Gentex Corporation — FY 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. The filing also reports fourth-quarter results. Gentex primarily designs and manufactures automotive mirrors and electronics; automotive products generated approximately 98% of 2018 revenue.
Financial performance and liquidity
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | $1.834 billion | $1.795 billion |
| Gross profit / margin | $690.5 million / 37.6% | $694.5 million / 38.7% |
| Operating income / margin | $508.1 million / 27.7% | $523.4 million / 29.2% |
| Net income | $437.9 million | $406.8 million |
| Diluted EPS | $1.62 | $1.41 |
| Operating cash flow | $552.4 million | $501.0 million |
| Capital expenditures | $86.0 million | $104.0 million |
Fourth-quarter revenue was $453.4 million, versus $459.6 million a year earlier; net income was $106.3 million versus $130.5 million, and diluted EPS was $0.41 versus $0.46. At year-end, cash and cash equivalents were $217.0 million, short-term investments $169.4 million, and long-term investments $138.0 million. The current ratio was 5.0. The prior term loan was fully repaid during 2018; no debt was outstanding at year-end. A new $150 million revolving credit facility, expiring in 2023, was undrawn.
Changes and drivers
- Annual revenue increased 2.2%, supported by a 6% increase in automatic-dimming mirror shipments, to 41.6 million units. Other-product revenue rose 17% to $42.9 million, including higher aircraft-window and fire-protection sales.
- Gross margin declined 1.1 percentage points. Management attributed pressure to customer price reductions not fully offset by purchasing savings and lower-than-expected sales limiting fixed-overhead absorption.
- Net income rose 7.6%, primarily because the effective tax rate fell to 16.1% from 23.5%, following the U.S. tax-rate reduction and other tax items.
- Operating cash flow increased, while cash declined substantially amid $591.6 million of share repurchases, $116.6 million of dividends paid, and capital spending. The company repurchased 26.4 million shares in 2018; the declared dividend was $0.44 per share.
Outlook, risks and other items
For 2019, management estimated revenue of $1.83–$1.93 billion, gross margin of 36%–37%, operating expenses of $195–$200 million, capital expenditures of $90–$100 million, depreciation and amortization of $105–$115 million, and a tax rate of 16%–18%. The gross-margin outlook included approximately $20 million of tariff costs. For 2020, management forecast revenue growth of approximately 3%–8% over its 2019 revenue estimate.
Key uncertainties include automotive production levels and cyclicality, customer pricing pressure, product and regional mix, tariffs and geopolitical developments, supply-chain or component shortages, and concentration among major automakers. The filing identifies Volkswagen, Toyota, and Daimler as customers each representing at least 10% of 2018 sales; the customer table also requires careful review of its concentration disclosures. Competition, technology shifts such as camera-monitor systems replacing mirrors, customer program delays, and commodity costs could affect results. Management said existing liquidity and internally generated cash flow should cover foreseeable needs. The company reported no material pending legal proceedings; its auditor gave an unqualified opinion and reported effective internal control over financial reporting.
Investor verification points
- Reconcile customer concentration disclosures, including the filing’s differing references to major customers and the customer table.
- Track whether 2019 revenue and margin guidance incorporates actual tariff changes, pricing reductions, and purchasing or productivity savings.
- Assess the sustainability of cash generation and liquidity after substantial repurchases, dividends, and investment portfolio changes.
- Monitor automatic-dimming mirror shipment growth, customer program volumes, and competitive developments in camera-monitor systems.