THIRD QUARTER 2021 VERSUS THIRD QUARTER 2020
Net Sales. Net sales for the third quarter of 2021 decreased by $75.0 millionor 16% when compared with the third quarter of 2020. Automotive net sales for the third quarter of 2021 were $391.3 million, compared with automotive net sales of $464.7 millionin the third quarter of 2020. Auto-dimming mirror unit shipments by the Company decreased 7% during the quarter, compared to the third quarter of 2020. The below table represents the Company's auto-dimming mirror unit shipments for the three and nine months ended September 30, 2021, and 2020 (in thousands). Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 % Change 2021 2020 % Change North American Interior Mirrors 1,897 2,234 (15)% 5,843 5,040 16% North American Exterior Mirrors 1,355 1,404 (4)% 4,345 3,093 40% Total North American Mirror Units 3,252 3,638 (11)% 10,188 8,133 25% International Interior Mirrors 4,629 4,940 (6)% 15,219 12,889 18% International Exterior Mirrors 1,928 1,981 (3)% 6,605 5,191 27% Total International Mirror Units 6,557 6,921 (5)% 21,823 18,080 21% Total Interior Mirrors 6,526 7,174 (9)% 21,062 17,928 17% Total Exterior Mirrors 3,283 3,385 (3)% 10,949 8,285 32% Total Auto-Dimming Mirror Units 9,809 10,559 (7)% 32,011 26,213 22%
Note: Percentage change and amounts may not add up due to rounding.
Other net sales were
$8.3 millionin the third quarter of 2021, a decrease of 17%, compared to $10.0 millionin the third quarter of 2020. This decrease is in large part attributable to a 34% quarter over quarter decline in variable dimmable aircraft windows sales, which decreased to $2.4 millionin the third quarter of 2021 from $3.6 millionin the third quarter of 2020. Fire protection sales decreased by 8% in the third quarter of 2021 to $5.9 million, compared to $6.4 millionin the third quarter of 2020. Cost of Goods Sold. As a percentage of net sales, cost of goods sold increased to 64.7% in the third quarter of 2021 versus 60.3% in the third quarter of 2020. Compared to the third quarter of 2020, gross margin was primarily impacted by the lower sales levels stemming from the 23% quarter over quarter decline in light vehicle production the Company's primary regions. Gross margin was also negatively impacted by customer price reductions and increases in freight and other supply chain related costs. On a quarter over quarter basis, the fixed overhead leverage had a negative impact of approximately 250 - 300 basis points on the gross margin. Customer price reductions and increases in freight and other supply chain costs each had a negative impact of approximately 150 - 200 basis points. These impacts were partially offset by price reductions on raw materials and product mix, which each had a positive impact of approximately 150 - 200 basis points on gross margin on a quarter over quarter basis. Operating Expenses. Engineering, research and development ("E, R & D") expenses for the third quarter of 2021 increased by $1.9 millionwhen compared with the third quarter of 2020. . Selling, general and administrative ("S, G & A") expenses increased by 7% or $1.4 millionfor the third quarter of 2021 compared to the third quarter of 2020. S, G & A expenses were 6% of net sales in the third quarter of 2021, compared to 5% of net sales in the third quarter of 2020. S, G, & A expenses increased on a quarter over quarter basis primarily due to increases in wages and selling expenses.
Total operating expenses were
Total Other Income. Total other income for the third quarter of 2021 decreased by
$2.3 millionwhen compared with the third quarter of 2020. Provision for Income Taxes. The effective tax rate was 14.7% for, and an income tax expense of $13.2 millionwas recorded in, the third quarter of 2021 compared to an income tax expense of $25.8 millionfor the same quarter of 2020. Typically, effective tax rates for the Company differ from statutory federal income tax rates, due to provisions for state and local income taxes, permanent tax differences, research and development tax credits and the foreign-derived intangible income tax deduction. Net Income. Net income for the third quarter of 2021 was $76.7 million, compared to net income of $117.1 millionthe third quarter of 2020. The decrease in net income was driven by the quarter over quarter change in sales, gross margins, and operating profits. Earnings Per Share. The Company had earnings per diluted share for the third quarter of 2021 of $0.32, compared to earnings per diluted share of $0.48for the third quarter of 2020. NINE MONTHS ENDED SEPTEMBER 30, 2021VERSUS NINE MONTHS ENDED SEPTEMBER 30, 2020 Net Sales. Net Salesfor the nine months ended September 30, 2021increased by $153.0 millionor 13% when compared with the same period in 2020. Automotive net sales for the first nine months of 2021 were $1.3 billion, up 14% compared with automotive net sales of $1.13 billionmillion for the first nine months of 2020, driven by a 22% period over period increase in automotive mirror unit shipments. North American automotive mirror shipments in the nine months ended September 30, 2021increased 25% to 10.2 million units compared with the same period in 2020. Cost of Goods Sold. As a percentage of net sales, cost of goods sold decreased to 63.7% for the first nine months of 2021, versus 66.4% in the same period last year. The period over period increase in the gross profit margin was primarily the result of the Company's better leverage of fixed overhead, positive structural cost savings put in place during the second quarter of 2020, and purchasing cost reductions. These improvements in gross margin were partially offset by annual customer price reductions. On a period over period basis, better fixed overhead leverage had a positive impact of approximately 300 - 350 basis points on gross margin, and the savings as a result of structural cost reductions that took place in the second quarter of 2020 had a positive impact of approximately 150 - 200 basis points on gross margin. Purchasing cost reductions had a positive impact of approximately 50 - 100 basis points on gross margin on a period over period basis. These positive impacts were partially offset by annual customer price reductions, which had a negative impact of approximately 150 - 200 basis points on gross margin on a period over period basis. Operating Expenses. E, R & D for the nine months ended September 30, 2021were $86.5 million, compared with $86.4 millionfor the same period last year. S, G & A for the first nine months of 2021 increased 3.5% or $2.3 millionwhen compared with the same period last year. In the first nine months of 2021, the Company recognized S, G & A savings from the structural cost savings put in place in the second quarter of 2020, but those savings were mostly offset by increases in wages and selling expenses, professional fees, and outbound freight costs. A lack of international travel and the cancellation of most industry-based trade shows due to the COVID-19 pandemic also impacted operating expenses for both nine month periods. Total Other Income. Total other income for the nine months ended September 30, 2021was $5.2 millioncompared with $9.2 millionfor the same period last year. Provision for Income Taxes. The effective tax rate was 15.4% for the nine months ended September 30, 2021compared to 17.1% for the same period of 2020. Net Income. Net income for the nine months ended September 30, 2021increased by $72.4 millionor 35% to $276.6 millionversus $204.2 millionin the same period last year. The increase in net income was driven
by the period over period increase in sales, higher gross profits, and the continued operating leverage as a result of the structural cost savings that were put in place during the second quarter of 2020. Earnings Per Share. The Company had earnings per diluted share for the nine months ended
September 30, 2021of $1.15which compared to earnings per diluted share of $0.82for the nine months ended September 30, 2020. The increase in earnings per share is primarily due to the higher net income but also positively impacted by a lower diluted share count when compared to the same period of 2020.
FINANCIAL CONDITION: The Company's cash and cash equivalents as of
September 30, 2021were $270.0 million, which decreased $153.4 millioncompared to $423.4 millionas of December 31, 2020. The decrease was primarily due to share repurchases, dividend payments and capital expenditures, which were partially offset by cash flows from operations, during the nine months ended September 30, 2021. Short-term investments as of September 30, 2021were $6.9 million, down from $27.2 millionas of December 31, 2020, and long-term investments were $204.7 millionas of September 30, 2021, compared to $162.0 millionas of December 31, 2020. Changes in the investment balances were primarily driven by maturities of investments and additional investment purchases during the nine months ended September 30, 2021. Accounts receivable as of September 30, 2021decreased approximately $43.7 millioncompared to December 31, 2020, primarily due to the timing of sales during the most recently completed nine months. As of September 30, 2021, all of the Company's material tier one and OEM customers continue to be in good standing. Inventories as of September 30, 2021were $292.6 million, compared to $226.3 millionas of December 31, 2020, primarily due to increases in raw materials. Accounts payable as of September 30, 2021increased approximately $15.7 millionto $100.5 millionwhen compared to December 31, 2020, primarily driven by month end payment timing. Accrued liabilities as of September 30, 2021decreased approximately $1.0 millioncompared to December 31, 2020. Cash flow from operating activities for the nine months ended September 30, 2021decreased $29.7 millionto $299.4 million, compared with $329.0 millionduring the same nine month period last year, primarily due to changes in working capital. Capital expenditures for the nine months ended September 30, 2021were approximately $44.4 million, compared with approximately $37.0 millionfor the same nine month period last year. The Company believes its existing and planned facilities are currently suitable, adequate, and have the capacity required for current and near-term planned business. Nevertheless, the Company continues to evaluate longer term facility needs. The Company estimates that it currently has building capacity to manufacture approximately 33 - 36 million interior mirror units annually and approximately 14 - 17 million exterior mirror units annually, based on current product mix. The Company also evaluates equipment capacity on an ongoing basis and adds equipment as needed. Management considers the current working capital and long-term investments, in addition to internally generated cash flow, its Credit Agreement, and credit worthiness, to be sufficient to cover anticipated cash needs for the foreseeable future considering its contractual obligations and commitments. The following is a summary of working capital and long-term investments: September 30, 2021 December 31, 2020 Working Capital $ 682,265,427 $ 801,593,707Long Term Investments 204,671,558 162,028,068 Total $ 886,936,985 $ 963,621,775The Company has a previously announced share repurchase plan under which the Board of Directors has authorized the repurchase of shares of the Company's common stock, which remains a part of the broader publicly disclosed capital allocation strategy. Future share repurchases may vary from time to time and will take into account macroeconomic events (including the COVID-19 pandemic), market trends, and other factors the Company deems appropriate (including the market price of the stock, anti-dilutive effect of repurchases, and available cash). As previously announced, the Company's Board of Directors authorized the repurchase of an additional 25,000,000 shares under the plan. During the nine months ended
For the third quarter of 2021, the Company reported net sales of
$399.6 million, which was a decrease of 16% compared to net sales of $474.6 millionin the third quarter of 2020. On a quarter-over-quarter basis, global light vehicle production in the Company's primary regions of Europe, North America, Japan/ Koreaand Chinadecreased 23% when compared to the third quarter of 2020. Additionally, when compared to the mid-July 2021IHS Markit light vehicle production forecast in the Company's primary regions, actual light vehicle production during the third quarter of 2021 declined in excess of 3.1 million units, or 19%, as a result of the ongoing industry-wide part shortages and global supply chain constraints. The largest shortfall in light vehicle production for the third quarter of 2021 came from the European and North American markets, which together, experienced actual light vehicle production levels that declined by approximately 27% compared to the third quarter of 2020. The reduction in light vehicle production compared to forecast was led by several OEM customers that deploy high levels of the Company's product content, including both interior and exterior auto-dimming mirrors and other electronic features such as Full Display Mirror® and HomeLink®. The total impact to the Company from the shortfall in vehicle production was a reduction in actual mirror unit shipments of approximately 2.5 to 3 million mirrors versus the Company's beginning of the quarter forecast.
As it looks into the fourth quarter and 2022, the company believes that overall demand for vehicles and its products should still provide opportunities for the company to continue to outperform the underlying market.
In the third quarter of 2021, the Company had 12 net new launches of interior and exterior auto-dimming mirrors and electronic features. Of these new launches, 75% contained advanced features with Full Display Mirror® being the primary driver. Also in the third quarter of 2021, there were several new base inside auto-dimming mirror launches, and of these, 40% were for the
Chinadomestic market. PRODUCT UPDATE Camera Systems The Full Display Mirror® began production in the fourth quarter of 2015. Current automotive design trends are yielding vehicles with small rear windows that are often further obstructed by headrests, passengers, and roof support pillars which can significantly hinder the mirror's rearward view. The Company's Full Display Mirror® is an intelligent rear vision system that uses a custom, internally or externally mounted video camera and mirror-integrated video display to optimize a vehicle driver's rearward view. This rear vision system consists of a hybrid Full Display Mirror® that offers bi-modal functionality. In mirror mode, the product functions as an auto-dimming rearview mirror which means that during nighttime driving, digital light sensors talk to one another via a microprocessor to automatically darken the mirror when glare is detected. With the flip of a switch, the mirror enters display mode, and a clear, bright display appears through the mirror's reflective surface, providing a wide, unobstructed rearward view. The bi-modality of the Full Display Mirror® is essential, because in the event of any failure of the camera or display, the product is able to function as a mirror, which meets long-standing safety requirements in the automotive industry. In addition, the driver has the ability to switch between modes to accommodate usage preferences for various weather conditions, lighting conditions, and driving tasks. As of the second quarter of 2021, the Company is shipping production Full Display Mirrors® to eleven different automaker customers, which are General Motors, Subaru, Toyota, Nissan, Jaguar Land Rover, Mitsubishi, Aston Martin, Stellantis, along with Maserati and Fiat, and Mercedes. As of the end of the third quarter of 2021, the Company is shipping Full Display Mirror® on 60 nameplates. The second quarter 2020 launch of the Full Display Mirror® for the Toyota Harrier was the first Full Display Mirror® to launch with Digital Video Recording ("DVR") capability. This mirror and system launched in the Japanmarket, and combine the superior functionality of the Full Display Mirror® with the added capability to record video from
the rearward facing and forward-facing cameras simultaneously. Per OEM request, the data is stored to an SD storage card. This integrated solution provides consumers with the features they want, while allowing the OEM to control the integration and execution in the vehicle. The Company remains confident that on-going discussions with certain other customers, in the future, may cause such customers to consider adding the Full Display Mirror® into their product road-map for future vehicles. As of the end of the third quarter of 2021 the Company has been awarded Full Display Mirror® programs with 14 OEMs. To enhance capability and usability of the Company's Full Display Mirror®, the Company previously introduced its three-camera rear vision system that streams rear video in multiple composite views to its Full Display Mirror®. The Company believes it is the industry's first practical and comprehensive rear vision solution designed to meet automaker, driver, safety and regulatory requirements. The Company's rear vision system, known generally as a camera monitoring system ("CMS"), uses three cameras to provide a comprehensive view of the sides and rear of the vehicle. The side-view cameras are discretely housed in downsized, automatic-dimming exterior mirrors. Their video feeds are combined with that of a roof-mounted or rear window based camera and stitched together into multiple composite views, which are streamed to the driver using the Full Display Mirror®. The system's modular nature lets the automaker customize functionality while offering it as an affordable, optional feature thereby enhancing safety by allowing the system to fail safe. During any failures due to weather conditions or otherwise that disrupt the digital view, drivers can still safely use the interior and exterior mirrors. The system also supports user preference by permitting drivers to use standard mirror views, camera views, or both. The system can also be tuned to meet the various regulatory field-of-view requirements around the world by using different types of flat and curved glass, combined with simple alterations to the video viewing modes. Downsized exterior mirrors provide automakers with significant weight savings and fuel efficiency improvements. To further enhance safety, the Company's CMS solution can also work in conjunction with a vehicle's side blind zone warning system. When a trailing vehicle enters a side blind zone, a warning indicator illuminates in both the interior and exterior mirrors while the corresponding side-view video feed appears in the display until the vehicle passes. On
March 31, 2014, the Alliance of Automobile Manufacturerspetitioned the National Highway Traffic Safety Administration("NHTSA") to allow automakers to use cameras as an option to replace conventional rearview mirrors within the United States. At the annual SAE Government-Industry Meeting in January 2017, NHTSA requested that SAE develop Recommended Procedures for test protocols and performance criteria for CMS that would replace mirror systems on light vehicles in the U.S. market. SAE assigned the task to the Driver Vision Committee, and the SAE Driver Vision Committee created a CMS Task Forceto draft the Recommended Procedures. NHTSA published a report dated October 2018related to camera monitoring systems for outside mirror replacements. On October 10, 2019, an Advanced Notice of Proposed Rulemaking (ANPRM) was published seeking public comment on permitting camera-based rear visibility systems, as an alternative to inside and outside rearview mirrors required under Federal motor vehicle safety standard (FMVSS) No. 111, "Rear Visibility," which currently requires that vehicles be equipped with rearview mirrors to provide drivers with a view of objects that are to their side or to their side and rear. This ANPRM builds on NHTSA's prior efforts to obtain supporting technical information, data, and analysis on CMS so that the agency can determine whether these systems can provide the same level of safety as the rearview mirrors currently required under FMVSS No. 111. The ANPRM states that one reason NHTSA is seeking additional information is because research conducted by NHTSA and others between 2006 and 2017 has consistently shown that prototype and preproduction camera-based rear visibility systems can exhibit safety-relevant performance issues. On October 18, 2019, a petition for temporary exemption from FMVSS 111 submitted by Audi of Americawas published requesting NHTSA to grant a two-year exemption to sell up to 2,500 vehicles for each twelve month period (up to 5,000 vehicles) that are equipped with camera monitoring systems and do not include FMVSS 111 compliant outside mirrors. In July 2016, a revision to UN-ECE Regulation 46 was published with an effective date of June 18, 2016, which allows for CMS to replace mirrors in Japanand European countries. Since January 2017, camera monitoring systems are also permitted as an alternative to replace mirrors in the Korean market. Notwithstanding the foregoing, the Company continues to believe rearview mirrors provide a robust, simple and cost effective means to view the surrounding areas of a vehicle and remain the primary safety function for rear vision today. Cameras when used as the primary rear vision delivery mechanism have some inherent limitations such as: electrical failure; cameras being blocked or obstructed; depth perception
challenges; and viewing angles of the camera. Nonetheless, the Company continues designing and manufacturing not only rearview mirrors, but CMOS imagers and video displays as well. The Company believes that combining video displays with mirrors may well provide a more robust product by addressing all driving conditions in a single solution that can be controlled by the driver. As noted, the Company is currently in production with a rear vision camera system that streams rear video to a rearview-mirror-integrated display using the Company's Full Display Mirror®. The Company's CMS solution uses three cameras to provide a comprehensive view of the sides and rear of the vehicle. The Company also continues development in the areas of imager performance, camera dynamic range, lens design, image processing from the camera to the display, and camera lens cleaning. The Company acknowledges that as such technology evolves over time, such as cameras replacing mirrors and/or autonomous driving, there could be increased competition. SmartBeam® is the Company's proprietary high beam control system integrated into its auto-dimming mirror. SmartBeam® Generation 4, which was developed using the fourth generation of the Company's custom designed CMOS imager, has an advanced feature set made possible by the high dynamic range of the imager including: high beam assist; dynamic forward lighting with high beams constantly on; LED matrix beam; and a variety of specific detection applications including tunnel, fog and road type as well as certain lane tracking features to assist with lighting control. The Company has the ability to package the control electronics inside of its interior rearview mirrors with a self-calibrating camera attached to the mirror mount with optimal mechanical packaging which also provides for ease of service. In addition, the Company has long been integrating its camera products to optimize performance by fusing with other systems on the vehicle, including radar, navigation, steering and related modules provided by other suppliers. This enables the Company to provide its customers with a highly customizable solution that meets their unique needs and specifications. The European New Car Assessment Program ("Euro NCAP") provides an incentive for automobiles sold in
Europeto apply safety technologies that include driver assist features such as lane detection, vehicle detection, and pedestrian detection as standard equipment. Euro NCAP compliant driver assist systems are also capable of including high beam assist as a function. The increased application of Euro NCAP on European vehicles has had the effect of replacing, and could potentially continue replacing, the Company's SmartBeam® application on these vehicles. On December 8, 2015NHTSA proposed changes to the NHTSA's 5-Star Safety Ratings for new vehicles (also known as the New Car Assessment Program or NCAP) and initiated a comment period. The proposed changes will, for the first time, encompass assessment of crash-avoidance technologies, which includes lower beam headlamp performance, semi-automatic headlamp switching, and blind spot detection. NHTSA initially intended to implement the enhancements in NCAP in 2018 beginning with model year 2019 vehicles. The NCAP implementation has been delayed. Under these proposed changes, the Company believes that its SmartBeam® technology will qualify with the semi-automatic headlamp NCAP rating system, and that its SmartBeam® technology and exterior mirrors with blind spot alert lighting can be included in a system that qualifies with the lower beam headlamp performance and blind spot detection NCAP rating system, respectively. On October 16, 2019, NHTSA issued a press release comparing NCAP to other regions' version of NCAP, identified new technologies that are not currently included in NCAP, and suggested Congresslegislatively direct actions to improve NCAP. In March 2020, HR 6256 was introduced, which would require NHTSA to update NCAP. There are multiple bills being discussed in both the U.S. House of Representativesand the U.S. Senatethat relate to NCAP. On October 12, 2018, NHTSA published a Notice of Proposed Rulemaking ("NPRM") for amendments to Federal Motor Vehicle Safety Standard ("FMVSS") No. 108: Lamps, reflective devices, and associated equipment, and initiated a comment period. The NPRM proposes amendments that would permit the certification of adaptive driving beam headlighting systems, if the manufacturer chooses to equip vehicles with these systems. NHTSA proposes to establish appropriate performance requirements to ensure the safe introduction of adaptive driving beam headlighting systems if equipped on newly manufactured vehicles. The Company believes that its dynamic SmartBeam® lighting control system (dynamic forward lighting or DFL), which has been sold in markets outside of North Americafor several years, will meet the requirements of the new FMVSS 108 standards, if amended. The Company's SmartBeam® application has and will continue to be affected by increased competition by suppliers of multi-function driver assist camera products, which are able to achieve some of the same functionality as SmartBeam® but at a lower cost, due to other suppliers leveraging similar hardware costs, but offering products with multiple software features.
Connected Car The Company's HomeLink® products are the auto industry's most widely used and trusted car-to-home communication system, with an estimated 50 million units on the road. The system consists of two or three in-vehicle buttons that can be programmed to operate garage doors, security gates, home lighting, and other radio-frequency-controlled devices. During the first quarter of 2017, the Company demonstrated the next generation of HomeLink®, commonly referred to as HomeLink Connect® which uses both RF and wireless cloud-based connectivity to deliver complete vehicle-to-home automation. With HomeLink Connect®, a HomeLink® button press communicates with the HomeLink Connect® app on the user's smartphone. The app contains predefined, user-programmed actions, from single device operations to entire home automation scenes. The app, in turn, communicates to the home's smart hub over the cloud activates the appropriate devices, including security systems, door locks, thermostats, lighting, and other home automation devices, providing comprehensive vehicle-to-home automation. The ability to prepare the home for arrival or departure can occur with one button press. For the automaker, it allows them to offer a customizable, yet proven solution without the engineering effort or security concerns associated with integrating third party software into the vehicle's computer network. The Company also continues to work on providing HomeLink® applications for alternative automobile and vehicle types which include but are not limited to motorcycles, mopeds, snowmobiles, tractors, combines, lawn mowers, loaders, bulldozers, road-graders, backhoes and golf carts. In
May 2021, the Company announced the Volkswagenas the first automaker to offer Bluetooth® enabled mirror for home automation that works in conjunction with HomeLink Connect®. The Company further continues to work with compatibility partners for HomeLink® applications in newer markets like China. The unique attributes of the Chinamarket allow for potential different use cases of these products and offer the potential for additional growth opportunities for the HomeLink® brand and products. In 2017, the Company began its first volume production shipments of HomeLink® units on vehicles for the Chinamarket. In January 2016, the Company announced a partnership with TransCore to provide automobile manufacturers with a vehicle-integrated tolling solution that enables motorists to drive on nearly all U.S.toll roads without a traditional toll tag on the windshield. Currently more than 75 percent of new car registrations are in states with toll roads with over 50 million drivers accessing these roads each year. The Company signed an exclusive agreement, in the ordinary course of business, to integrate TransCore's toll module technology. In January 2017, the Company signed an extension of its agreement, in the ordinary course of business, which enables the Company to offer the Integrated Toll Module system in Canadaand Mexico. In September 2019, the Company signed a new agreement with TransCore, in the ordinary course of business, which extended the term of the partnership. The interior mirror is the optimal location for a vehicle-integrated toll transponder and it eliminates the need to affix multiple toll tags to the windshield and helps automakers seamlessly integrate toll collection into the car. Since the Integrated Toll Module® or ITM® enables travel across almost all United Statestoll roads, and others in North America, motorists would no longer need multiple toll tags for different regions of the country or to manage multiple toll accounts. The Company's vehicle-integrated solution simplifies and expedites local, regional, and national travel. ITM® provides transportation agencies with an interoperability solution without costly infrastructure changes to the thousands of miles of toll lanes throughout North America. The Company believes that this product could potentially represent another growth opportunity over the next several years. The Company has its first OEM award of ITM® with Audi. Currently, the Company is shipping ITM® on 9 platforms, which are: the A4, A5, A6, A7, Q5, Q7, Q8, e-tron, and the e-tron Sportback. The Company expects further ITM® nameplate launches with Audi throughout 2022 and 2023. During the third quarter of 2021, the Company began shipping ITM® to a second OEM customer, Mercedes, on the EQS model. In April 2020, the Company was honored with an Automotive News PACE Award for its ITM® product, which recognizes automotive suppliers for superior innovation, technological advancement, and business performance. Further, the Company has previously announced an embedded biometric solution for vehicles that leverages iris scanning technology to create a secure environment in the vehicle. There are many use cases for authentication, which range from vehicle security to start functionality to personalization of mirrors, music, seat location and temperature, to the ability to control transactions not only for the ITM® system, but also the ride sharing car of the future. The Company believes iris recognition is among the most secure forms of biometric identification, with a false acceptance rate as low as one in 10 million, far superior to facial, voice, and other biometric systems. The Company's future plans include integrating biometric
authentication with HomeLink® and HomeLink Connect®. The biometric system will allow HomeLink® to provide added security and convenience for multiple drivers by activating the unique home automation presets of different authorized users. The Company announced in
January 2018that it completed an exclusive licensing agreement, in the ordinary course of business, with Fingerprint Cards AB to deploy its ActiveIRIS® iris-scanning biometric technology in automotive applications. In January 2018, the Company also announced that an agreement had been signed with Yonomi Inc., in the ordinary course of business, to access home automation technology. The Company is working with Yonomi as a home automation aggregation partner and the Company has developed an app and cloud infrastructure known as HomeLink Connect®. As discussed above, HomeLink Connect® is the home automation app that pairs with the vehicle and allows drivers to operate home automation devices from the vehicle. Drivers of HomeLink Connect® compatible vehicles will be able to download and configure the app to control many available home automation devices and create entire home automation settings. In November 2020, the Company announced a partnership, in the ordinary course of business, with PayByCar™, to pursue compatibility between the Company's Integrated Toll Module and PayByCar's innovative payment solution that allows drivers to use their smartphones and toll transponder to fuel up at certain gas stations without using cash or a credit card. Compatibility between these two technologies can help to grow each company's respective consumer base while introducing new users to the benefits of the transactional vehicle. In January 2021, the Company announced a partnership, in the ordinary course of business, with Simplenight to provide drivers and vehicle occupants with access to enhanced mobile capability for booking personalized entertainment and lifestyle experiences in addition to everyday purchases. Simplenight delivers a customizable and robust platform that enables brands to globally offer real-time book-ability across multiple categories such as dining, accommodations, attractions, events, gas, parking, shopping and more. The platform is unique in that it is designed to seamlessly integrate into automaker infotainment and navigation systems, as well as mobile applications and voice assistants. Simplenight can be integrated into the Company's current and future connected vehicle technologies, including HomeLink®, the automotive industry's leading car-to-home automation system. HomeLink® consists of vehicle-integrated buttons that can be programmed to operate a myriad of home automation devices. Integration of Simplenight into the Company's HomeLink Connect® app is underway and will allow users to program their HomeLink® buttons and control cloud-based devices from their vehicles. Dimmable Devices The Company previously announced that it is providing variably dimmable windows for the Boeing 787 Dreamliner series of aircraft. The Company continues to work with other aircraft manufacturers that have an interest in this technology regarding potential additional programs. In January 2019, the Company announced that its latest generation of dimmable aircraft windows will be offered as optional content on the new Boeing 777X. During the third quarter of 2019, the first production shipments of variably dimmable windows were made to Boeing for the 777X program. In January 2020, the Company announced that Airbus will also be offering the Company's dimmable aircraft windows on an aircraft with production starting in 2021.
January 2020the Company unveiled an innovative lighting technology for medical applications that was co-developed with Mayo Clinic. This new lighting concept represents the collaboration of a global, high-technology electronics company with a world leader in health care. The Company's new intelligent lighting system combines ambient room lighting with camera-controlled, adaptive task lighting to optimize illumination for surgical and patient-care environments. The system was developed over an 18 month period of collaboration between Company engineers and Mayo Clinicsurgeons, scientists, and operating room staff. The teams researched, designed, and rapidly iterated multiple prototypes in order to develop unique features intended to address major gaps in current surgical lighting solutions. In 2021, the Company continues to further develop and work on the intelligent medical lighting system in order to assess system performance and work toward obtaining any necessary approvals.
Automotive revenues represent approximately 98% - 99% of the Company's total revenue, consisting of interior and exterior electrochromic automatic-dimming rearview mirrors and automotive electronics. The Company continues to experience pricing pressure from its automotive customers and competitors, which will continue to cause downward pressure on its sales and profit margins. The Company works continuously to offset these price reductions with engineering and purchasing cost reductions, productivity improvements, and increases in unit sales volume, but there is no assurance the Company will be able to do so in the future. Because the Company sells its products throughout the world, and automotive manufacturing is highly dependent on economic conditions, the Company can be affected by uncertain economic conditions that can reduce demand for its products. The Company has been likewise affected by the COVID-19 pandemic and industry-wide parts shortages and global supply constraints. The Company believes that its patents and trade secrets provide it with a competitive advantage in dimmable devices, electronics and other features that it offers for the automotive, aerospace and medical industry. Claims of patent infringement can be costly and time-consuming to address. To that end, the Company obtains intellectual property rights in the ordinary course of business to strengthen its intellectual property portfolio and to minimize the risk of infringement.
The Company has no significant off-balance sheet arrangements or commitments that have not been recognized in its consolidated financial statements.
The Company's most recent forecasts for light vehicle production for the fourth quarter of 2021, and full years 2021 and 2022 are based on the
mid-October 2021IHS Markit light vehicle production forecast for light vehicle production in North America, Europe, Japan/ Koreaand China. Fourth quarter of 2021, and calendar years 2021 and 2022 forecasted light vehicle production volumes are shown below: Light Vehicle Production (per IHS Markit
Production forecast of light motor vehicles in mid-October)
(in Millions) 2022 vs 2021 vs 2021 2020 Region Q4 2021 Q4 2020 % Change Calendar Year 2022 Calendar Year 2021 Calendar Year 2020 % Change % Change North America 3.20 3.85 (17) % 15.24 13.00 13.02 17 % - % Europe 4.04 5.24 (23) % 18.60 16.02 16.57 16 % (3) % Japan and Korea 2.66 3.23 (18) % 11.29 10.76 11.21 5 % (4) % China 6.28 7.82 (20) % 24.50 23.28 23.59 5 % (1) % Total Light Vehicle Production 16.18 20.14 (20) % 69.63 63.06 64.39 10 % (2) % Based on the aforementioned light vehicle production forecast and the results for the first nine months of 2021, the Company has provided updated guidance for the second half of 2021 as shown below, which replaces all previous guidance given. This guidance includes manual adjustments to the Company's forecasts as a result of customer order changes and the Company's estimates of the impact that global supply constraints will have on overall light vehicle production. The Company has also updated its cost and profitability model to include impacts stemming from these expected lower vehicle production levels, elevated raw material prices, freight expenses and labor costs. In addition, over the last several quarters, the Company has been closely monitoring the tariff discussions between the US and the EU with respect to EU Regulation 2018/0886, which was scheduled to go into effect on
June 1, 2021. The EU, however, suspended the implementation until November 30, 2021as part of on-going discussions. The Company remains hopeful that a trade agreement can be reached before this date so that the increased tariffs do not take effect. The guidance for the second half of 2021 is as follows, which does not take into account the aforementioned potential increased tariff costs: •Revenue is expected to be between $770 millionand $840 million•Gross Margin is expected to be between 35% and 36% •Operating Expenses are expected to be approximately $105to $108 million•Estimated Annual Tax Rate, which assumes no changes to the statutory rate, is expected to be between 15% and 16% •Capital Expenditures are expected to be between $50and $60 million•Depreciation and Amortization is expected to be between $48and $52 millionOngoing uncertainties remain around the impact of the COVID-19 pandemic on customer demand and restrictions on operations. COVID-19 has created unprecedented circumstances for the Company's industries, which included massive changes to production levels at its customers that occurred in a very short time period. Beyond the impact of the COVID-19 pandemic, other ongoing uncertainties remain including: light vehicle production levels; industry-wide parts shortages and global supply chain constraints; impacts of already in place and potential additional future tariffs; impacts of regulation changes; automotive plant shutdowns; vehicle sales rates in Europe, Asiaand North America; OEM strategies and cost pressures; customer inventory management and the impact of potential automotive customer (including their Tier 1 suppliers) and supplier bankruptcies; work stoppages; etc., all of which could disrupt shipments to these customers and make forecasting difficult. In accordance with the previously announced share repurchase plan, the Company continue to will consider the appropriateness of any share repurchases for the remainder of 2021. This determination will take into account macroeconomic issues (including the impact of the COVID-19 pandemic and industry-wide parts shortages and global supply chain constraints), market trends, and other factors that the Company deems appropriate (including the market price of the stock, anti-dilutive effect of repurchases, tax rates, and
available cash). As previously announced, the Company's Board of Directors authorized the repurchase of an additional 25,000,000 shares under the plan. As of
September 30, 2021, the Company has 25.4 million shares remaining available for repurchase under the previously announced share repurchase plan. Additionally, based on the mid-October 2021light vehicle production estimates for 2022, the Company is providing revenue guidance for 2022, despite the fact that there continues to be significant uncertainty regarding macroeconomic conditions, underlying overall consumer demand for light vehicles worldwide, and the continued impact from the COVID-19 pandemic. The Company estimates that revenue for calendar year 2022 will be approximately 15% - 20% higher than the updated 2021 estimated revenue estimates of $1.68- $1.75 billion.
CRITICAL ACCOUNTING POLICIES: The preparation of the Company's consolidated condensed financial statements contained in this report, which have been prepared in accordance with accounting principles generally accepted in
the United States, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates these estimates. Estimates are based on historical experience and/or on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that may not be readily apparent from other sources. Historically, actual results have not been materially different from the Company's estimates. However, actual results may differ from these estimates under different assumptions or conditions. The Company has identified critical accounting policies used in determining estimates and assumptions in the amounts reported in its Management's Discussion and Analysis of Financial Condition and Results of Operations in its Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
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