Gentex Corporation

Good day, and thank you for standing by. Welcome to the Gentex Corporation third quarter 2024 financial results conference call. At this time, all participants are on 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 will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 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 2024 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. 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 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. I'll now hand the call over to Steve Downing for our prepared remarks. Steve. Thanks, Josh.

For the third quarter of 2024, the company reported net sales of $608.5 million compared to net sales of $575.8 million in the third quarter of last year. For the third quarter of 2024, global light vehicle production declined by 5% versus last year, as light vehicle production weakened across all major regions, but especially in our primary markets. When compared to the third quarter of last year, light vehicle production declined by 6% in our primary markets of North America, Europe, Japan, and Korea. This decline was significantly worse than the 3% quarter-over-quarter decline forecasted at the beginning of the quarter. The light vehicle production declines resulted in a sales shortfall of approximately $25 to $30 million for the quarter, But despite that weakness in our end markets, we were able to outperform our primary markets by 12%. For the third quarter of 2024, the gross margin was 33.5% compared to a gross margin of 33.2% for the third quarter of last year. The gross margin improved as a result of the higher revenue levels and purchasing cost reductions, which were partially offset by unfavorable product mix related to OEM mix, geographical mix, and IEC versus OEC mix. Sequentially, the gross margin improved by 60 basis points as a result of the higher sales levels versus the second quarter and lower pricing reserves in the third quarter versus the first half of this year. Overall, we are pleased with the sequential improvement in gross margin, but the third quarter was still behind our margin forecast due to lower than expected sales driven by light vehicle production shortfalls product mix issues, and overhead inefficiencies. We remain committed to our gross margin recovery plan that we laid out over the last 18 months, but given the shifts in the market and light vehicle production mix, we expect that the company's margin recovery target won't be fully achieved until 2025. Operating expenses during the third quarter of 2024 increased by 13% to $78.3 million, compared to operating expenses of $69 million in the third quarter of last year. Operating expenses increase quarter over quarter primarily due to staffing and engineering related professional fees that are in line with our budget for the year and are primarily dedicated to R&D and launches of new programs and products. We expect that operating expenses will continue at the current pace for the rest of this year despite the lower than forecasted light vehicle production and sales levels we have experienced over the last two quarters. Due to the unexpected reduction in light vehicle production this year, our R&D spend has outpaced sales growth on a percentage basis, which has negatively impacted on operating margin. But as we head into 2025, our operating expense growth should moderate and move back to a normalized growth rate that is more directly correlated to sales growth. The growth in operating expense is being driven by several new launches that are currently in development and expected to launch over the next two years and will provide growth opportunities for the company over the next several years, as well as research projects in support of new technologies that we have showcased at CES the last few years. Income from operations for the third quarter of 2024 was $125.7 million. compared to income from operations of $122.4 million for the third quarter of last year. Other income was $19.7 million during the third quarter of 2024, compared to other income of $2.1 million in the third quarter of last year. The change was primarily driven by noncash gains of $14.5 million, resulting from mark-to-mark adjustments and other market adjustments of certain holdings within the company's tech investment portfolio. as well as interest income from the company's investment portfolio. During the third quarter of 2024, the company had an effective tax rate of 15.7%, which was primarily driven by the benefit of a foreign-derived intangible income deduction. Net income for the third quarter of 2024 was $122.5 million, a 17% increase compared to net income of $104.7 million for the third quarter of last year. The increase in net income for the third quarter was driven by the increased net sales, income from operations, and other income compared to the third quarter of last year. Earnings per diluted share for the third quarter of 2024 were 53 cents, an 18% increase compared to earnings per diluted share of 45 cents for the third quarter of last year. Earnings per diluted share for the third quarter of 2024 were positively impacted by the increased net sales and operating income, as well as the increases in other income for the quarter. Thank you, and I'll now hand the call over to Kevin for some further financial details.