Gentex(GNTX) - 2023 Q3 - Quarterly Report

Part I - Financial Information Presents the company's unaudited financials, management's discussion and analysis, market risks, and internal control assessments Unaudited Condensed Consolidated Financial Statements Financials show strong year-over-year growth in sales, net income, and cash flow for the third quarter and nine-month period Unaudited Condensed Consolidated Balance Sheets Total assets grew to $2.56 billion, supported by an increase in cash and shareholder investment Balance Sheet Summary (in millions) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $260.6 | $214.8 | | Total current assets | $1,055.5 | $948.7 | | Total assets | $2,558.3 | $2,327.2 | | Total current liabilities | $274.4 | $250.6 | | Total liabilities | $289.9 | $261.4 | | Total shareholders' investment | $2,268.5 | $2,065.8 | Unaudited Condensed Consolidated Statements of Income The company reports significant year-over-year growth in net sales, gross profit, and net income for both Q3 and the nine-month period Q3 2023 vs Q3 2022 Income Statement (in millions, except EPS) | Metric | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $575.8 | $493.6 | +16.7% | | Gross Profit | $191.4 | $147.2 | +30.0% | | Income from Operations | $122.4 | $86.8 | +41.0% | | Net Income | $104.7 | $72.7 | +44.0% | | Diluted EPS | $0.45 | $0.31 | +45.2% | Nine Months 2023 vs 2022 Income Statement (in millions, except EPS) | Metric | Nine Months 2023 | Nine Months 2022 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,710.1 | $1,425.3 | +20.0% | | Gross Profit | $559.3 | $456.0 | +22.6% | | Income from Operations | $363.0 | $275.9 | +31.6% | | Net Income | $311.5 | $232.6 | +33.9% | | Diluted EPS | $1.33 | $0.99 | +34.3% | Unaudited Condensed Consolidated Statements of Cash Flows Operating cash flow increased significantly for the nine months ended September 30, 2023, driving a net increase in cash Cash Flow Summary for Nine Months Ended Sep 30 (in millions) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $367.7 | $236.4 | | Net cash used for investing activities | $(189.1) | $(119.3) | | Net cash used for financing activities | $(136.7) | $(156.4) | | Net increase (decrease) in cash | $41.9 | $(39.4) | Notes to Unaudited Condensed Consolidated Financial Statements Key notes detail goodwill valuation, technology investments, automotive revenue concentration, and a post-quarter acquisition - Goodwill carrying value was approximately $313.2 million as of September 30, 2023, with no impairments identified despite monitoring for impacts from the UAW strike, supply chain constraints, and inflation[26] - The company made technology investments totaling $43.0 million in Adasky, LTD, an Israeli developer of thermal sensing technologies, during 2023, increasing its total technology investments to $125.3 million[36][100] - Automotive products constituted 98% of total revenue for the nine months ended September 30, 2023, with revenue from this segment growing 20% year-over-year to $1.68 billion[73] - On November 2, 2023, subsequent to the quarter's end, the company acquired technology assets from eSight Corporation for approximately $18.9 million in cash, related to advanced low-vision smart glasses[79] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong Q3 sales, improved margins, capacity expansion, and provides a positive outlook for 2024 Third Quarter 2023 vs. Third Quarter 2022 Results Q3 2023 saw a 17% increase in net sales and a significant improvement in gross margin to 33.2% - Q3 2023 net sales increased 17% YoY to $564.5 million, driven by a 10% increase in total auto-dimming mirror unit shipments to 12.6 million units[81][82] - Gross margin for Q3 2023 improved to 33.2% (from 29.8% in Q3 2022) primarily due to improved fixed overhead leverage, lower freight costs, and customer cost recoveries[85] - Net income for Q3 2023 was $104.7 million ($0.45 per diluted share), a significant increase from $72.7 million ($0.31 per diluted share) in Q3 2022[90] Nine Months 2023 vs. Nine Months 2022 Results For the first nine months of 2023, net sales grew 20% and net income increased 34% year-over-year - For the first nine months of 2023, net sales increased 20% YoY to $1.7 billion, driven by a 15% increase in automotive mirror unit shipments[91][92] - Gross margin for the nine-month period improved to 32.7% from 32.0% in the prior year, benefiting from improved fixed overhead leverage and lower freight expenses[94] - Net income for the nine months increased 34% to $311.5 million, or $1.33 per diluted share, compared to $232.6 million, or $0.99 per diluted share, in the same period last year[98] Financial Condition and Liquidity The company's liquidity remains strong with increased cash reserves, ongoing capital expenditures for expansion, and continued share repurchases - Cash and cash equivalents increased by $45.9 million to $260.6 million as of September 30, 2023, compared to year-end 2022[99] - Capital expenditures for the first nine months of 2023 were $121.4 million, up from $108.5 million in the prior year, mainly for facility construction[104] - The company is expanding its manufacturing capacity with new facilities in Michigan, expected to cost $140-$165 million, funded by cash on hand[105] - During the first nine months of 2023, the company repurchased 2.74 million shares, with 18.0 million shares remaining available for repurchase under the current plan[108][130] Business and Product Update The company highlights growing shipments for its Full Display Mirror® and Integrated Toll Module®, along with expansion in aerospace and medical technology - The company is shipping its Full Display Mirror® to fifteen different automakers, including General Motors, Toyota, Mercedes, and Ford[111] - The Integrated Toll Module (ITM®) is currently shipping on 11 Audi platforms and to Mercedes, with further launches expected[118] - In the aerospace segment, the company supplies dimmable windows for the Boeing 787 and 777X, and began production for Airbus in 2021[119] - Subsequent to the quarter, the company acquired technology assets from eSight Corporation for low-vision smart glasses, expanding its presence in medical technology[122] Outlook The company provides updated 2023 full-year guidance and an initial 2024 revenue forecast, while noting ongoing market uncertainties Updated 2023 Full-Year Guidance | Metric | Guidance | | :--- | :--- | | Revenue | $2.2 - $2.3 billion | | Gross Margin | 32.5% - 33.0% | | Operating Expenses | $260 - $270 million | | Capital Expenditures | $200 - $215 million | | Annual Tax Rate | 15.0% - 15.5% | - The company expects calendar year 2024 revenue to be approximately $2.45 to $2.55 billion[131] - The outlook is subject to ongoing volatility from labor union strikes, supply chain constraints, and overall economic uncertainty[129] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign exchange, interest rates, economic uncertainty, and potential labor strikes - The company is subject to market risks from foreign exchange rates, interest rates, and general economic conditions affecting the automotive industry[134][135] - Potential work stoppages from automaker or union labor strikes are highlighted as a material risk[134] Controls and Procedures Management confirmed the effectiveness of disclosure controls and procedures with no material changes to internal controls - As of September 30, 2023, the company's disclosure controls and procedures were deemed effective by management[136] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls[137] Part II - Other Information This section covers updates to risk factors, details of equity repurchases, and a list of filed exhibits Risk Factors No material changes to risk factors are reported beyond those disclosed in the 2022 Form 10-K and this report - No material changes to risk factors were reported from the company's 2022 Form 10-K, except as described within this 10-Q report[142] Issuer Purchases of Equity Securities The company details its Q3 2023 share repurchase activity and the remaining authorization under its current plan Share Repurchases in Q3 2023 | Period | Total Shares Purchased | Weighted Average Price Paid Per Share | | :--- | :--- | :--- | | July 2023 | — | — | | August 2023 | 210,525 | $32.51 | | September 2023 | 565,963 | $32.38 | | Q3 2023 Total | 776,488 | $32.41 | - As of September 30, 2023, 18.0 million shares remained available for repurchase under the company's publicly announced plan[144][145] Exhibits This section lists all exhibits filed with the Form 10-Q, including SOX certifications and XBRL data files - The Exhibit Index lists required filings, including Sarbanes-Oxley certifications (Exhibits 31.1, 31.2, 32) and Inline XBRL documents (Exhibit 101 series)[150]