Gentex Reports Third Quarter 2022 Financial Results
October 28, 2022 at 08:00 AM EDT
ZEELAND, Mich., Oct. 28, 2022 (GLOBE NEWSWIRE) -- Gentex Corporation (NASDAQ: GNTX), a leading supplier of digital vision, connected car, dimmable glass and fire protection technologies, today reported financial results for the three and nine months ended September 30, 2022.
3rd Quarter 2022 Summary
For the third quarter of 2022, the Company reported net sales of $493.6 million, compared to net sales of $399.6 million in the third quarter of 2021, a 24% increase quarter over quarter. For the third quarter of 2022, global light vehicle production in North America, Europe, Japan/Korea, and China increased approximately 26% when compared to the third quarter of 2021. Light vehicle production in the Company's primary markets of North America, Europe and Japan/Korea was up 22% on a quarter over quarter basis. "Some of the supply chain issues that plagued the industry in the third quarter of 2021 have improved and overall light vehicle production growth contributed to the Company's quarter over quarter revenue growth. Nevertheless, product mix for the third quarter and overall sales levels were still impacted by customer order adjustments, supply chain challenges, and labor availability issues. Together, these headwinds resulted in unit shipments being approximately 750,000 units lower than our original forecast at the beginning of the quarter, which resulted in a significant revenue shortfall versus our beginning of quarter forecast. While there appears to be some improved stability in the light vehicle production environment and the overall supply chain, the Company continues to experience significant customer order fluctuations on a week-to-week basis and difficulty in sourcing advanced electronic components for our most complex products," said President and CEO, Steve Downing.
For the third quarter of 2022, the gross margin was 29.8%, compared to a gross margin of 35.3% for the third quarter of 2021. Gross margin was impacted on a quarter over quarter basis by raw material cost increases, unfavorable product mix, labor cost increases, and prior commitments to annual customer price reductions. "The continuation of cost increases in raw materials, as well as unfavorable product mix, had the most significant impact on our margin profile during the third quarter. Additionally, while the overall improvement in sales levels helped offset fixed overhead costs during the third quarter, the increase in labor costs more than offset the gains in overhead absorption to create additional margin pressure. During the third quarter, product mix issues driven by component shortages in our advanced feature mirrors and lower sales to our tier two customers contributed about 150 basis points of margin headwind that we believe will improve during the fourth quarter. The Company is also making progress on cost escalation conversations with our customers, and we expect relief to begin during the fourth quarter of 2022, which should provide improvement in our margin profile as we move through 2023 and into 2024,” commented Downing.
Operating expenses during the third quarter of 2022 increased by 15% to $60.4 million, compared to operating expenses of $52.7 million in the third quarter of 2021. Operating expenses increased during the third quarter of 2022 primarily due to staffing, professional fees, increased outbound freight expenses, and travel related expenses. “Our operating expense growth rate for the third quarter of 2022 continues to support our product development strategy, as well as previously sourced new program launches, product re-designs in support of component supply issues, and our ongoing commitment to new technology areas. The increase in operating expenses was in-line with our plan and represents the level of development needed to achieve the forecasted growth rate throughout the rest of 2022 and into 2023,” said Downing.
Income from operations for the third quarter of 2022 was $86.8 million, compared to income from operations of $88.2 million for the third quarter of 2021.
During the third quarter of 2022, the Company had an effective tax rate of 15.7%, which was primarily driven by the benefit of the foreign derived intangible income deduction.
Net income was $72.7 million for the third quarter of 2022, compared to net income of $76.7 million for the third quarter of 2021. The change in net income was primarily the result of the quarter over quarter changes in gross margins and operating profits.
Earnings per diluted share for the third quarter of 2022 were $0.31, compared to earnings per diluted share of $0.32 for the third quarter of 2021.
Automotive net sales in the third quarter of 2022 were $480.9 million, a 23% increase when compared with $391.3 million in the third quarter of 2021. Auto-dimming mirror unit shipments increased 17% during the quarter, compared to the third quarter of 2021.
Other net sales in the third quarter of 2022, which includes dimmable aircraft windows and fire protection products, were $12.7 million, compared to other net sales of $8.3 million in the third quarter of 2021. Fire protection sales increased by 78% for the third quarter of 2022, compared to the third quarter of 2021. Dimmable aircraft window sales decreased by 7% for the third quarter of 2022, compared to the third quarter of 2021. The Company continues to expect that dimmable aircraft window sales will be negatively impacted until there is a more meaningful recovery of the aerospace industry and the Boeing 787 aircraft production levels improve.
Based on this light vehicle production forecast as well as year-to-date financials, the Company is updating certain guidance estimates for calendar year 2022 as shown in the table below.
Additionally, based on the Company’s current forecasts for light vehicle production for calendar year 2023, the Company still expects calendar year 2023 revenue growth of approximately 15% - 20% above the new 2022 revenue guidance of $1.90 - $1.95 billion.
"Overall, the third quarter was impacted by the perfect storm of component supply issues that included both scarcity and cost increases, product mix issues, labor shortages, and customer order volatility. While we are disappointed with this quarter's financial performance, we are confident in our ability to work through these issues and improve the gross margin profile as we move through the fourth quarter of 2022 and into 2023. Beginning in the fourth quarter, we expect to see improvements to margins that will be driven by the benefit of the Company’s first rounds of cost escalation negotiations with customers to address ongoing commodity, freight and labor pricing pressure. These improvements should continue throughout 2023 and into 2024, as we work to offset cost increases with updated pricing. The plan we have developed and are executing to address these issues is consistent with our patient approach that we described previously, and seeks to balance the need for pricing increases with our desire to continue to grow the business through new technology deployment at our customers. As the fourth quarter begins and we transition into 2023, we remain confident in our ability to grow the business and improve margins, while at the same time expanding our technology portfolio. As we work to accomplish these objectives, we will continue to take a balanced, long-term approach to these challenges, and believe that this plan will get us back to our targeted margin profile by the end of 2024,” concluded Downing.
Safe Harbor for Forward-Looking Statements
The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law or the rules of the NASDAQ Global Select Market. Accordingly, any forward-looking statement should be read in conjunction with the additional information about risks and uncertainties identified under the heading “Risk Factors” in the Company’s latest Form 10-K and Form 10-Q filed with the SEC, which risks and uncertainties now include the impacts of an inflationary environment, the COVID-19 (coronavirus) pandemic, and supply chain constraints that have affected, and will continue to affect, general economic and industry conditions, customers, suppliers, and the regulatory environment in which the Company operates. Includes content supplied by S&P Global Mobility Light Vehicle Production Forecast of October 18, 2022 (http://www.gentex.com/forecast-disclaimer).
Third Quarter Conference Call
About the Company
Note: Percent change and amounts may not total due to rounding.
GENTEX CORPORATION AND SUBSIDIARIES
GENTEX CORPORATION AND SUBSIDIARIES