Gentex Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; comparisons are with the corresponding 2020 periods. Gentex primarily develops and manufactures automotive mirrors and electronics; automotive products generated about 98%–99% of revenue.
Financial performance and position
| Metric | Q2 2021 | Six months 2021 |
|---|---|---|
| Net sales | $428.0 million, up 86% | $911.7 million, up 33% |
| Gross profit / margin | $151.6 million / 35.4% | $334.9 million / 36.7% |
| Operating income | $99.9 million | $233.7 million |
| Net income | $86.5 million, versus a $2.4 million loss | $200.0 million, up 129% |
| Diluted EPS | $0.36, versus a $0.01 loss | $0.82, versus $0.35 |
- Six-month operating cash flow was $252.2 million, versus $190.5 million. Capital expenditures were $31.4 million.
- Cash and cash equivalents were $353.0 million at June 30, down from $423.4 million at year-end 2020. Working capital was $728.2 million. The company had $13.8 million of short-term and $193.4 million of long-term investments.
- Total liabilities were $250.5 million. No borrowings were outstanding on the $150 million revolving credit facility; the company reported covenant compliance.
- Six-month cash uses included $213.6 million of share repurchases and $58.2 million of dividends paid. Inventory rose to $263.9 million from $226.3 million at year-end.
Changes versus the prior comparable periods
- Q2 sales growth reflected a rebound from the COVID-19-affected 2020 quarter and a 98% increase in auto-dimming mirror shipments. For the first half, mirror shipments rose 42%.
- Gross margin improved from 19.1% to 35.4% in Q2 and from 29.3% to 36.7% for the first half. Management cited higher volume and fixed-cost leverage, prior structural cost reductions, purchasing savings, and product mix; customer price reductions partly offset gains.
- Q2 operating expenses increased 2% despite the substantial sales increase. First-half R&D decreased 3%, while SG&A increased 2%.
- Other-segment Q2 sales declined 6%, chiefly because aircraft window sales fell; fire protection sales increased.
Outlook, commentary and risks
- For H2 2021, management guided to revenue of $970 million–$1.07 billion, gross margin of 37.5%–38.5%, operating expenses of $105 million–$110 million, an annual tax rate of 16%–18%, capital expenditures of $50 million–$60 million, and depreciation and amortization of $54 million–$59 million.
- Management estimated 2022 revenue would be 10%–15% above estimated 2021 revenue. These are forecasts, not reported results.
- Industry-wide semiconductor shortages and supply-chain constraints reduced Q2 vehicle production by about 1.1 million units versus the mid-April forecast and pushed out an estimated 2 million Gentex mirror shipments. Management said disruptions could persist into H2 2021 and possibly 2022.
- Guidance reflects customer order changes and higher raw-material, freight, and labor costs. It excludes potential increased tariff costs: the EU had suspended a relevant tariff measure until November 30, 2021 while discussions continued.
- Key risks include COVID-19 and vehicle demand, production schedules and supply disruptions, customer pricing pressure, tariffs, higher input costs, competition, regulation, and potential customer or supplier financial distress. The company reported no material pending legal proceeding expected to materially affect its financial position or results.
- The board authorized an additional 25 million shares for repurchase; 28.3 million shares remained available under the plan at June 30, 2021. Repurchases may vary with market and business conditions.
Important facts for investors to verify
- Whether semiconductor and supply-chain disruptions continue to constrain customer production, orders, and shipments.
- Whether H2 revenue and gross-margin guidance is achieved, particularly as input, freight, labor, and tariff costs evolve.
- Whether the projected 2022 revenue growth and automotive customer demand assumptions hold.
- How inventory growth, cash use for repurchases and dividends, and remaining liquidity develop.
- Whether customer price reductions and competition offset productivity and purchasing savings.