Good day and welcome to the Stoneridge, Inc., Third Quarter 2024 Results Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions]. Please note that the event is being recorded. I would now like to turn the conference over to Kelly Harvey, Director of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us to discuss our third quarter 2024 results. The release and accompanying presentation was filed with the SEC and is posted on our website at stoneridge.com in the Investor section under Presentations and Events. Joining me on today’s call are James Zizelman, our President and Chief Executive Officer; Matthew Horvath, our Chief Financial Officer. Before we begin, I need to inform you that certain statements today may be forward-looking statements. Forward-looking statements include statements that are not historical in nature and include information concerning our future results or plans. Although we believe that such statements are based upon reasonable assumptions, you should understand that these statements are subject to risks and uncertainties and actual results may differ materially. Additional information about such factors and uncertainties that could cause actual results to differ may be found in our 10-Q, which was filed yesterday with the Security and Exchange Commission under the heading Forward-Looking Statements. During today’s call, we will also be referring to certain non-GAAP financial measures. Please see Slide 3 for a more detailed description of these non-GAAP measures and the appendix for a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures. After Jim and Matt have finished their formal remarks, we will then open up the call to questions. And with that, I will hand the call over to Jim.

Thank you, Kelly, and good morning, everyone. Beginning on Page 4, during the third quarter we continued driving improvements in the fundamentals of our business. Our focus on operational efficiency resulted in reduced quality related costs, while reductions to operating expenses helped to offset some of the significant market related challenges we faced. We continued to focus on our key initiatives to drive cash performance as well. As a result, during the first nine months of the year, we generated $13.3 million in cash, an improvement of $31.3 million versus the same period in 2023, primarily driven by improved working capital, including an $11.3 million reduction in inventory. Matt will provide additional detail regarding our quarterly financial performance and expectations for the remainder of the year later in the call. We remain focused on our key growth initiatives, including new business awards and the flawless execution of the program launches that will drive strong growth going forward. We continue to bring strong momentum with MirrorEye in both our OEM and fleet channels as the system continues to roll out in Europe and North America. Earlier this week, we announced that our next MirrorEye OEM program will be launching with Daimler Truck North America on their new fifth generation Freightliner Cascadia truck, which begins series production in mid-2025. DTNA has always been supportive of MirrorEye offering the first pre wire option for the trucks in production. Now they continue to build on that momentum by offering an independent wing design to their customers, including advanced technology features so they can fully take advantage of the driver visibility and vehicle efficiency benefits of the system. Another launch is coming. As expected, one of our global OEM customers has announced they will be launching MirrorEye on yet another European brand. This launch signifies…

Thanks, Jim. Turning to Page 10, sales in the third quarter were $213.8 million. Revenue was significantly impacted by continued pressure across all of our major end markets resulting in reduced customer production as well as lower revenue in our off-highway end market and despite continued expansion with several fleets, reduced volumes related to MirrorEye aftermarket products, as Jim discussed previously. We continued to drive improved performance throughout the business and as a result, variable overhead declined by 60 basis points in the third quarter relative to the second, driven primarily by reduced quality related costs. We are focused on continuing to make progress on the variables that we can control while acting efficiently and effectively to mitigate the external headwinds we continue to face. Third quarter adjusted gross profit was $44.6 million or 20.9% of sales. Adjusted EBITDA was $9.2 million or 4.3% of sales. Operating performance was driven by the unfavorable impact of lower sales, partially offset by continued cost control, particularly related to reduced operating expenses. As Jim outlined previously, operating expenses declined by $4.5 million quarter to quarter as a result of continued focus on discretionary spend control as well as reduced incentive compensation to align with current market conditions. Third quarter EBITDA was also impacted by net non-operating expenses of approximately $400,000 primarily related to a non cash reduction in the fair value of our investment in Auto Tech Ventures. Finally, we remain focused on inventory management to improve cash performance, which has resulted in an $11.3 million reduction to inventory in the 1st 9 months of 2024. Despite lower-than-expected volumes, we continue to make good progress in inventory reduction. As a result, overall cash performance has continued to improve significantly as we have generated $31.3 million more cash year-to-date than the same period last…

Thank you, Matt. Turning to Page 17. In summary, we continue to focus on improving the fundamentals of our business despite the current macroeconomic conditions. As a company, we remain focused on the right things, including flawless execution of our program launches, material cost improvement, continued cost control and improved cash performance. Our efforts were highlighted by our year-to-date cash performance improvement of $31.3 million compared to the same period in 2023. While we expect continued challenges across our end markets for the remainder of the year and into 2025, we continue to focus on things we can control and respond efficiently and effectively to macroeconomic headwinds that are prevalent across our industry. We are confident that our effort to fundamentally improve business performance and focus on key growth initiatives will drive long-term profitable growth for our shareholders. During the quarter, we made great strides in continuing the trajectory of our long-term growth profile. We are excited about our new award for the leak detection module in our control devices segment. This new technology aligns primarily with the globally growing hybrid vehicle segment and is applicable to traditional powertrains as well and is one of several technologies being developed in control devices as we continue to expand the business utilizing our drivetrain agnostic approach. Similarly, we continue to build momentum with MirrorEye in both our OEM and fleet channels. Our program with Daimler Truck North America on their new fifth generation Freightliner Cascadia truck solidifies a strong customer demand for the system as DTNA transitions from the pre wire option on their existing trucks to a factory installed camera monitor system with advanced technology features, including object detection. We also announced that MirrorEye will be launching on a European brand of an existing global OEM with the system offered as…

Thank you. [Operator Instructions]. First question comes from Daniel Imbro with Stephens. Please go ahead.

Hey, good morning, guys. Thanks for taking our questions. I want to start maybe just on the macro here. So the end market is weak and it does seem like a true demand issue kind of given the financials that Matt walked through, but Jim, I guess I'd love to hear more details on is what you guys could do to either influence or drive revenue growth in the medium term into 2025 if this tougher macro persists. Just trying to think about how you guys can maybe change your growth outlook in the middle of a challenging macro here. What's in your control?

Yes. So thanks for the question, Daniel. I think as you know, our business is made up of both OEM based business as well as aftermarket and sort of non-OEM type orders and we can take a better focus in that second space, right, where we could work more effectively in aftermarket. We can drive product offerings that are typically not associated with the regular production run of a passenger car or of a commercial vehicle. So from that perspective, if there are persisting weakened market conditions, our focus would of course increase in those spaces and we could drive additional revenue by making that focus a primary priority for us.

Yes, Daniel, I would add to that. With all of the MirrorEye launches that we have and as you heard obviously the excitement around several vehicles making it standard equipment, we would expect to continue that significant growth in that space going forward, which is obviously not necessarily macro driven. Obviously, one more truck equals one more opportunity to sell the system, but that's a pretty significant jump from the awarded expectations for some of those vehicles. So not only can we maybe unusually in our space, we are we have a lot more opportunity in the aftermarket in non-OE products, as well as some of the new launches and take rates related to MirrorEye that can drive that can also drive some significant growth there.

Well, related to that, just curious on the OEM side, Jim. What are your OEM customers telling you around when they expect to ramp from this production back up as we move forward to 2025?

Well, I mean, obviously, 2025 is still looking not very strong, but the expectation is that in the second half of the year that we start to see some recovery, maybe especially in the commercial vehicle side. This is a cycle like every other automotive and commercial vehicle cycle, and we expect to be on the ramping upside of the cycle here soon. So this I think even gets better as we get into 2026 especially in the commercial vehicle space as several truck manufacturers are now telling us that because of the emissions regulations that are coming into play the following year, they expect a lot of pre buy. So they expect a recovery, but also on top of that, some pre-buying prior to the 2027 regulation coming into play.

Yes, Daniel, I think if you look at the kind of IHS forecast, you'll see that passenger car is expected to be relatively flat next year at this point, but there is some significant uptick on the commercial vehicle side like Jim said, particularly as we go into the second half of the year. So we see some of the macro trends turning and some of the particularly on the CD side, some of the market headwinds turning into tailwinds by the back half of the year. So when you combine that with some of the non OE and MirrorEye launch activity that we talk about, there's clearly a ramp up here coming both on the self-help side as well as the macro side, particularly on the CD space.

Very helpful. And then maybe last one for us, just a follow-up on what you said a minute ago, Matt, you recently won another MirrorEye program with Daimler. Can you talk about just expected timing and take rate assumptions of this program? And then any color on the overall size or expected peak revenue this could be?

Yes. So it was not an additional award, Daniel. Just to be clear, it was a clarification and announcement of who that previous award was with. So if you look back, we've been talking about several awards launching here in North America and Europe over a period of time. This is just the announcement that that is in fact Daimler Truck North America. So they're beginning serious production on that launch and ramp up in mid-2025. We have talked about that in North America being relatively low take rates as it ramps up, but like Jim said in the prepared remarks, we do think that based on the customer feedback that we will exceed those expectations. We're getting very favorable customer feedback and that's even to go further, we talked about Daimler Truck North America being one of the first prewire customers. So they have a pretty good sense of the demand that they're seeing from some of their fleets, obviously a very popular vehicle in North America. So we are very optimistic that as that program launches and ramps up in mid-2025 that we'll be able to outperform that.

Great. Appreciate it.

And that I would say some of the big news relative to MirrorEye and take rates is that, again, several of our customers have decided to make the product as standard equipment on several of their truck models. That is news, right? And that will, in fact, offer a greater effective take rate with those customers going forward.

Great. Thanks.

The next question comes from Gary Prestopino with Barrington Research. Please go ahead.

Hi, good morning, all. Jim, I'm curious about this leak detection module and realizing I have a simple mind here. Could you just very basically explain what this does, why it needs to be on a hybrid car? And is this really a must have product for hybrids as we go forward?

Yes. Well, I'll try not to be too technical here, Gary, for anyone listening, to be honest, but the hybrid application -- any hybrid vehicle has a greater challenge with regard to what is called evaporative emissions. Evaporative emissions is the evaporation of gasoline onboard the vehicle that goes into the atmosphere. There's sophisticated systems today that capture those vapors and put those vapors back to the engine to be consumed in combustion so they don't become hydrocarbon emissions. In a hydro vehicle, because you can drive it a lot on the electric motor only, you have a gas tank that's sloshing around creating vapor, but none of that vapor has an opportunity to be used because it's being driven essentially on the electric motor only for 20, 30, 40, 50 miles and so therefore, that evaporative emissions challenge becomes bigger because you don't have a continuous consumption of that vapor. So hybrids always have had greater challenges from an evaporative emissions perspective. There's a lot of extra sophistication in the systems today. This system actually simplifies that solution and is much more effective at addressing the consumption and the I'll say the retention of those vapers before consumption onboard the vehicle. So is it a must have? I think going forward as standards become more strict, it's a must have. It makes the -- it's a big pain point for current OEMs with our hybrids, and this is addressing a key pain point with a very effective, highly integrated solution.

Yes, I mean that makes a lot of sense. I mean are you the 1st in the market with a product like this or are there others out there that are on like domestic OEMs?

There are a few others that have similar products but nothing as integrated and as elegant as a solution we're bringing forward. This is a very high value proposition product for us and for the industry.

Okay. All right. And then, Matt, I'm just going through some numbers here and trying to get a handle on it. It looks like we started the year at $1 billion midpoint for revenues and $67 million midpoint of EBITDA. We're now at $900 million and $43 million and you said that the MirrorEye revenue this year is going to be $65 million to $75 million and you started the year with about $100 million. So is it safe to say that obviously Control Devices has slipped between $65 million and $75 million. But I'm trying to get an idea of when you put your projections together, what were the IHS numbers you were using that would basically drive your initial estimates for what the revenues would be in Control Devices and where are they now? Where are the IHS numbers now?

So Gary, what I would say is remember this is not just Control Devices. In fact, we've seen the recovery in CD has not come as soon as we had expected. So this is really both segments. So obviously there has been a reduction in Control Devices. I think when we started the year, SAR was somewhere close to $16 million a little bit south of $16 million. Right now, what we're seeing is more like $15.5 million right. So North American passenger car certainly has been a headwind but it's not all the headwind right. Commercial vehicle has also declined. So yes, you're right there's is $30 million or so on the MirrorEye side like we talked about. Some of that is the slower than expected ramp up in North America and the very initial ramp up here with Volvo, which we said we expect to turn around here going forward, we've seen some increase in orders there. The other side that is a little bit of a shift in buckets is, like Jim mentioned, the fleet to OE aspect, right? I think we had expected that more of the fleets would adopt after the evaluation periods and what we're seeing is because the OEM programs are launching and being marketed frankly pretty heavily and looking to be very successful, more of the fleets are using those as evaluation units in anticipation of those OE launches. So it's just really shifting from an aftermarket to probably a more OE focused buy going forward, particularly for some of those very, very large fleets, even some of them we haven't talked about yet. So I would say there is a portion of that that's MirrorEye. Some of that is timing. The remainder is certainly some downturn in Control Devices, but then a delayed recovery on the commercial vehicle side and that cycle has definitely been worse than I think people expected at the beginning of the year.

Okay. And then you said I don't know if this was globally or on a North American basis, car production is expected to be flat. Is that a global or a North American number for 2025?

For 2025, that's North America. Our primary exposure is on the passenger car side of North America and China. China is expected to return to some moderate level of kind of low to mid-single digit growth in 2025 and North America is looking roughly flat right now from based on what IHS is suggesting.

Okay. All right. Thank you.

Thanks, Gary.

This concludes our question-and-answer session. I would like to turn the conference back over to James Zizelman for any closing remarks.

Well, thank you, everyone, for joining us for the call. Look, I know your time is really quite important, and we do truly appreciate your willingness to engage us once again today for our earnings call. In the third quarter, we continued to drive improvements in the fundamentals of our business. Our focus on operational efficiency resulted in reduced quality related costs, while reductions to operating expenses helped to offset some of the significant market related challenges that we did face. As discussed earlier on the call, MirrorEye continues to gain momentum in both the OEM market with new program launches and improved take rate expectations and in the aftermarket with fleet expansions and new bus applications as well. We will continue to deliver on our commitments by focusing on long-term strategy, broad operational improvements and excellence in execution. We expect that our performance, along with our unique mix of industry changing product platforms, will continue to drive strong shareholder value. So once again, thanks everyone.

The conference has now concluded. Thank you for attending today's presentation. [Operator Closing Remarks].