after the first quarter of 2023, and manufacturing-related efficiencies. We continue to make very good progress on our margin recovery plan that we estimated would take until the end of 2024 to complete. When compared to the fourth quarter of 2023, the gross margin declined by 20 basis points. However, it is important to note that during the fourth quarter of last year, there was approximately 50 basis points of gross margin benefit stemming from one-time customer cost recoveries. Additionally, the gross margin was in line with our expectations despite revenue levels that came in below the beginning of quarter forecast. Further improvements in gross margin that we have targeted for the rest of this year are dependent on sales levels, product mix, raw material cost reductions, and further efficiencies in manufacturing. We remain focused and confident in the gross margin recovery plan that we established last year and will continue to execute throughout the remainder of this year. Operating expenses during the first quarter were $72.9 million compared to operating expenses of $61.5 million in the first quarter of last year. The increase in operating expenses are primarily due to engineering staffing and related professional fees, as well as the addition of the eSite engineering and sales teams after the acquisition. Our operating expenses are trending in line with our expectations for the full year with increases primarily focused on R&D. Operating expenses are expected to continue at the current pace with some additional growth forecasted in the second half of this year. As we continue to invest in new products and technologies, new business awards, VAVE initiatives for cost optimization of our bill of materials. As a result of the higher sales levels and increased gross profit, income from operations for the first quarter of 2024 increased 14% to $129.3 million. Net income increased 11% to $108.2 million, and earnings per diluted share increased 12% to 47 cents per share. I will now hand the call over to Kevin for some further financial details.