Gentex(GNTX) - 2023 Q1 - Quarterly Report

Part I - Financial Information This section provides the company's unaudited condensed consolidated financial statements and management's discussion and analysis for the first quarter Item 1. Unaudited Condensed Consolidated Financial Statements This section presents the company's unaudited condensed consolidated financial statements and detailed notes for Q1 2023 and 2022 Unaudited Condensed Consolidated Balance Sheets Snapshot of financial position, detailing assets, liabilities, and shareholders' investment for Q1 2023 and Q4 2022 | Metric | March 31, 2023 | December 31, 2022 | | :----------------------------- | :---------------- | :------------------ | | Total Assets | $2,433,347,835 | $2,327,229,924 | | Total Liabilities | $310,092,189 | $261,437,103 | | Total Shareholders' Investment | $2,123,255,646 | $2,065,792,821 | | Accounts receivable, net | $332,867,128 | $276,493,752 | | Long-term investments | $229,398,824 | $202,331,983 | Unaudited Condensed Consolidated Statements of Income Financial performance, including net sales, gross profit, operating income, and net income for Q1 2023 and 2022 | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (YoY) | | :----------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Net Sales | $550,761,311 | $468,250,776 | +18% | | Gross profit | $174,737,231 | $160,411,960 | +8.9% | | Income from operations | $113,250,647 | $103,305,905 | +9.6% | | Net Income | $97,578,261 | $87,528,626 | +11.5% | | Basic EPS | $0.42 | $0.37 | +13.5% | | Diluted EPS | $0.42 | $0.37 | +13.5% | Unaudited Condensed Consolidated Statements of Comprehensive Income Comprehensive income, including net income and other comprehensive income (loss), for Q1 2023 and 2022 | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Net income | $97,578,261 | $87,528,626 | | Other comprehensive income (loss), net of tax | $1,918,437 | $(7,054,652) | | Comprehensive income | $99,496,698 | $80,473,974 | Unaudited Condensed Consolidated Statements of Shareholders' Investment Changes in shareholders' investment, including stock repurchases, dividends, and net income, for Q1 2023 | Metric | As of March 31, 2023 | As of January 1, 2023 | | :-------------------------------- | :------------------- | :-------------------- | | Total Shareholders' Investment | $2,123,255,646 | $2,065,792,821 | | Repurchases of common stock | $(28,462,632) | - | | Dividends declared ($0.12 per share) | $(28,046,798) | - | | Net income | $97,578,261 | - | Unaudited Condensed Consolidated Statements of Cash Flows Cash inflows and outflows from operating, investing, and financing activities for Q1 2023 and 2022 | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $120,914,110 | $115,958,543 | | Net cash used for investing activities | $(72,396,645) | $(2,044,300) | | Net cash used for financing activities | $(47,819,943) | $(96,517,500) | | Net increase in cash and cash equivalents | $697,522 | $17,396,743 | | Cash, cash equivalents, and restricted cash, end of period | $219,452,160 | $279,708,413 | Notes to Unaudited Condensed Consolidated Financial Statements Detailed explanatory notes to the unaudited condensed consolidated financial statements, covering key accounting policies Note 1. Basis of Presentation Explains the basis for preparing financial statements in accordance with SEC rules and regulations - The unaudited condensed consolidated financial statements are prepared by the Company pursuant to SEC rules and regulations, with certain information and footnote disclosures condensed or omitted[23] - Management believes the disclosures are adequate and contain only normal and recurring adjustments necessary for fair presentation[23] Note 2. Goodwill and Other Intangible Assets Details carrying values of goodwill, intangible assets, and amortization expenses for the periods | Metric | March 31, 2023 | December 31, 2022 | | :--------------------- | :---------------- | :------------------ | | Goodwill carrying value | $313,686,026 | $313,807,494 | | Intangible assets, net | $214,535,910 | $219,360,910 | - Amortization expense on patents and intangible assets was approximately $5.3 million for Q1 2023, a slight decrease from $5.5 million in Q1 2022[27] - Estimated amortization expense for the full year 2023 is approximately $20 million[28] Note 3. Investments Information on technology investments, unrealized losses, fair value, and fixed income maturities - Technology investments totaled approximately $86.9 million as of March 31, 2023, up from $69.5 million as of December 31, 2022[33] - On March 9, 2023, the Company purchased a 15% equity investment in Adasky, LTD. for $21.5 million[33] | Metric | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :---------------- | :------------------ | | Total Unrealized Losses | $10,554,281 | $13,034,062 | | Aggregate Fair Value of Investments | $153,259,687 | $154,344,732 | Fixed Income Securities Maturities (March 31, 2023): | Maturity Period | Amount | | :---------------------- | :------------- | | Due within one year | $17,355,612 | | Due between one and five years | $93,840,749 | | Due over five years | $50,152,613 | | Total | $161,348,974 | Note 4. Inventories Breakdown of inventory components, including raw materials, work-in-process, and finished goods | Inventory Component | March 31, 2023 | December 31, 2022 | | :------------------ | :---------------- | :------------------ | | Raw materials | $301,876,129 | $304,184,004 | | Work-in-process | $44,534,016 | $45,512,275 | | Finished goods | $55,359,831 | $54,663,991 | | Total Inventory | $401,769,976 | $404,360,270 | Note 5. Earnings Per Share Calculation of basic and diluted EPS, including net income and weighted average shares outstanding | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Net Income available to common shareholders - Basic | $96,121,348 | $86,168,579 | | Basic weighted average shares outstanding | 230,605,626 | 232,151,296 | | Net Income per share - Basic | $0.42 | $0.37 | | Net Income available to common shareholders - Diluted | $96,122,624 | $86,171,079 | | Diluted weighted average shares outstanding | 230,895,846 | 232,789,811 | | Net Income per share - Diluted | $0.42 | $0.37 | Note 6. Stock-Based Compensation Plans Total compensation expense for share-based payments and unearned costs for stock grants | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Total compensation expense for share-based payments | $8,519,535 | $6,788,337 | | Compensation expense from restricted stock grants | $5,946,054 | $5,290,805 | - As of March 31, 2023, there was approximately $8,754,103 of unearned compensation cost associated with stock options[50] - As of March 31, 2023, the Company had unearned stock-based compensation of $45,419,558 for restricted stock grants and $19,418,307 for performance share grants[54][57] Note 7. Comprehensive Income (Loss) Details accumulated other comprehensive loss and changes in unrealized gains/losses on debt securities | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :---------------------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Accumulated other comprehensive loss, end of period | $(12,224,497) | $(5,127,408) | | Net current-period change in unrealized (losses) gains on available-for-sale debt securities | $2,039,604 | $(6,158,232) | Note 8. Debt and Financing Arrangements Describes credit agreement, revolving credit facility, and compliance with financial covenants - The Company entered into an amended and restated credit agreement providing a three-year unsecured revolving credit facility of up to $250.0 million, maturing on February 21, 2026[63] - As of March 31, 2023, there was no outstanding balance on the Revolver, and the Company was in compliance with its covenants[63][65] Note 9. Equity Explains common stock changes from repurchases/issuances and details cash dividends declared - Common stock decreased by 0.4 million shares during Q1 2023, primarily due to 1.0 million share repurchases partially offset by 0.6 million share issuances from stock-based compensation plans[66] - A cash dividend of $0.120 per share was recorded in Q1 2023, consistent with Q1 2022[67] Note 10. Contingencies Addresses legal proceedings and assessment of their potential material financial impact - The Company is involved in various legal proceedings but does not believe any currently constitute material pending legal proceedings that will have a material adverse effect on its financial position or future results[68] Note 11. Segment Reporting Breakdown of revenue and income from operations by segment, including Automotive Products and Other Revenue by Segment: | Segment | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | YoY Change | | :------------------ | :-------------------------------- | :-------------------------------- | :--------- | | Automotive Products | $537,422,988 | $457,952,554 | +17.3% | | Other | $13,338,323 | $10,298,222 | +29.5% | | Total | $550,761,311 | $468,250,776 | +17.6% | Income (Loss) from Operations by Segment: | Segment | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | YoY Change | | :------------------ | :-------------------------------- | :-------------------------------- | :--------- | | Automotive Products | $111,439,798 | $103,475,509 | +7.7% | | Other | $1,810,849 | $(169,604) | Significant Improvement | | Total | $113,250,647 | $103,305,905 | +9.6% | Note 12. Income Taxes Presents the company's effective tax rate for the three months ended March 31, 2023, and 2022 | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :---------------- | :-------------------------------- | :-------------------------------- | | Effective tax rate | 15.9% | 15.3% | Note 13. Revenue Details revenue by geographic area for automotive products and by major source Revenue by Geographic Area (Automotive Products): | Region | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------- | :-------------------------------- | :-------------------------------- | | U.S. | $170,781,604 | $142,193,971 | | Germany | $80,579,465 | $67,565,320 | | Japan | $72,155,984 | $54,762,488 | | Mexico | $34,287,544 | $32,135,079 | | Other | $179,618,391 | $161,295,696 | | Total Automotive Products | $537,422,988 | $457,952,554 | Revenue by Major Source: | Source | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Automotive Mirrors & Electronics | $505,731,576 | $423,626,489 | | HomeLink Modules* | $31,691,412 | $34,326,065 | | Fire Protection Products | $9,301,153 | $8,447,686 | | Aerospace Products | $4,037,170 | $1,850,536 | - Aerospace Products revenue increased by 118% year-over-year[73] Note 14. Leases Information on weighted average remaining lease term and future minimum lease payments for operating leases - The weighted average remaining lease term for operating leases as of March 31, 2023, was 2 years, with a weighted average discount rate of 5.8%[75] Future Minimum Lease Payments for Operating Leases (as of March 31, 2023): | Year ending December 31, | Amount | | :------------------------------------------ | :------------- | | 2023 (excluding Q1 2023) | $1,291,999 | | 2024 | $863,358 | | 2025 | $492,746 | | 2026 | $84,795 | | 2027 | $978 | | Thereafter | — | | Total future minimum lease payments | $2,733,876 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2023 financial performance, condition, operational updates, product developments, and future outlook First Quarter 2023 Versus First Quarter 2022 Compares net sales, automotive sales, mirror unit shipments, gross profit margin, and net income for Q1 2023 vs Q1 2022 - Net sales for Q1 2023 increased by $82.5 million or 18% compared to Q1 2022[77] - Automotive net sales increased 17% to $537.4 million, driven by a 16% increase in automotive mirror unit shipments to 12.7 million units[78] Auto-Dimming Mirror Unit Shipments (in thousands): | Category | Q1 2023 | Q1 2022 | % Change | | :------------------------ | :------ | :------ | :------- | | Total Interior Mirrors | 8,197 | 7,248 | 13% | | Total Exterior Mirrors | 4,519 | 3,755 | 20% | | Total Auto-Dimming Mirror Units | 12,717 | 11,003 | 16% | - Gross profit margin decreased due to raw material cost increases, prior commitments to annual customer price reductions, unfavorable product mix, and labor cost increases, partially offset by decreases in freight expense[81] - Net income for Q1 2023 was $97.6 million, up from $87.5 million in Q1 2022, with diluted EPS of $0.42 compared to $0.37[85] Financial Condition Reviews cash, accounts receivable, operating cash flow, capital expenditures, and share repurchases - Cash and cash equivalents were $215.5 million as of March 31, 2023, a slight increase from $214.8 million at December 31, 2022[86] - Accounts receivable increased by approximately $56.4 million compared to December 31, 2022, primarily due to the timing of sales[88] - Net cash provided by operating activities increased by $5.0 million to $120.9 million in Q1 2023[90] - Capital expenditures were approximately $42.8 million in Q1 2023, up from $23.9 million in Q1 2022, driven by facility construction projects[91] - The Company repurchased 1,046,926 shares in Q1 2023, with 19.7 million shares remaining under the plan as of March 31, 2023[95][131][132] Working Capital and Long-Term Investments: | Metric | March 31, 2023 | December 31, 2022 | | :-------------------- | :---------------- | :------------------ | | Working Capital | $708,010,461 | $698,099,624 | | Long-Term Investments | $229,398,824 | $202,331,983 | | Total | $937,409,285 | $900,431,607 | Business Update Highlights record quarterly net sales, global light vehicle production trends, and new product launches - The Company reported record quarterly net sales of $550.8 million for Q1 2023, an 18% increase year-over-year[96] - Global light vehicle production in North America, Europe, Japan/Korea, and China increased approximately 6% in Q1 2023 compared to Q1 2022[96] - In Q1 2023, the Company had 18 net new launches of interior and exterior auto-dimming mirrors and electronic features, with over 70% being advanced feature launches like HomeLink and Full Display Mirror[97] Product Update Updates on Full Display Mirror, rear vision systems, SmartBeam, HomeLink Connect, ITM, biometrics, and aircraft windows - Full Display Mirror (FDM) is currently shipping to fifteen automaker customers on 94 nameplates, offering bi-modal functionality for optimized rearward view[97] - The Company's three-camera rear vision system (CMS) provides a comprehensive view, with side-view cameras in downsized exterior mirrors and a roof/rear window camera, streamed to the FDM[98] - FDM with Digital Video Recording (DVR) capability continues to ship for Toyota Yaris and Yaris Cross in Japan, now with an app for consumer access to recorded information[101] - SmartBeam Generation 4, the high beam control system, offers advanced features like high beam assist and dynamic forward lighting, and is expected to meet new NHTSA standards[101][103] - HomeLink Connect uses RF and cloud-based connectivity for comprehensive vehicle-to-home automation, with Volkswagen being the first automaker to offer Bluetooth-enabled mirrors for HomeLink Connect[103] - The Integrated Toll Module (ITM) is shipping to Audi (11 platforms) and Mercedes (EQS model), providing a vehicle-integrated tolling solution[103] - The Company is developing an embedded biometric solution leveraging iris scanning technology for vehicle security and personalization, with plans to integrate it with HomeLink[105] - Dimmable aircraft windows are provided for Boeing 787 Dreamliner and 777X, and are now offered as optional content on Airbus aircraft[107] - An intelligent medical lighting system, co-developed with Mayo Clinic, is under further development and assessment for necessary approvals[108][109] Other Discusses automotive revenue dominance, pricing pressures, cost increases, and mitigation strategies - Automotive revenues constitute approximately 97% - 99% of the Company's total revenue[110] - The Company faces ongoing pricing pressure from customers and competitors, raw material cost increases, labor cost increases, and logistics costs, which exert downward pressure on sales and profit margins[111] - Efforts to offset these pressures include engineering and purchasing cost reductions, productivity improvements, increases in unit sales volume, and negotiations with customers[111] - The Company's patents and trade secrets provide a competitive advantage in dimmable devices, electronics, and other features for the automotive, aerospace, and medical industries[113] Outlook Presents light vehicle production forecasts and calendar year 2023 guidance, noting forecasting difficulties Light Vehicle Production Forecast (S&P Global Mobility mid-April 2023): | Region | Q2 2023 % Change YoY | Calendar Year 2023 % Change YoY | Calendar Year 2024 % Change YoY | | :------------------ | :------------------- | :---------------------- | :---------------------- | | North America | 10% | 5% | 3% | | Europe | 8% | 7% | 4% | | Japan and Korea | 21% | 8% | (3)% | | China | 19% | —% | 6% | | Total Light Vehicle Production | 14% | 4% | 3% | Calendar Year 2023 Guidance (unchanged): | Metric | Forecast | | :-------------------------- | :---------------------- | | Revenue | ~$2.2 billion | | Gross Margin | 32% - 33% | | Operating Expenses | ~$260 - $270 million | | Estimated Annual Tax Rate | 15% - 17% | | Capital Expenditures | ~$200 - $225 million | | Depreciation and Amortization | ~$100 - $110 million | - The Company expects calendar year 2024 revenue growth of approximately 10% above the 2023 revenue guidance[118] - Forecasting remains difficult due to high volatility in customer orders, electronics supply chain constraints, the Ukraine-Russia conflict, labor shortages, and overall economic uncertainty[116] Item 3. Quantitative And Qualitative Disclosures About Market Risk This section outlines market risk exposures, including foreign exchange and interest rate risks, with no material changes reported - The Company is subject to market risk exposures including foreign exchange rate risk and interest rate risk[121] - No material changes to risk factors were disclosed in the Company's 2022 Form 10-K, except as described in Part I – Item 2 and Item 3 of this Form 10-Q[121][129] - The Company is affected by uncertain economic conditions, including inflation, and global supply chain issues, which can reduce demand for its products[122] Item 4. Controls And Procedures Disclosure controls were effective as of March 31, 2023, with no material changes in internal control over financial reporting - The Company's Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of March 31, 2023[123] - There were no material changes in the Company's internal control over financial reporting during the quarter ended March 31, 2023[124] Part II - Other Information This section provides additional information not covered in Part I, including risk factors, equity security sales, and a list of exhibits filed with the report Item 1A. Risk Factors This section refers to previously disclosed risk factors, noting no new material changes beyond current filing details - No material changes to the risk factors previously disclosed in the Company's 2022 Form 10-K, except to the extent described in Part I – Item 2 and Item 3 of this Form 10-Q[129] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details of share repurchase activities, including shares bought back and remaining authorization under the existing plan - The Company repurchased 1,046,926 shares under its share repurchase plan during the first three months of 2023[130][132] - As of March 31, 2023, 19.7 million shares remained available for repurchase under the plan[131][132] - Total shares repurchased to date under the plan amount to $2,629,111,108 for 152,263,489 shares[132] Item 6. Exhibits Lists all exhibits filed, including CEO/CFO certifications and various Inline XBRL documents - The exhibits include certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[137] - Various Inline XBRL documents, such as the Instance Document, Taxonomy Extension Schema, Calculation Linkbase, Definition Linkbase, Label Linkbase, and Presentation Linkbase, are also included[137]