Gentex Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing also presents unaudited fourth-quarter results. Amounts are in U.S. dollars unless otherwise noted.
Business context
Gentex designs and manufactures automotive mirrors and electronics, aircraft dimmable windows, and fire-protection products. Automotive products generated about 97% of FY2021 revenue. The company reported a 91% worldwide share of the automatic-dimming rearview mirror market and shipped 41.8 million automatic-dimming mirrors, up 9% year over year.
Financial performance and liquidity
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net sales | $1.731 billion | $1.688 billion | +2.5% |
| Gross profit / margin | $619.7 million / 35.8% | $605.4 million / 35.9% | Margin down 0.1 percentage point |
| Operating income / margin | $409.8 million / 23.7% | $399.6 million / 23.7% | +2.6% |
| Net income | $360.8 million | $347.6 million | +3.8% |
| Diluted EPS | $1.50 | $1.41 | Up $0.09 |
| Cash from operations | $362.2 million | $464.5 million | Down $102.3 million |
| Capital expenditures | $68.8 million | $51.7 million | Up $17.1 million |
Fourth-quarter 2021 sales were $419.8 million versus $529.9 million in Q4 2020; operating income was $88.0 million versus $162.4 million, and net income was $84.2 million versus $143.3 million. Diluted EPS was $0.35 versus $0.59.
Year-end cash and cash equivalents were $262.3 million, down from $423.4 million; short- and long-term investments totaled $213.1 million. Working capital was $691.3 million and the current ratio was 4.8. No revolving-credit borrowings were outstanding. The company had a $150 million revolving facility, expiring October 2023, subject to covenants. FY2021 share repurchases totaled $324.6 million and cash dividends paid were $115.3 million; dividends declared were $0.48 per share.
Automotive segment revenue rose to $1.697 billion from $1.648 billion. Other-segment revenue fell to $34.0 million from $40.0 million, and its operating result shifted to a $4.4 million loss from $5.6 million of income, reflecting weaker aircraft-window sales. Fire-protection sales increased 10%; dimmable aircraft-window sales declined 48%.
Material changes and management commentary
- Despite 3% lower global vehicle production, sales increased, primarily on higher automatic-dimming mirror shipments. Electronics-component shortages constrained shipments of Full Display Mirror, Integrated Toll Module, and other advanced-feature products.
- Gross margin was nearly unchanged: customer price reductions and higher freight costs each reduced margin by about 100–150 basis points; purchasing savings and product-mix improvements each added about 50–100 basis points.
- Operating cash flow declined mainly from working-capital changes and deferred taxes. Inventory increased $90.0 million, principally from higher raw-material levels.
- FY2021 included $12.1 million of business acquisitions, net of cash acquired. Acquisitions included Guardian, an in-cabin sensing technology developer; it contributed no 2021 revenue.
Guidance and outlook
- 2022: Revenue of $1.87–$2.02 billion; gross margin of 35%–36%; operating expenses of $230–$240 million; capital expenditures of $150–$175 million; depreciation and amortization of $100–$110 million; and an estimated tax rate of 15%–17%.
- 2022 capital spending includes an estimated $60–$65 million for a new 345,000-square-foot Michigan manufacturing facility, expected to be operational in early 2023. The project’s total estimated cost was $60–$70 million.
- 2023: Revenue was forecast to increase approximately 15%–20% over the company’s 2022 estimate, based on anticipated vehicle-production growth.
- Management said forecasts remain uncertain due to COVID-19 effects, supply and labor constraints, vehicle-production volatility, plant shutdowns, customer cost pressures, tariffs, and geopolitical and macroeconomic conditions. The company intended to continue share repurchases, subject to market conditions and available cash.
Risks, contingencies, and unusual items
- COVID-19-related supply-chain and labor disruptions, especially shortages of electronic components, could impair production and customer deliveries.
- Three automotive customers—Toyota, Volkswagen, and General Motors—accounted for 15%, 13%, and 11% of FY2021 sales, respectively. Production reductions or financial distress at major customers could materially affect results.
- Ongoing customer pricing pressure, raw-material and freight costs, tariffs, product mix, and dependence on automotive production pose margin and sales risks.
- Camera-monitoring systems and other technologies could compete with conventional mirrors. Gentex noted regulatory developments allowing camera systems in some markets, while continuing to develop combined mirror-and-camera products.
- The company reported no material pending legal proceedings expected to materially affect its financial position, results, or cash flows. Product-warranty liabilities were described as not significant.
- The auditor gave unqualified opinions on the financial statements and internal control over financial reporting. The critical audit matter concerned estimation of variable consideration for customer price reductions.
Important facts for investors to verify
- Whether vehicle production and component availability improve enough to support the 2022 revenue forecast and advanced-feature shipments.
- Whether price reductions, freight, materials, and labor costs allow Gentex to achieve its 2022 gross-margin range.
- Whether inventory growth converts into shipments and cash flow without material obsolescence or additional working-capital strain.
- Whether aircraft-window demand recovers as Boeing 787 production and the broader aerospace market improve.
- How customer concentration, share repurchases, dividends, and planned facility spending affect liquidity and capital allocation.
- Whether competitive and regulatory shifts toward camera-based systems alter demand for Gentex’s mirror products.