Gentex Corporation — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also reports fourth-quarter results. Gentex designs and manufactures automotive mirrors and electronics, aircraft dimmable windows, and fire-protection products. Automotive products generated approximately 97% of 2019 revenue.
Financial performance and position
| Metric | FY 2019 | FY 2018 | Change |
|---|---|---|---|
| Net sales | $1.859 billion | $1.834 billion | +1.4% |
| Gross profit / margin | $688.3 million / 37.0% | $690.5 million / 37.6% | Margin down 0.6 percentage points |
| Operating income / margin | $488.5 million / 26.3% | $508.1 million / 27.7% | Income down 3.9% |
| Net income | $424.7 million | $437.9 million | Down 3.0% |
| Diluted EPS | $1.66 | $1.62 | Up from prior year |
| Operating cash flow | $506.0 million | $552.4 million | Down $46.5 million |
| Capital expenditures | $84.6 million | $86.0 million | Lower by $1.4 million |
At year-end, cash and cash equivalents were $296.3 million, short-term investments $140.4 million, and long-term investments $139.9 million. Working capital was $778.5 million and the current ratio was 5.5. The company reported no outstanding borrowings on its $150 million revolving credit facility and no long-term debt. Total assets were $2.169 billion.
Gentex declared dividends of $0.46 per share for 2019 and repurchased 13.8 million shares for approximately $331.5 million. Automotive mirror shipments increased 3%, to 42.9 million units; other-product revenue rose 13%, to $48.4 million.
Fourth-quarter results
Q4 2019 net sales were $443.8 million versus $453.4 million in Q4 2018; gross profit was $161.8 million versus $172.0 million; operating income was $110.9 million versus $125.5 million; and net income was $99.5 million versus $106.3 million. Diluted EPS was $0.39 versus $0.41.
Material changes and management commentary
- Revenue grew modestly despite global light-vehicle production falling approximately 6% year over year and the General Motors strike, which management said reduced revenue by about 1% in 2019.
- Gross margin declined as annual customer price reductions were not fully offset by purchasing savings, and tariffs raised costs. Management estimated price reductions and tariffs each reduced gross margin by approximately 75–200 basis points; purchasing savings and product mix partly offset these pressures.
- Operating expenses increased 9.6%, primarily due to higher staffing, research and development, travel, and professional fees. R&D spending was $114.7 million.
- Management cited increased automatic-dimming mirror shipments, particularly in North America, as a sales driver. Other revenue growth reflected higher aircraft-window and fire-protection sales.
Outlook, risks, and unusual items
- For calendar 2020, management forecast revenue of $1.91–$2.00 billion, gross margin of 36%–37%, operating expenses of $205–$215 million, capital expenditures of $85–$95 million, depreciation and amortization of $105–$110 million, and a tax rate of 15%–17%.
- For 2021, management projected revenue growth of approximately 3%–8% over its 2020 revenue estimate, based on the vehicle-production forecasts then available.
- Management warned that forecasts were subject to vehicle-production levels, tariffs, customer pricing pressure, product mix, supplier shortages, plant shutdowns, strikes, customer financial distress, and the coronavirus. The 2020 outlook was issued before the later development of the pandemic and should not be treated as current guidance.
- Three customers—Volkswagen, Toyota, and General Motors—each represented at least 10% of 2019 net sales. The loss of, or reduced production by, a major customer could materially affect results.
- Competitive and technology risks include camera-monitoring systems potentially replacing mirrors, competition in display and driver-assistance products, and the possibility of changes in customer preferences or automotive technology. Gentex reported an approximately 94% global share of automatic-dimming rearview mirrors in 2019.
- The company reported no material pending legal proceeding expected to adversely affect its financial position, results, or cash flows. The independent auditor gave unqualified opinions on the financial statements and internal controls; its critical audit matter concerned estimating customer price reductions and other variable consideration in revenue.
Investor facts to verify
- Whether subsequent vehicle production, tariffs, and customer demand differed materially from the assumptions underlying the 2020 and 2021 outlook.
- Whether Gentex could offset annual customer price reductions and tariff costs through purchasing savings, productivity, and product mix.
- Revenue exposure and receivable risk associated with Volkswagen, Toyota, and General Motors, including any effects from customer production interruptions or financial stress.
- Progress in scaling newer offerings—such as Full Display Mirror, camera-monitoring systems, HomeLink Connect, and aircraft windows—and their effect on revenue and margins.
- Cash deployment through share repurchases, dividends, investment balances, and capital spending, as well as the assumptions used to estimate customer pricing adjustments.