Q1 2022 Gentex Corp Earnings Call
Good day and thank you for standing by welcome to the Gentex first quarter 2022 financial results Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone please be advised that today's conference may be Rick.
If you require any further assistance. Please press Star then zero I would now like to hand, the conference over to your host today, Josh O'brinsky director of Investor Relations. Please go ahead Sir.
Thank you.
Good morning, and welcome to the Gentex Corporation first quarter 2022 earnings release Conference call I'm, Joshua Bursty, Gentex director of Investor Relations and I'm joined by Steve Downing, President and CEO , Neil Boehm, Vice President of Engineering, and CTO and Kevin Nash Vice President of Finance and CFO . This call is live on the Internet and can be reached by going to the Gentex website.
And at IR Gentex Dot Com all contents of this conference call are the property of Gentex Corporation and May not be copied published reproduced rebroadcast retransmitted transcribed or otherwise redistributed Gentex Corporation will hold responsible and liable any party for any damages incurred by Gentex Corporation with respect to any unauthorized use of the contents of this call.
Call.
This conference call contains forward looking information within the meaning of the Gentex Safe Harbor statement included in the Gentex reports first quarter 2022 financial results press release from earlier this morning, and as always shown on the Gentex website. Your participation in this conference call implies consent to these terms now I'll turn the call over to Steve Downing, who will get US started today, Steve. Thank you Josh.
Sure.
For the first quarter of 2022, the company reported net sales of $468 $3 million compared to net sales of $483 $7 million in the first quarter of 2021.
For the first quarter of 2022.
Global light vehicle production decreased approximately 5% when compared to the first quarter of 2021 <unk>.
Additionally, light vehicle production in the company's primary markets of North America, Europe , and Japan Korea declined by 11% on a quarter over quarter basis.
These declines were primarily a result of the ongoing industry wide component shortages and global supply chain constraints.
The company has been dealing with the impacts of component shortages and supply chain constraints since the beginning of 2021.
Which is why our forecast for the beginning of this year was more conservative than the original IHS market estimates for light vehicle production.
During the first quarter of 2022, we saw estimated light vehicle production declined by over 4% versus the beginning of the quarter.
While the effects of the electronic component shortages improved slightly during the first quarter of this year, our concerns about the lingering impact of light vehicle production were well founded.
Our first quarter 2022 sales improved sequentially from the fourth quarter of 2021, but we're still below the level suggested at the beginning of the quarter based on IHS market estimates and the release data from our customers.
Despite the lower than planned sales levels in the first quarter the industry backdrop, and the underproduction of light vehicles over the last year should create the opportunity for an improving sales environment as we move throughout the rest of 2022.
For the first quarter of 2022, the gross margin was 34, 3% compared to a gross margin of 37, 9% for the first quarter of 2021.
Gross margins were impacted in the quarter by raw material cost increases elevated freight expenses labor cost increases in response to a tight labor market lower than expected sales levels and ongoing customer order volatility.
Considering.
The inflationary pressures on our business right now the gross margin was within 70 basis points of our annual guidance range for gross margin performance. Despite the fact that sales for the first quarter are expected to be at the lowest level of the year.
The company is in active discussions with our customers about the inflationary aspects of our business and how to best formulate long term collaborative relationships that provide the opportunity to minimize the impact of these inflationary pressures on our business model, while preserving the ability to grow through the introduction of new innovative products.
We fully expect that these discussions will extend throughout calendar year 2022, and even into 2023.
Operating expenses during the first quarter of 2022 increased by 15% to $57 $1 million compared to operating expenses of $49 $6 million in the first quarter of 2021.
E R&D expenses during the first quarter of 2022 increased 16% compared to the first quarter of 2021, primarily due to additional staffing and professional fees related to new product development and the ongoing product redesigns necessary to mitigate electronics part shortages.
On a quarter over quarter basis, SG&A expenses were up primarily due to increases in outbound freight expense and the return of in person customer meetings and trade show related expenses.
Income from operations for the first quarter of 2022 was $103 $3 million compared to income from operations of $133 $7 million for the first quarter of 2021.
During the first quarter of 2022, the company had an effective tax rate of 15, 3%, which was primarily driven by the benefit of the foreign derived intangible income deduction and discrete benefits from stock based compensation.
Net income was $87 $5 million for the first quarter of 2022 compared to a net income of $113 $5 million for the first quarter of 2021.
The change in net income was primarily the result of the quarter over quarter changes in sales gross margins and operating profits.
Earnings per diluted share for the first quarter of 2022 were <unk> 37 compared to earnings per diluted share a 46 for the first quarter of 2021.
I will now hand, the call over to Kevin for the first quarter financial details. Thank you Steve automotive net sales in the first quarter of 'twenty, two or $458 million compared with $475 6 million in the first quarter 'twenty, one and auto dimming mirror unit shipments decreased 7% during the quarter compared to the first quarter of 'twenty one other.
Other net sales in the first quarter of 'twenty, two which includes Dimmable aircraft Windows and fire protection products was $10 3 million compared to other net sales of $8 1 million in the first quarter of 'twenty one.
Fire protection sales increased by 46% for the first quarter of 'twenty, two compared to the first quarter of 'twenty, one dimmable aircraft window sales decreased by 20% for the first quarter of 'twenty, two compared to the first quarter of 'twenty one.
The company continues to expect the demo aircraft window sales will be negatively impacted until there is a more meaningful recovery of the aerospace industry and the Boeing 707 aircraft production levels improve.
Share repurchases during the first quarter of 22, the company repurchased 244 million shares of its common stock at an average price of $29 per share for a total of $71 3 million.
As of March 31 of 22, the company has $22 4 million shares remaining available for repurchase pursuant to its previously announced share repurchase plan.
The company intends to continue to repurchase additional shares of its common stock in the future and support of the previously disclosed capital allocation strategy, but share repurchases may vary from time to time and will take into account macroeconomic issues, including the impacts of the COVID-19, pandemic and supply constraints market trends and other factors the company deems appropriate.
Let's take a look at a few key balance sheet items the.
The balance sheet items mentioned today are valued as of March 31 of 22 and are compared to December 31 of 21, unless otherwise noted cash and cash equivalents were $279 7 million up from $262 3 million, primarily due to cash flow cash flow from operations and investment sales, which were partially offset by share repurchases.
Dividend payments and capital expenditures.
Short term and long term investments combined were $182 7 million down from $213 1 million.
Accounts receivable was $281 5 million up from $249 8 million due to the sequential increase in sales.
Inventories were $362 7 million, which increased from $316 3 million. The majority of this changes in raw materials. The company continues to take a conservative position related to raw materials inventory with ongoing supply chain issues component shortage issues. In addition to customer order volatility the company has taken on additional.
Components of certain medium and long lead time items to help manage risk.
When the supply chain constraints start to alleviate and the component shortages begin to abate the company will evaluate the proper levels of inventory at each commodity level.
Lastly accounts payable increased to $140 9 million up from $98 3 million, primarily due to increased inventory purchases and capital expenditures.
Take a quick look at the cash flow statement for the quarter first quarter 2022 cash flow from operations was one was $106 9 million compared with $190 8 million in the first quarter of 'twenty one.
Operating cash flow was impacted by the lower net income quarter over quarter as well as increases in receivables and inventory.
Capital expenditures for the first quarter of 'twenty, two were $17 2 million compared with $12 6 million for the first quarter of 'twenty one and.
And lastly, depreciation and amortization for the first quarter was $24 7 million compared with $25 6 million for the first quarter of 2021, I'll now hand, the call over to Neil for a product update. Thank you Kevin in the first quarter of 2022, there were 21 net new nameplate launches of our interior and exterior auto dimming mirrors and electronic features.
Net of previously disclosed feature headwinds.
There was a significant growth in launches of base interior auto dimming mirrors for the quarter with a product with approximately 60% base mirrors launching in the China market.
As we've talked about before launching base auto dimming mirrors is extremely important for a group of features that enable us to grow the content and scale across platforms.
Now for an update on our full display mirror product at the completion of the first quarter of 2022, we started shipping full display mirror on five additional nameplates and we're excited to announce that in the first quarter of 2022, we began shipping full display mirror towards <unk>, OEM Ferrari and our 13th OEM Ford.
With Ferrari, we began shipping full display mirror on the 812 and the <unk> 90 <unk>.
Before we started shipments for the Ford Transit custom.
Also in the quarter, we started shipping full display mirror for the eastern Martin bakery for land Rover on the new range Rover.
As of the end of Q1 2022, we're shipping full display mirror on 70 vehicle nameplates.
A comprehensive list of the Oems and the number of nameplates, where we are currently shipping FTM.
General Motors, our initial launch customer has 25 nameplates shipping for.
For Toyota we are now shipping on 16 nameplates.
Jaguar land Rover, we are currently shipping on eight nameplates.
We are shipping FTM on five nameplates for Jeep and Ram.
Both Subaru and Nissan are currently shipping on three nameplates.
Aston Martin Mitsubishi and Ferrari are all shipping FTM onto nameplates.
Ford Mercedes Fiat and Mas <unk>, all have FTM shipping on one nameplate.
As we look forward to the second quarter and the balance of the calendar year, we realize that many of our customers expected launches of new vehicles may be affected by the current shortages.
However, based on the demand for full display mirror, we anticipate we will have approximately 10 additional nameplate launches and an additional OEM to announce over the remainder of 2022.
In summary.
Even with the current challenges our industry is facing our launches and product Rollouts are strong and we believe we are positioning the company with a technology and product portfolio that will drive growth into the future.
I'll now hand, the call back over to Steve for guidance and closing remarks. Thank you Neil.
The company is current forecast for light vehicle production for the second quarter of 2022 and full year 2022, and 2023 are based on the mid April 2022, IHS market forecast for light vehicle production in North America, Europe , Japan, Korea and China.
Light vehicle production in these markets is expected to be flat for the second quarter of 2022 versus light vehicle production for the second quarter of 2021.
For calendar year 2020 to our press release had a formula error. This morning that showed European light vehicle production with the incorrect volume for calendar year 2021 at 13.02 million vehicles instead of the correct volume of $15 eight 9 million vehicles.
Based on this updated volume for the last year the forecast for light vehicle production in our primary markets of Europe , North America, Japan, Korea, and China is forecasted to increase 4% when compared to calendar year 2021.
The company continues to expect that revenue will remain difficult to forecast for the remainder of the year as a result of high levels of volatility in customer orders and vehicle production volumes electronics supply chain constraints, the Ukraine, Russia conflict labor shortages and overall economic uncertainty.
Based on the previously mentioned light vehicle production forecast the company is making no changes to its previously provided guidance for calendar year 2022 as shown in today's press release and is as follows.
Revenue for 2022 is expected to be between $1 87, and $2 2 billion gross margins for the year are expected to be between 35 and 36%.
Operating expenses are currently forecasted to be approximately $230 million to $240 million, our estimated annual tax rate, which assumes no changes to the statutory rate is forecasted to be between 15 and 17%.
Capital expenditures for 2022 are expected to be between 150, and $175 million and depreciation and amortization is forecasted to be between 101 hundred $10 million.
Additionally, based on the company's forecast for light vehicle production for calendar year 2023, the company still expects calendar year 2023 revenue growth of approximately 15% to 20% above the 2022 revenue guidance.
While we are optimistic given the sales level achieved during the first quarter and what we expect to be increased revenue levels throughout the remainder of the year. We have also seen increased levels of volatility in customer orders in recent weeks stemming from the electronic supply chain shortages in OEM shutdowns.
The company has devoted significant resources to product reengineering that has allowed us to maintain consistent supply to our customers and cleared the path for better revenue levels throughout 2022 and 2023.
While the inflationary aspects of our business will continue to be a challenge over the next several quarters. We believe our recipe of outgrowth versus the underlying vehicle production market will create record sales levels that will allow us to leverage our overhead to help offset some of the cost increases we have seen recently.
We believe that this combination of record level sales when combined with our consistent and disciplined capital allocation philosophy will result in excellent shareholder returns over the next several years.
That completes our prepared comments for today. Thank you for your time and we can now proceed to questions.
Thank you if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
And our first question comes from the line of Luke junk with Baird. Your line is open. Please go ahead.
Good morning, and thanks for taking the questions first question for me. This morning to start wondering if you could help us unpack flat sequential gross margins. This quarter typically you would be looking at gross margin compression in the first quarter due to the timing of annual price Downs, which was not the case this quarter.
Obviously helps but what other strings were you able to pull to operationally drove that result, thank you.
Go ahead Greg.
The real improvement was in sales levels.
We did have some price downs from customers, which is typical but our fixed overhead levels improved from the fourth quarter to the first quarter and then that we were able to offset.
We did have a little bit better performance.
I'm afraid it and tariff situation from Q4 to Q1 not.
Not a ton, but that helped offset some of the pricing reductions that we did have but it was primarily based on overhead. If you go from Q4 to Q1 margin.
Okay second question with respect to the full display mirror, specifically, assuming that eventually we do see improvements in chip suppliers begin to materialize in the second half as ever in any other industry of course is hoping I'm just wondering how or if that changes your strategic approach here are you able to.
A little more often in the near term are there any cost considerations that could come.
Come into account in terms of streamlining production and whatnot, just trying to capture all the relevant variables as it relates to chips and the ft and thanks.
Yes, I think I think right now the only thing suppressing FTM demand is our ability to get components. So.
And if if indeed this does start to get better in the second half of this year, which we hope so.
And then you would see some positive pressure on FTM volumes in the back half of the year and we've had incidences already throughout this the last couple of quarters, where we've had to tell Oems that we can increase volumes to the level. They would like because theres just not availability of components and so as we've been struggling just to make sure we hit the current shipments.
Obviously, the concept of growing that more than what we had already been planned is very difficult. So that would be one of the positive aspects. Obviously on the negative side, what goes with the shortages as the cost containment issues. If you look on a year over year basis. The gross margin decline a good portion of that is driven by cost increases that we've seen in a lot of that has come on the electronics supply.
So as we move forward out of this year and into next year. We think there is some positive momentum on the product side, we hope that that will carryover obviously in out years and continue to be positive demand from our customer and consumer base for that product. What we have to work on obviously is the cost containment side to make sure that we get the costs in line with where <unk>.
<unk> expected us to be at this time and at these volumes.
Thanks for that and if I could just squeeze one more question in this morning.
Cost related question, so as I look at over the broader industrial landscape folks that follow the freight market closely are starting to warn of a potential downturn, there, which could result in falling spot rates better availability et cetera, given that your production is concentrated in zeeland to what extent with any loosening in the freight market helped the company both on <unk> wondering if you could.
Comment in terms of Quant.
Quantitative terms the dollar costs currently in the P&L and then qualitatively in terms of your day to day operations as well. Thank you.
Well if you look at if you look at there's two two distinct aspects of freight that have caused us paying really over the last two years. The first is on the incoming freight side and that obviously is reflected in the gross margin calculation, Kevin I would say there is probably a good in the lab.
At total over the last two to three years at least $3 million to $4 million increase in freight costs on the incoming side that if things were to reverse and go back to where they were pre COVID-19 , we would see obviously.
When they're on the sale on the sales expense side is where we see a lot of our freight expense that goes to finish about finished goods to our customers and I would say that's probably another good $4 million to $5 million on outgoing freight that we've incurred over the last two years and that's on an annual basis. So.
If indeed that does happen, which we truly hope so I mean, obviously that would help provide some offset to some of the cost increases that we've seen recently.
I'll go ahead and leave it there thank you.
Thanks Luke.
Thank you and our next question comes from the line of David Whiston with Morningstar. Your line is open. Please go ahead.
Thanks, Good morning.
I guess first on the in the.
The press release, you called out some increase in head counts around hiring for R&D.
Just curious what talent are you looking for there that cause you to need to anger.
The vast majority of what we're referencing there was really in neil's team looking specifically, we've we seen increased expenses on the software and electronics design side and that's really been in the last two years a lot of Neil's groups' resources had been towards product Redesigns. So we have a firmed up schematic for.
Or for an FDA product for instance.
And then what happens is we find out that there's two or three components that are constrained so even though the products harden fully validated and production is team goes back and then has to do what historically, we've had had happened very rarely which is go back and redesign the entire schematic to get around the 2345 components that are in short supply and so the problem with this is.
Is that it not only is that happening, but it's happening multiple times on the same products because it is a I hate to use the terminology, but it's somewhat of a rolling brown on the component supply side, where you have repair about three or four components you redesign your re validate your back into production and then three months later you find out that there is different components that are now constrained and you have to go redesign again.
So that's been driving a portion of the increase in head count. The other one is quite frankly, the positive side of that story, which is looking at the new products and new features and the launches and the launch cadence increasing it's just.
The normal work that comes with growth in our business.
And I know one new market for you is nano sensing.
And adequate talent there from the acquisitions, you made or do you need to add more people in that area.
No the teams the team both on the nano side on the nano sensing side and with our with our team in Israel have both been looking at additional talent acquisition. There have been some increases in head count in both of those locations to help us expedite the development of both of those technologies, but for the most part neil's team is pretty adequate and staff.
<unk> Zealand to help support those and the launch of those when they are ready for production.
And on the unit volume this quarter the international side outside North America has not hit a lot.
<unk> I was just curious is that primarily due to the German plant shutdowns from no wire harnesses from Ukraine or was it just other things like the chip shortage more.
It was.
The European impact was definitely heavily impacted by the wire harness issues from the Ukraine.
The rest of the Japan Korea got hit really hard that was more about the underlying economic issues and component issues. So less on the obviously less for the Asian customers on the on the Ukraine wire harness issue and more about just systematic problems in the industry, especially on the electronic supply side.
Okay. Thanks. Thank you. Thank you.
Thank you and our next question comes from the line of James Picariello with BNP Paribas Exane. Your line is open. Please go ahead.
Hey, good morning, guys morning, Grilling James.
I would start to the year.
So can we could we just confirm what's baked into the full year guide. So it was my understanding last quarter.
IHS was at plus 8% you guys were thinking about a range I think closer to up five to six you know correct me if I'm wrong, there and then.
So now IHS is plus four is it.
It's in line with your view, where does the company's internal range fall out.
And then I think one of the clear conclusions to draw is that your product and content content mix is starting to recover after a tough year specific to gentex last year, but it would of course be curious to get your take on that.
No you're exactly right I mean, one of the reasons why we called out our pessimism about the IHS volume coming into the year was that we didn't see the market conditions able to support that level of volume, even though demand was there the supply base wasn't going to be able to keep up and we think that the IHS numbers that are now kind of moved down closer to what we were estimating and.
Even a little lower than what we thought light vehicle production would be.
It is more than we expected this quickly in the year, we thought it would take a little longer in the year for that that those estimates that kind of get closer to ours, but the good news is is that if you look at our range of revenue growth.
Total revenue for the year, it still puts us well inside of that range that we provided previously so we feel like our conservative approach coming in in our guide we're well aligned around some continuing problems that we expected this year and there's nothing that happened in the first quarter that takes us outside of that guidance range. So we feel you know we feel like that our conservative approach is really setup.
Well to be able to hit those numbers.
Got it.
So just to clarify then your LDP assumption your internal assumption would be closer to where IHS is now and then the positive offset would be.
Better better mix, yes, correct, and and and like we mentioned in Q1, we actually did a little better than we thought we knew we had customer orders and releases that showed that level of sales historically, what we had seen is a lot of order volatility January and February were really solid Oems basically gave us their their releases.
And they came very close to those March got a little more volatile once once the conflict picked up and some other things happened.
But for the most part Q1 was was very close to what our beginning of year estimates were.
Got it.
And so I think the second quarter here.
From an <unk> standpoint should trend.
Down sequentially, but you guys are calling for the first quarter to be the low watermark for the year. So just wanted to kind of get your take on how you're thinking about the first half.
Second half split cadence for the year in terms of the top line and margins.
Yes, we think we think if you look at Q2 is typically if you look at if you look at our year end and I know, it's always difficult to look at historical cadence of vehicle cycle, and then compare it to whats happened in the last two years or so but if you look at normally for US Q3 tends to be one of our biggest quarters right now our internal <unk>.
Our cast would tell you that Q3 should the year should continue to build up to Q3, and then you usually see a little bit of a tail off in Q4, just due to holidays and less shipping days.
Towards the end of the year, given given the amount of holidays and shutdowns that happened and Thats currently what our forecast is still showing so kind of a return to normal cadence. This year, we truly believe that Q1 will be the smallest quarter.
Assuming that the rest of this that the light vehicle production forecast that we're looking at holds up even remotely close to reality.
Okay.
Just one last one has your assumption in terms of the net impact.
For inflationary costs versus your recovery.
It seems like a very fluid dynamic right in terms of the.
Negotiations has your net assumption changed at all versus last quarter's guide.
You mean, the you mean, our overall gross margin assumption or APR.
The inflationary costs are.
Right you mentioned that in your prepared remarks, just wondering in terms of the recovery.
Offsetting that has the net impact the costs versus your recovery has that changed in this guidance versus last quarter's guidance no. It hasn't changed in the guidance what I would say there's been under underlying all of that there's been a couple of changes the cost increase side has been worse than we initially anticipated, but we've been able to come up to Kevin's point.
Some operational efficiencies that have helped offset some of that.
Obviously labor cost is more expensive now than it was before and Thats escalating quicker than we had assumed kind of at the end of last year.
Overall, we've come up with some cost savings initiatives that allowed us to offset some of those obviously theres still negatively impacting overall gross margins on a year over year basis, and so we got a lot of you know we've got a lot of work to do to try to keep that from getting any worse than it is currently we feel like we're doing all the right things and.
And by that I mean, not just addressing the cost structure to try to minimize the impact, but not necessarily cutting off our ability to continue to grow with our customers. So there's a there's a healthy conversation that has to have about inflationary costs and what does that mean to not only our customers, but the consumer.
But you are trying to make sure that you're not you're not cutting off that relationship and limiting your ability to sell longer term new features new content.
Yes, I appreciate it thanks, guys. Thank you thanks James.
Thank you and our next question comes from the line of David Kelley with Jefferies. Your line is open. Please go ahead.
Hey, good morning, guys.
Good morning, Evan.
I believe you noted some slight improvements in electronics availability in the first quarter are you seeing those constraints continue to ease, albeit it's early here in the second quarter and we were curious if youre seeing any incremental tightness in recent weeks related to some of the COVID-19 restrictions were.
In China.
So I'll start with the electronics, one and then I'll kind of kick it to Neil quickly but.
What I, how I would describe the electronics component shortages, if you backup in the mid last year.
And maybe at times, we are 50 to 100 different components, you are dealing with concerns around and in some of those weren't immediate immediate unavailability of the products, but you were things that you were definitely constrained that you knew you had to do something about in order to either of the supplier had to come up with the mediation plan or we had to redesign the number of components, we're dealing with on a daily.
This right now isn't as high the issue, though is that when they do happen they are more severe and more immediate and so they and so they can youre getting less lead time about how much how much how.
How much for warning do you get before you need to make and address the issue.
So that's been the difficult part so yes, it's eased in the sense that there's not as many components that youre watching all at one time. The difficulty is is that you have less time in there tend to be more severe when they do happen.
And then Neil if you want to comment, but I think the only a part of that would be alright, it's they're not as frequent right when they do happen.
Lead time, the amount of effort to convert that product there is never a drop in replacement for the ones now so that the amount of effort to convert that new problem part.
Difficultly higher than what we had seen before and the last part of your question was on the China situation. So far as it relates to Gentex in the China market. There has been some constraints as it relates to our ability to one be in the plant working because they have different levels of shutdowns and we've had to have people at home.
For the last couple of weeks and they're just starting to open that back up to be able to start producing customer orders, but it has caused a little bit of a disruption.
I guess any benefit is that it's a smaller part of our business right now, but I would expect the broader industry to have an impact.
As a result over the last few weeks, yes, that's an awesome leader into Kevin One thing we should call out is we have team members in our China facility. You may have read an article about Tesla talking about people staying at the factory a few weeks ago. We had this happened in Shanghai, we had a bunch of employees, who volunteered to stay at our plant stay there for days to be able to continue.
To meet shipments for our customers. This last shutdown that's not that's not been as effective in terms of the options weren't necessarily there to allow that to happen. However.
However, we have been able to make some shipments and keep up with our JV Oems by shipping directly from Zealand into the China market. So there are parts that are in our Shanghai facility could stay there, but not shutdown Oems. So we've been able to mitigate as many of these as possible due to the very strong shutdowns that are happening in the Shanghai area currently.
Okay got it. Thank you that's helpful and maybe just to follow up on the <unk> discussion.
Really appreciate the color on the OEM shipments can you remind us of your total FTE.
Unit volume in 2021, and how you've been thinking about the ramp into.
2022 here.
Yes, so in 2021 and so let's go back to 2020 was about $1 2.002 million 21 was 144.
And then what we've always talked about is.
Somewhere in the two to 300000 units a year 200000 units a year of FTM that we see continued growth with.
Obviously, the component shortage and stuff, Steve talked about about customers wanting more and not being able to supply. It can have an impact on that number but that's about what we've been using as our guidance and like Neil mentioned demand would actually be higher than that if we could get if the component availability.
What we're as big of a factor.
Okay got it are you seeing any meaningful shift in full display asp's just in light of some of the new launches of new customers coming down the pipe.
Yes.
We have seen actually a lot of volatility if you look at the first couple of years of F. D. M. We are basically launching the same type of product for most OEM. So in other words that had the same types of graphics processing similar sized LCD is a lot of the same backbone structure and content over the years.
We've been watching this for multiple Oems every OEM comes with a different perspective of what kind of product, they're looking for and so what youll see is a much wider variation in average selling price. Some of these are designed around lower cost models in other words less graphics processing less software running in them less.
Less capability of the of the FTM itself and how much manipulation of the information on the camera feed is going to happen and so what we've been able to do is actually attack some of the lower end portions of the vehicle market with more cost effective solutions, but still have high end slightly more elegant more complex designs for luxury vehicles and <unk>.
Just to clarify neil's number on <unk>, we reported $1 123.
Million units. So anytime he has numbers we can trust them. So.
Speaking from the Guy, who I had the Lv.
So we would.
We expect that growth to come from that $1 2 million we reported.
For 'twenty one.
Okay perfect. Thanks, guys I'll pass it along thank you.
Thank you.
Thank you and our next question comes from the line of John Murphy with Bank of America. Your line is open. Please go ahead.
Good morning, guys. Good morning, Jim I, just wanted to follow up on the outlook I mean, I understand you guys were more conservative.
With your initial outlook, but.
A lot has changed in the World right Ukraine was made in years Rolling shutdowns in China on Covid rates are spiking inflation is going up I mean, there's a lot of things.
Even the most pessimistic person.
Wouldn't have necessarily anticipated that explicitly so it just seems like something is on a micro basis and on your product side must be going much better than you. Initially anticipated I mean is there something else going on here.
Other than just general conservatism to start the year.
I think I think the yes, youre absolutely right I mean, we.
We tended to be conservative because of the a number of things going on in the background that just always gives us pause is as automotive suppliers.
But I think on the on the product side whats really pulling a strongly and into the next couple of years is FTM growth and how we see growth. If you look at our outside auto dimming mirror numbers. They have been absolutely growing very very quickly over the last couple of years and even if you take kind of the COVID-19 shutdowns and that out of it if you just kind of.
Flatline that and look at where it would've been on a compounded growth basis.
Numbers, we're seeing right now are the fastest growth rates, we've seen in OA C. In a long time.
Okay, alright, so it sounds like your product based on vehicle mix and wins is running much stronger.
Was there any sort of notable wins I know you mentioned a lot of your launches in China.
In the quarter, but were there.
Are there any big wins in the quarter that rolling on.
Significantly that we should be thinking about that we continue let me now I mean, obviously youre <unk> seat, but yes, finishing yeah I think I think the one on the OE side that stands out I mean, <unk> has really been growing with all of our customers I mean, if you look at that.
That kind of a broad base and you can see the nameplates and you see the interest at that product's getting in the field. The one that's a little quieter, but has been growing a lot is our business relationship with Tesla, especially on outside auto dimming mirrors has really been benefiting our outside mirror business. So we're doing very well with them as a customer they package the product very well and.
And this has led to a lot of growth for us in the last 18 months and.
And thats not I mean, it's not just glass, but I mean, that's more on the glass side Theyre doing theyre doing the final assembly right on.
The exterior itself right.
We are a tier one yes, we are a tier ones that we sell to for Tesla. So we're doing just the outside auto dimming element and then the tier ones take care of the shell and the housing.
Okay.
I don't think you mentioned them in the <unk> list is that is there potential there with them.
Hope so I mean right now we don't have we don't have anything that we're shipping the Tesla currently, but obviously with the growth.
Tesla has put up and they are a bill and honestly they've handled the component shortages better than than they have been able to handle that a lot better than many others. So we would love to have obviously work on increased business with them and more technology with them. Okay.
Okay second question just on the discussions with Oems It sounds like there's just a greater risk captivity.
To collaborate on the pressures of the industry.
It's facing and it's hitting you guys harder than news them because they can pass through pricing.
Whats changing there and we're hearing this from other suppliers as well it just seems like there's greater receptivity to help.
To help out on raws, and expedited freight and ocean freight and extra costs from volatility I mean.
What's really changing there.
Well I think honestly I think part of it is.
And I hate to say it because it sounds negative, but desperation has caused everyone in the industry to look at things differently than what we would have before and say you know the normal ways of attacking problems probably aren't going to get the results that we would like.
Yes, or no that theres plenty of consumers like you mentioned, they do have some pricing power right now with their consumers and so the ability to get a car produced that something a consumer wants is the utmost objective right now and so I think there has been there it's been fun to watch Oems adjust to the changing market conditions quicker than it probably the industry would have years.
And so that's created some opportunities hopefully those those changes are lasting and that once the component shortages aren't the primary focus how do we react to consumers on the desire for technology and content and make sure that we're getting consumers what they want because what we one thing we know for sure is that Asps have held up very very well in this industry.
On a vehicle price to a consumer and theres been some pretty significant increases over the last couple of years. So theres definitely a desire for a good portion of this market to have technology and then how do we collaborate on bringing that right technology to the consumer faster and in a form factor that they appreciate.
And just lastly, I mean, usually disastrous periods in the industry lead you a lot of lessons learned on a micro basis and it leads to much better margins on the other side as the volumes ultimately come back I mean, you can you kind of highlight what you think the.
Key lessons that you've learned hearing and if we without giving 2023 and 24 margin guidance or out your guidance, but I mean do you think that there is a potential for potentially higher margins at least for a while as you get this finally get the operating leverage that might come from volume increases late this year, but probably more in 'twenty three and 'twenty four yes, I think it's probably more.
And that 24 range, because you've got a couple of years here of price increases that.
The capacity on the electronic side needs to increase significantly before you start to get to a deflationary pricing.
Pricing model for electronics.
That'll take some time. However, you are right at the higher growth rates. There's obviously some operational efficiencies that can be gained through the higher sales level. So those do start to help and hopefully over the in the shorter term, that's where you'll see us be able to stabilize margins is really on our internal side. So the operationally getting leverage on our R&D SG&A and then.
More importantly on the peer throughput basis in other words as volumes go up there are operational efficiencies associated with just building more of the same type of part numbers and products. So that's what we're focused on right now we know we can't change the overall commodity space in the short term.
So we kind of have to weather that storm and then pick the right partners in terms of lifelong life lessons and what we've learned I, usually I just joke that there's nothing to be learned other than love pain.
But but.
That's called the Dorrance endurance.
But in all sincerity I think the I think the harsh reality is that how suppliers have handled this is going to dictate who who partners with who in the future and this will take years to pick those partners and relationships but.
On the electronics component side certain suppliers have done better than others of communicating early to allow you to adjust and Oems are starting to pick preferred partners on the electronics side as well and so as a supplier or our objective has to be to get to know who each OEM wants in their product designs. The way the industry is worth.
For a long time as well designed something kind of show up with a black box. We've already got Neil's team has already got a good schematic of this is our processing platform, we want to use well if you show up to an OEM, who has been overly impacted by that supplier on the on the tier two or tier three side.
They may look at it and say hey, you've got to redesign. This whole thing if you want to sell to us and so we have to do a better job of understanding those relationships early and then making sure. We have a more flexible design platform to be able to change it quickly to it to address Oems preferences for micro platforms.
Okay, great. Thank you very much I appreciate it thank you.
Thank you and our next question comes from the line of Josh Nichols with B Riley. Your line is open. Please go ahead.
Yes I.
I mean, great to see the company reaffirmed right given.
Now all of the developments global macro headwinds kind of come about over the last few months clearly youre right to kind of feed the initial IHS forecast.
But I did want to ask what are your thoughts about the 9% light vehicle production growth forecast that goes out there for next year given that you have high fuel prices.
Interest rate risk and things like that or what are the puts and takes for next year. When you think about light vehicle production because you've historically done a good job of kind of handicapping that.
Yes, I think you summed up the biggest risk factors, we think as you move into 'twenty three the component side will become less of it's not going to be in there is not that there'll be no story around components still in 'twenty three there's still will be some problems and constraints there, but I think it'll be less of the conversation personally if I had to gamble on this one I would say the bigger portion of the conversation.
Round total light vehicle production is going to come down to interest rates macroeconomic conditions and what happens to demand I think the interesting part is if you look at the amount of cash that's been infused in global economies over the last two years. There obviously is a price to pay for that everyone experiences on the inflationary side, but inflation is really just the tip of the iceberg.
When it comes to long term economic impacts from from <unk>.
Monetary policy changes and so that's probably the one that would keep me up the most at night is saying, Okay. What does this look like with the interest rate changes that are already being discussed for the next two months those will start to affect availability I mean youll start to see it first in housing and then usually you'll start to see it in consumer goods after.
That at least in our experience and so that's what we're going to keep our eyes on is saying how high the interest rates go and what happens to the buying power of the consumer and does that change overall volume or does that change the ASP of a vehicle that's sold during that market change.
Thanks, and then last question for me.
I think everyone's kind of touched on.
FTM there clearly.
Really good jobs and a lot of demand there and hopefully component availability picks up so we could see that.
Some tailwind in the second half, but any updates on some of the other earlier stage ventures at the company is already working on whether it would be like integrated toll monitoring or things like that or progress. The company is making to further push those offerings to become more material pieces of revenue over time.
Yes, I think I think the on the automotive side, there's absolute interest in the new technology doing CES in person. This year was a great way for us to start to make progress obviously the show wasn't as well attended as it would've been if it weren't for the spike in Covid that happen, but.
We're starting to get back to a more normalized business development environment as Oems start to have their engineering folks back in the office more and they start to open up that that environment to suppliers that will create more opportunity for us to showcase our products. The problem with the last 18 months two years has been it's been so chaotic.
Everyone's in crisis mode.
Taking the time to think and plan and discuss what three years from now is going to look like from a tech platform standpoint hasn't been the highest priority with most Oems and so we're excited for this kind of a more normalized environment. We typically do really well on those in those conditions, where it where we can show up and talk about three to five years, how do you scale a tech platform, how do we grow off of.
What we're doing on FTE M to create additional features and content how do we help broaden that that technology based on the more nameplates.
And then from there you know Theres a lot of other things that we work on on the aerospace side and some of our other markets even on the fire protection side that we're pretty excited about some ideas. We have there of what that could look like in a call. It three to five year time period.
Yeah.
Great. Thanks, that's all for me.
Thank you.
Thank you and our next question comes from the line of Ryan Brinkman with Jpmorgan. Your line is open. Please go ahead hi.
Thanks for taking my questions.
Wanted to check in on the progress of the commercial negotiations relative to pricing the cost inflation you saw earlier in the back half of 2021, how is your progress in recovering those higher cost at some of that land here Q1 and with the goalpost now having moved again since the Russian invasion of Youku.
Rain, which seems to have increased pressure on non commodity supply chain costs, such as freight in particular do you have a new timeframe in terms of when you weren't expecting to recover some of the more recently elevated costs and is there a percentage of those increased costs that you target recovering.
Yes, so right now in Q1, there was no benefit from cost recovery from our customers. This was basically gentex internal efficiency and cost containment efforts that were all internal.
Helped with the financial performance, we believe that it's going to take us throughout most of this year and into next year to negotiate those deals with with our customers and the reason why we say it and we talked about this early on in kind of the supply chain crisis. It was impossible to predict exactly the total ramifications of those cost increases so.
We were trying to take a little more patient approach and say, hey, listen, let's wait till we understand the environment a little better before we go in and start that negotiation because one thing we know for sure is most customers don't appreciate hearing from a supplier of three or four times and a.
18 month period about hey, get us to hear will be okay. And then three months later and get us to here and six months later and get us to here. So.
Our position was let's take our time.
I wouldn't try to clarify what percentage, we're looking for each situation's unique with.
With a customer environment. If there is a large award or if theres business growth coming we might be able to negotiate less of an impact on those in exchange for future business on the flip side of that if you have a if you.
Have a declining business environment and the increasing commodity problems you might have to push a little harder on those so what we're trying to do is make sure that we get the recovery that our shareholders expect and that our employees need in order to help justify the work it put in.
Without compromising our ability to walk in with a brand new technology and say Hey, we have something that we think you'd be interested in and so thats a delicate balance to strike and we know it's going to take time and that's why we're we're taking a more patient approach than some other suppliers, probably will or may need to and in certain situations.
<unk>.
Okay. That's helpful and maybe just a follow up there on the merits of that approach of going to the customers with less frequent but more comprehensive accounting of inflated cost. We did hear from other suppliers such as yourselves that have higher margins and are better capitalized that they were also pursuing that.
<unk> and the companies that are less well capitalized with lower.
Margins until left buffers were maybe looking for more immediate relief and I think that makes a lot of sense.
Does it make more sense, though if the costs are increasing and then theyre going to stop increasing what if we're in some kind of a new era, where costs kind of perpetually increase does that change the dynamic at all or does it maybe suggest an opportunity for any.
Kind of more sort of formalized cost recovery mechanism as opposed to AD hoc negotiations yes.
Yes, I think I think there's a lot of potential for that in other words, if youre right.
If there is a several year period of inflated cost the.
The good news is the industry is prepared for annual negotiations right. So that's the good news is is that the platform already exists for us to have that negotiation.
I think I think right now the biggest issue was saying how do you understand not all of those cost increases had even flown off gone through our income statement all the way until recently there were some cost increases a lot that hit last year, but there were more of that started at the beginning of this year and throughout this year and so we're still we're still waiting until those have actually.
Hit home not just the conversation about him and knowing that they are happening, but waiting till theyre actually impacting financials before you have that that meeting and discussion and negotiation with the customer base. So.
What we've been focused on is saying and every every supplier has to pick their strategy of best way of going about this and I'm not here to say that ours is perfect. What I know is this is our culture and how we do business with our customer base and so it fits really well with that because I think the one factor that people forget is organizations have that cultural relationship with each other.
As well and so you have to you can't change that quickly because it can have repercussions, we're trying to operate in a way that's consistent with the way we've handled our customers in the past and we think this is the best plan and strategy for US to go about these conversations with them like I mentioned I think last quarter. We're open minded I mean, we walk into that with an OEM, we're just going to start.
Be in full disclosure about the problems, we're seeing and what's going on and then we're going to talk about hey, how do we work. This out so that we keep we keep that relationship open and continue to talk about ways that technology can help us both offset these cost increases whether that's through additional content or a consumer focused products, sometimes sometimes your best way of a cost problem.
As additional revenue and sometimes not but.
We're gonna be sitting down with each customer having a very unique conversation based on where we're at with that customer and based on how our relationship is with them.
Very helpful. Thank you.
Thanks, Ron.
Thank you and again, ladies and gentlemen, if you have a question at this time. Please press Star then one.
And our next question comes from the line of Mark Delaney with Goldman Sachs. Your line is open. Please go ahead.
Yes. Good morning, Thank you very much for taking the questions I. Thank you for all the details on STM nameplates and the progress there and also the commentary around it.
<unk> shipments I was hoping you could also maybe speak to SDM revenue and how much revenue you think FTM can generate this year and as you think about that 'twenty three revenue growth target of 15% to 20% do you think MTM similarly to that or.
Faster or slower than the corporate average.
Yes, I'd say I'd say in general first on the unit side, Yes, we expect at the end to grow roughly in line with with the overall corporate growth rate on a percentage basis.
And that would put us if next year. If it were 15 to 20 that'd be a little bit higher even than what our normal growth rate and <unk> been that'd be closer to $3 to 400000 units a year, but that's about what it would take for us to hit 15% to 20% overall revenue growth above 2022 revenue.
Sorry, there was a second part of your question, there, Marc and I blanked out on it.
You're still going to ft and units as I was hoping you could talk to the revenue contribution of at the end of this year.
Oh, yes. It is those types of revenue when I talk about FTM here, we're going to talk about just the mere itself not the camera portion, but yes. There is at those type of those type of volumes youre going to be close to probably $2 50 to a little north of just north of $300 million in revenue.
Okay. That's helpful and I was just hoping you could speak to the margin contribution of after you have relative to the corporate average and certainly it's a premium product, but it's also an area where I think they are getting some more cost pressure islands somebody electronics. So it's again.
I understand that the market contribution.
Yes, historically, what we said is it's roughly in line with corporate average margin profile for <unk> given some of the cost constraints, obviously, it's trending a little lower than corporate average currently.
Like we said as we progress through the next few years, we think with the right design, the right partners and hopefully slightly deflationary electronics pricing market we.
Should be able to get that back towards closer to the corporate average.
Okay and one last one for me if I could please you spoke to having more raw material inventory on hand, and also making some good progress around new sources of supply in order to de risk here.
Your production outlook could you elaborate a little bit more on that to what extent you have what you need it and really good line of sight into the components to hit the 'twenty two guidance.
Between the inventory on hand.
Bedroom semiconductors and some of those.
So probably wind up.
A lot of the increases have been in areas that are supporting the final assembly. So you have glass increases for growth and an element production across our business inside mirrors outside mirrors electronics is obviously another big area of circuit board levels have gone up.
<unk> he thinks those type of things, but to Steve's point earlier, it really doesn't take.
All but one or two components to cause an issue and so I think that's what you see as volatility in customer orders and potential growth into the back half of the year you have to have everything 100%.
And so that's what you see is us being a little bit more conservative.
If everything pans out of the customer orders Pan out.
You know that we can that we can have confidence that we can build based on.
The right level of components of the right type of components. So, it's really driven around the forecast levels, increasing and us being more conservative even than before.
Understood.
Thank you and congratulations on the good quarter.
Thank you very much.
Thank you and I'm showing no further questions at this time I would like to turn the conference back over to Joseph risky for any further remarks.
Thank you everyone for the time this morning and for your questions. This concludes our call have a great weekend.
This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
Okay.
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