Photo by Scott Graham on Unsplash
 

Gentex Corporation (GNTX) was incorporated in Michigan corporation in 1974. The company designs, develops, manufactures, markets, and supplies the digital vision, connected car, dimmable glass, and fire protection products, including: automatic-dimming rearview and non-dimming mirrors and electronics for the automotive industry; dimmable aircraft windows for the aviation industry; and commercial smoke alarms and signaling devices for the fire protection industry.
 

Innovative Market Leader

Nearly 50 years ago, Gentex opened its doors as a manufacturer of high-quality fire protection products. Company founder, Fred Bauer, revolutionized the industry with the first dual-sensor photoelectric smoke detector. While millions of Gentex smoke detectors and signaling devices are found in hospitals, hotels, and office buildings, Gentex is best known as the pioneer of the interior and exterior electrochromic automatic-dimming mirror industry.

Automotive rearview mirrors and electronics accounted for 97% of the company’s consolidated net sales in 2022. Over the years, Gentex has made driving safer for millions of drivers around the world by providing mirrors that detect and eliminate dangerous rearview mirror glare. With an estimated 89% market share in 2022, Gentex is the dominant auto-dimming mirror supplier to the auto industry.

Employing decades of experience in electrochromics, Gentex delivered the first electrochromic dimmable aircraft windows in 2010. At the touch of a button, window shades for aircraft cabins easily switch from a bright, clear state to an extremely dark state or to a comfortable intermediate level.

In 2013, Gentex acquired HomeLink, the automotive industry’s leading car-to-home automation system, now integrated into Gentex mirrors enabling remote connection with garage doors, entry door locks and gates, home lighting, and security systems.

In 2015, Gentex began shipping the Full Display Mirror, an on-demand, mirror-borne LCD display that streams live video of the vehicle’s rearward view to improving safety. The company also is working on iris-scanning biometric technology in auto applications, driver and cabin monitoring solutions for the auto industry, and a PaybyCar partnership. The company is also involved in intelligent medical lighting that was co-developed with the Mayo Clinic and Vaporsens chemical sensor technology. Gentex boasts more than 2,150 patents on its products, providing Gentex with competitive advantages in its markets.
 

Strong Balance Sheet

Gentex has always maintained a strong balance sheet thanks to the company’s excellent free cash flow generation. Gentex operated debt-free until 2013 when it took on $265 million of long-term debt to help finance the HomeLink acquisition. Gentex steadily paid down the debt and has once again operated debt-free since 2017.

During the first quarter of 2023, Gentex generated $120.9 million in operating cash flow, invested $43 million in capital expenditures, paid $28 million in dividends, and repurchased one million shares of its common stock at an average price of $27.19 per share with 19.7 million shares remaining authorized for future share repurchases.

Gentex ended the quarter with a strong balance sheet with about $470 million in cash and investments, no long-term debt, and $2.1 billion in shareholders’ equity.
 

First Quarter Results

Gentex reported first-quarter revenues increased 18% to a record $550.8 million with net income up 12% to $97.6 million and EPS motoring 14% higher to $.42. Many of the supply chain issues that had held back auto production during 2022 have improved, and strong demand for Gentex’s products combined with the increased light vehicle production led to the record sales as the company gained market share.
 

Expanding Profit Margins

Gross profit margin improved to 31.7% in the first quarter, a 50-basis point improvement from the fourth quarter. Following a challenging 2022 which reflected higher raw material, labor, and freight costs along with overall inflation, Gentex expects gross margin to improve to the 35%- 36% range by the end of 2024 thanks to price increases and cost-reducing actions. Gentex reaffirmed its outlook for the full 2023 year with revenue expected to approximate $2.2 billion with 10% revenue growth expected in 2024. As automobile and vehicle electrification and autonomous driving trends progress, Gentex’s core technologies stand to become integral components in connected cars. Long-term investors should reflect on Gentex, a high quality, innovative market leader with a strong balance sheet, double-digit sales growth expectations, and expanding profit margins. Buy.

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