Q4 2023 Stoneridge Inc Earnings Call

Unknown Executive: Thank you for joining us today, and thank you for standing by. Stoneridge, 4th quarter, 2000.

Good day, and thank you for standing by and welcome to the Stoneridge fourth quarter 2023 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 one on your tell us.

Unknown Executive: At this time, I'll After the speaker's presentation, there will be a question and answer period. To ask a question during this session, you will need to press star one one on your You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 119. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kelly Harvey, Director of Investor Relations. Please go ahead.

You will then hear not amazing automated message advising you. Your hand is raised so much. All your question. Please press star one again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Kelly have Harvey director of Investor Relations. Please go ahead.

Kelly K. Harvey: Good morning, everyone, and thank you for joining us to discuss our fourth quarter and full year 2023 results. The release and accompanying presentation were filed with the SEC and are posted on our website at stoneridge.com in the investor section under webcasts and presentations. Joining me on today's call are Jim Zizelman, our President and Chief Executive Officer, and Matt Horvath, our Chief Financial Officer. During today's call, we will be referring to certain non-GAAP financial measures. Please see slide 2 for a more detailed description of these non-GAAP measures and in the appendix for a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures.

Good morning, everyone and thank you for joining us to discuss our fourth quarter and full year 2023 results. The release and accompanying presentation was filed with the SEC and is posted on our website at stoneridge Dot com in the investors section under Webcasts and presentations joining.

Joining me on today's call are Jim Sizzle than our President and Chief Executive Officer, and Matt Horvath, Our Chief Financial Officer.

During today's call, we will be referring to certain non-GAAP financial measures. Please see slide two for a more detailed description of these non-GAAP measures and in the appendix ended up back in the appendix for a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures.

Kelly K. Harvey: In addition, 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-k, which will be filed later this week with the Security and Exchange Commission under the heading forward-looking statements. After Jim and Matt have finished their formal remarks, we will open up the call to questions. And with that, I will hand the call over to Jim. Thank you, Kelly. And good morning, everyone.

In addition, I need to inform you that certain statements today, maybe 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-K, which will be filed later this week with the Securities and Exchange Commission under the heading forward looking statements.

Jim and Matt have finished their formal remarks, we will open up the call to questions and with that I will hand, the call over to Jim.

Thank you Kelly and good morning, everyone. Let me begin on page four.

James Zizelman: Let me begin on page 4. I am extremely proud of our progress in 2023. We delivered on our financial commitments throughout the year, driven by an unwavering focus to both execute our long-term strategy and drive continuous operational improvement. However, the transportation industry continued to face many challenges throughout the year, including the UAW strike, higher interest costs, and the slower than expected penetration rate for electric vehicle platforms. However, by focusing on the execution of our major program launches, continuous improvement in our manufacturing facilities, and the execution of operating expense initiatives to both reduce cost and improve efficiency, we were able to navigate through these challenges. And as a result, we achieved full-year sales, operating performance, and adjusted EPS in line with the expectations we set. We set out at the beginning of the year, and we're not done yet.

I'm extremely proud of our progress in 2023, we delivered on our financial commitments throughout the year driven by an unwavering focus to both execute our long term strategy and drive continuous operational improvements.

Although the supply chain environment continued to improve the transportation industry continued to face many challenges throughout the year, including the UAW strike higher interest costs and slower than expected penetration rate for electric vehicle platforms.

Over by focusing on the execution of our major program launches continuous improvement in our manufacturing facilities and the execution of operating expense initiatives to both reduce costs and improve efficiency, we were able to navigate through these challenges and as a result, we achieved full year sales operating performance and.

Adjusted EPS in line with the expectations we set.

We set forth at the beginning of the year.

And we're not done yet throughout this process, we've identified multiple areas for further improvement and expect our efforts to continue to drive long term profitable revenue growth and significant earnings expansion going forward.

James Zizelman: Throughout this process, we've identified multiple areas for further improvement, and we expect our efforts to continue to drive long-term profitable revenue growth and significant earnings expansion going forward. I will discuss some of our key priorities for 2024 in further detail later in the call. Our fourth quarter adjusted EPS of $0.12 was in line with the expectations we outlined on the third quarter call, and it's a $0.02 sequential improvement compared to the third quarter. Matt will provide further detail on the fourth quarter results later in the call.

I'll discuss some of our key priorities for 2024 and further detail later in the call.

Our fourth quarter adjusted EPS of <unk> 12 was in line with the expectations, we outlined on the third quarter call and as a <unk> <unk> sequential improvement compared to the third quarter and that will provide further detail on our fourth quarter results later in the call.

James Zizelman: We continue to focus on product platforms that will drive future growth. In 2023, we continue to build momentum with our Mirai programs, with continued strong take rates, with the DOF program in Europe and the launch of our first OEM program in North America with Kenworth. Earlier this week, we announced our next program will be launching with Volvo in Europe mid-year and will be our largest program based on the current expected take rate of approximately 45%. In addition, we will also be launching with Volvo in North America in 2025. Also earlier this month, we announced the extension of our FMCSA exemption for an additional five years, which will allow our North American fleet partners to remove their traditional mirrors on MirEye equipped vehicles.

We continue to focus on product platforms that will drive future growth in 2023, we continued to build momentum with our mirror programs with continued strong take rates with the <unk> program in Europe and the launch of our first OEM program in North America with Kenworth.

This week, we announced our next program, we'll be launching with Volvo in Europe mid year and will be our largest program based on the current expected take rate of approximately 45%.

In addition, we will also be launching with Volvo in North America. In 2025 also earlier this month, we announced the extension of our FM CSA exemption for an additional five years, which will allow our north American fleet partners to remove their traditional mirrors on Mir I equipped vehicles and finally today we are announcing.

James Zizelman: And finally, today, we are announcing retrofit expansions with several new fleets. I'll provide a more extensive MirEye update later in the call. In 2023, we also launched our next generation Tachograph, the Smart 2, that provides incremental capabilities to conform with the most recent EU mobility package standard. As mentioned in previous calls, both the OEM and aftermarket retrofit channels provide significant growth opportunities for Stoneridge over the next several years. And this morning, we are updating our long-term financial targets to include our strong OEM backlog, aftermarket and non-OE growth opportunities, and substantial margin expansion through our five-year plan. A five-year awarded business backlog of $3.5 billion supports a five-year compound annual growth rate of almost 10% based on our midpoint targets.

Retrofit expansions with several new fleets I'll provide a more extensive mirror update mirror I update later in the call.

In 2023, we also launched our next generation tachograph, the smart too that provides incremental capabilities to conform with the most recent E mobility package standards as mentioned on previous calls both the OEM and aftermarket retrofit channel will provide significant growth opportunities for stoneridge over the next several years.

And this morning, we are updating our long term financial targets to include our strong OEM backlog aftermarket and non OE growth opportunities and substantial margin expansion through our five year plan.

Our five year awarded business backlog of $3 5 billion supports a five year compound annual growth rate of almost 10% based on our midpoint targets. This results in mid point targeted revenue of $1 $45 billion targeted midpoint EBITDA margin of 13% and.

James Zizelman: This results in midpoint targeted revenue of $1.45 billion, a targeted midpoint EBITDA margin of 13%, and targeted midpoint EBITDA of $190 million by 2028. Page five summarizes our key financial metrics for the full year 2023 compared to the prior year. We started the year with a challenging first quarter due to the lingering effects of the supply chain constraints and material costs headwind. In response, we focused on driving gross margin improvement and successfully negotiated customer price increases, resulting in adjustments both retroactively and related to sales going forward. In the second half of the year, we navigated through the impact of the UAW strike, which in total reduced sales by approximately $6.4 million, operating income by approximately $2.1 million, and adjusted EPS by approximately 5 cents. Finally, below-the-line FX and non-cash reductions in equity earnings reduced EPS by an additional $0.05.

Targeted midpoint EBITDA of $190 million by 2028.

Page five summarizes our key financial metrics for the full year 2023 compared to the prior year, we started the year with a challenging first quarter due to the lingering effects of the supply chain constraints and material cost headwinds. In response, we are focused on driving gross margin improvement and successfully negotiated customer price increase.

This is resulting in adjustments, both retroactively and related to sales going forward.

In the second half of the year, we navigated through the impact of the UAW strike, which in total reduced sales by approximately $6 $4 million operating.

Income by approximately $2 $1 million and adjusted EPS by approximately <unk> <unk>.

Finally below the line FX and noncash reductions in equity earnings reduced EPS by an additional five.

James Zizelman: Excluding the impact of these items, which are not expected to recur, adjusted EPS would have been above break-even for the full year. Furthermore, despite these macroeconomic headwinds, we were still able to deliver on our financial commitments through price increases aligned with increased material costs. Careful cost control and the efficient use of engineering resources to ensure our new products launch on time. Overall, we have made significant progress toward our long-term goals in 2023, but we also know there is so much more work that we can and will do to further enhance our performance. We achieved full year 2023 adjusted sales of $961.2 million, or 14.2% growth compared to the prior year. This growth was driven by improved customer production volumes and Stoneridge specific growth drivers, including the launch and continued ramp-up of our Mirai OEM programs, the launch of our next generation Tachograph, and despite less vehicle production than we originally expected, the growth of actuation programs on electrified vehicle platforms. Full year adjusted EBITDA margin improved by approximately 150 basis points and $18.3 million versus 2022. Matt will provide additional detail on our segment level performance later in the call. Now turning to page 6.

Excluded excluding the impact of these items, which are not expected to recur adjusted EPS would have been above breakeven for the full year.

Despite these macroeconomic headwinds we were still able to deliver on our financial commitments through price increases aligned with increased material costs careful cost control and the efficient use of engineering resources to ensure our new products launched on time.

Overall, we have made significant progress toward our long term goals in 2023, but we also know there is so much more work that we can and will do to further enhance our performance.

We achieved full year 2023, adjusted sales of $961 2 million or 14, 2% growth compared to the prior year. This growth was driven by improved customer production volumes and stoneridge specific growth drivers, including the launch and continued ramp up of our mirror I OEM programs. The launch of our next generation.

<unk> tachograph and despite less of vehicle production than we originally expected the growth of actuation programs on electrified vehicle platforms.

Full year adjusted EBITDA margin improved by approximately 150 basis points and $18 $3 million versus 2022, and Matt will provide additional detail on our segment level performance later in the call.

Now turning to page six.

<unk> continued to gain momentum in 2023, as we continued to ramp up production of our previously launched OEM program in Europe with <unk> launched our first North American OEM program with Kenworth and continued to expand our retrofit and bus applications.

James Zizelman: You and I continue to gain momentum in 2023 as we continue to ramp up production of our previously launched OEM program in Europe with DOF, launch our first North American OEM program with Kenworth, and continue to expand our retrofit and bus applications. Near eye revenue grew by $20 million in 2023 to over $50 million. And it's expected to almost double in 2024 to approximately $100 million. As mentioned earlier on the call, our next Mirai OEM program will be launching with Volvo in Europe mid-year on the Volvo FH Aero. Based on customer communicated volumes, we expect the program to have a take rate of approximately 45%. Volvo has highlighted Mirai on the new FH Aero truck, focusing on the system's ability to improve the aerodynamics of the truck to save energy and reduce the carbon footprint, as well as the significantly improved field of view in both good and poor weather conditions.

<unk> revenue grew by $28 million in 2023 to over $50 million and is expected to almost double in 2024 to approximately $100 million.

As mentioned earlier on the call are next year I OEM program, we'll be launching with Volvo in Europe mid year on the Volvo F. H Arrow based on customer communicated volumes. We expect the program to have a take rate of approximately 45% <unk> as highlighted mirror on the new FH arrow truck focusing on the system's ability.

82 improve the aerodynamics of the truck to save energy and reduce carbon footprint as well as a significantly improved field of view and both good and poor weather conditions.

The North American portion of this award is set to launch in early 2025, and Volvos, all new VNS truck, which marks the North American OEM debut of <unk> Independent wing design, which separates the system from the traditional mirrors the Volvo mirror programs in Europe, and North America combined are currently.

<unk> at over $60 million of peak annual revenue, making this again, our largest OEM program to date.

James Zizelman: The North American portion of this award is set to launch in early 2025 on Volvo's all new VNL truck, which marks the North American OEM debut of Mirai's independent wing design, which separates the system from the traditional Mirs. The Volvo Mirai programs in Europe and North America combined are currently estimated at over 60 million dollars of peak annual revenue, making this, again, our largest OEM program to date. These program launches mark yet another step in Stoneridge's journey to provide industry-leading safety and efficiency technology. In North America, we are focused on the continued ramp-up of the Kenworth program and the launch of the second nameplate, Peterbilt, which is expected to occur in the middle of the year. We continue to work with our customers and their dealership networks to reach their end customers to drive awareness of the system with the ultimate goal of driving take rate expansion.

These program launches Mark yet another step in storage is journey to provide industry, leading safety and efficiency technologies.

In North America, we are focused on the continued ramp up of the <unk> program and the launch of the second nameplate Peterbilt, which is which is expected to occur in the middle of the year. We continue to work with our customers and their dealership networks to reach their end customers to drive awareness of this system with the ultimate goal to drive take rate expansion.

Overall, we are expecting total mirror OEM revenue to at least double to approximately $65 million in 2024.

Earlier this month, we announced that FM CSA and agency of the U S. Federal government granted stoneridge, a five year extension of our mirror exemption, which will allow our U S based fleet partners to maximize the safety and fuel economy benefits of the mirror system by fully removing the traditional mirrors on mere equipped vehicles.

These benefits include enhanced real time visibility from nearly every angle of a commercial truck.

James Zizelman: Overall, we are expecting total Mirai OEM revenue to at least double to approximately $65 million in 2024. Earlier this month, we announced that FMCSA, an agency of the U.S. federal government, granted Stoneridge a five-year extension of our MirEye exemption, which will allow our U.S.-based fleet partners to maximize the safety and fuel economy benefits of the MirEye system by fully removing the traditional mirrors on Mir These benefits include enhanced real-time visibility from nearly every angle of a commercial truck, which can reduce the frequency and severity of accidents, as well as an increase in fuel savings of approximately 2 to 3% when traditional mirrors are removed.

Can reduce the frequency and severity of accidents as well as increase in the fuel savings of approximately 2% to 3% when the traditional mirrors are removed. This fuel savings translates to approximately 5000 pounds of Sidoti reduction annually per vehicle and aligns with our sustainability goals of stoneridge our customers.

And the fleets.

Furthermore, we continue to expand our retrofit applications today, we are announcing three additional fleet partnerships with PFS logistics Stokes trucking and cargo transporters.

These fleets understand a significant safety and fuel economy benefits of mirror and are committed to equipping all of their long haul trucks with mirror overtime. Together. These three fleets of approximately 4300 long haul vehicles on the road.

James Zizelman: This fuel savings translates to approximately 5,000 pounds of CO2 reduction annually per vehicle and aligns with the sustainability goals of Stoneridge, our customers, and the fleet. Furthermore, we continue to expand our retrofit applications. Today, we are announcing three additional fleet partnerships with PS Logistics, Stokes Trucking, and Cargo Transporters. These fleets understand the significant safety and fuel economy benefits of Mirai and have committed to equipping all of their long-haul trucks with Mirai over time. Together, these three fleets have approximately 4,300 long-haul vehicles on the road.

In addition, we expect our mirror bus applications to expand in North America, and Europe in 2024, resulting in approximately $35 million of non OE mirror revenue.

Our investments in the Mira platform continues to drive year over year growth strong take rate expectations and continued momentum across our end markets and applications.

We will continue to invest in the technologies and the adjacent product opportunities to optimize our position in this market and drive technology innovation improve safety efficiency and driver retention for our customers.

Turning to page seven and our long term strategy focused on industry Megatrends and drivetrain agnostic technologies continues to drive strong long term growth prospects.

James Zizelman: In addition, we expect our Mirai bus applications to expand in North America and in Europe in 2024, resulting in approximately $35 million of non-OE Mirai revenue. Our investments in the Mirai platform continue to drive year-over-year growth, strong K-grid expectations, and continued momentum across our end markets and applications. We will continue to invest in the technologies and adjacent product opportunities to optimize our position in this market and drive technology innovation, improve safety, efficiency, and driver retention. Turning to page seven, our long-term strategy focused on industry megatrends and drivetrain agnostic technologies continues to drive strong long-term growth prospects. As we have reported in the past, our backlog is the estimated cumulative awarded sales for the next five years using current IHS estimates for production volume assumptions, current foreign currency rates, and current prices.

As we have reported in the past our backlog is the estimated cumulative awarded sales for the next five years using current IHS estimates for production volume assumptions current foreign currency rates and current pricing.

We have had substantive growth in our commercial vehicle five year backlog, resulting in year over year growth of approximately 5%. In addition, several next generation OEM commercial vehicle platforms are expected to launch between 2028 and 2030 and as a result, we are expecting incremental award activity for next generation platforms over the next.

Two years that will impact the back half of the backlog period, including next generation Mirror systems driver information systems and controls and connectivity modules.

We expect that these systems will become increasingly more integrated into what would be called the cockpit of the future and.

And we are preparing for potential programs that can integrate several of our systems.

Yeah.

Market dynamics around electric vehicle adoption rates have impacted expectations for current electric vehicle programs and are influencing business award activity on the passenger vehicle side.

Most Oems are now considering a mix of drivetrains that favor more hybrids in internal combustion engines than what was originally expected.

James Zizelman: We have had substantive growth in our commercial vehicle five-year backlog, resulting in year-over-year growth of approximately five percent. In addition, several next-generation OEM commercial vehicle platforms are expected to launch between 2028 and 2030. And as a result, we are expecting incremental award activity for next-generation platforms over the next two years that will impact the back half of the backlog period, including next-generation Mirai systems, driver information systems, and we expect that these systems will become increasingly integrated into what would be called the cockpit of the future, and we are preparing for potential programs that could integrate several of our systems. Market dynamics around electric vehicle adoption rates have impacted expectations for current electric vehicle programs Most OEMs are now considering a mix of drive trains that favors more hybrids and internal combustion engines than originally expected. Our dry-train agnostic technology portfolio will permit us to respond effectively to enhance the back half of the backlog for control devices.

Our drivetrain agnostic technology technology portfolio will permit us to respond effectively to enhance the back half of the backlog for control devices.

While we continue to add our medium term backlog.

For 2025 through 2027, which grew by approximately 4% relative to last year. Our overall backlog remained relatively flat as we continued to pursue new program awards that we expect to impact the outer years.

It should also be noted that more of our business is shifting to the aftermarket end markets, which we do not include in the backlog, we have significant opportunity in our aftermarket channels between mirror retrofit and bus applications mirrored platform based products such as a trailer technologies, we've discussed previously and the smart to tachograph and our.

<unk> branded products as well.

Year I OEM programs are included in backlog at our current customer volume expectations and this considers volumes based on customer expectations either at the time of award or updated based on actual program take rates of our expectations. We continue to expect that mirror take rates on OEM products will improve as <unk>.

It becomes more widespread and additional Oems start offering the system on OEM applications. This also.

Also represents upside to the existing backlog.

We are committed to driving long term profitable growth and will provide updates on business awards as new platform designs are solidified and business is awarded.

James Zizelman: While we continued to add our medium-term backlog for 2025 to 2027, which grew by approximately 4% relative to last year, our overall backlog remained relatively flat as we continue to pursue new program awards that we expect to impact the outer year. It should also be noted that more of our business is shifting to the aftermarket end markets, which we do not include in the backlog. We have significant opportunity in our aftermarket channels between Mirai retrofit and bus applications, Mirai platform-based products such as the trailer technologies we've discussed previously, and the Smart2 tachograph and our Orlaco branded products. Near Eye OEM programs are included in backlog at our current customer volume expectations. This considers volumes based on customer expectations either at the time of award or updated based on actual program take rates or expectations. We continue to expect that Mirai take rates on OEM products will improve as the product becomes more widespread and additional OEMs start offering the system on OEM applications. This also represents upside to the existing backstop.

Now turning to page eight we remain on track to achieve 2027 goals, we outlined last year at this time and we are advancing our long term revenue and EBIT targets by a year aligned with our existing backlog continued opportunities in non OEM channels and new business opportunities our long term strategy.

Has resulted in a growth profile that is expected to outperform the market by more than five times over the next five years.

From a midpoint of $1 billion expected in 2024, we are anticipating another several years of strong growth driving our long term revenue target up to a midpoint of $1 $45 billion by 2028, as we continue to focus on fixed cost leverage and gross margin improvement through material cost reduction.

<unk> operational improvements, we expect revenue growth to drive significant EBITDA margin expansion.

Based on our 2028 revenue target we are targeting a mid point EBIT margin of 13%. This EBIT margin expansion will be driven by our expectation of continued contribution margin of 25% to 30% a favorable unfavorable mix primarily aligned with growth in our aftermarket products and continued leverage on our operating <unk>.

James Zizelman: We are committed to driving long-term profitable growth and will provide updates on business awards as new platform designs are solidified and business is awarded. Turning to page 8, we remain on track to achieve the 2027 goals we outlined last year at this time, and we are advancing our long-term revenue and EBITDA targets by a year, aligned with our existing backlog, continued opportunities in non-OEM channels, and new business opportunities. Our long-term strategy has resulted in a growth profile that is expected to outperform the market by more than five times over the next five years. From a midpoint of $1 billion expected in 2024, we are anticipating another several years of strong growth driving our long-term revenue target up to a midpoint of $1.45 billion by 2028. As we continue to focus on fixed cost leverage and gross margin improvement through material cost reduction and operational improvements, we expect revenue growth to drive significant EBITDA margin expansion. Based on our 2028 revenue target, we are targeting a midpoint EBITDA margin of 13%.

Structure as we scale.

Overall, <unk> is well positioned to significantly outpace our weighted average end markets and drive margin expansion and earnings growth through our long range plan.

Now turning to page nine.

We remained focus as a company to achieve our goals both in 2024 and going forward one year into the CEO role I am proud of what we have accomplished here. We have delivered results consistent with what we promised and as I have stated several times on this call my focus remains on executing on our long term strategy to drive some.

Stable performance and achieve our long term targets as well.

As we look forward to this year, we have a lot to be excited about our 2024 revenue is expected to grow by 4%, while all while our underlying end markets are expected to decline by approximately 5% to continue this growth. We are focused on leveraging our global footprint to service, our global customers and win new business.

And control devices, we're focused on business development aligned with industry trends, including growing our core product portfolio aligned with drivetrain agnostic technologies and product applications.

James Zizelman: This EBITDA margin expansion will be driven by our expectation of continued contribution margin of 25 to 30%, a favorable mix primarily aligned with growth in our aftermarket products, and continued leverage on our operating cost structure as we scale. Overall, Stoneridge is well positioned to significantly outpace our weighted average end markets and drive margin expansion and earnings growth through our long-range plan.

Electronics, we're focused on new product development continued momentum with our existing products and technologies and continued expansion of our products into a more substantial platforms that will drive long term sustainable growth.

We are focused on gross margin expansion through material cost improvement in enterprise wide operational excellence.

Both our product line and program management organizations have been centralized streamlined and redesigned to specifically focus on pricing built in quality material cost improvement and manufacturing efficiency.

James Zizelman: We remain focused as a company to achieve our goals both in 2024 and going forward. One year into the CEO role, I am proud of what we have accomplished here. We have delivered results consistent with what we promised. And, as I've stated several times on this call, my focus remains on executing on our long-term strategy to drive sustainable performance and achieve our long-term targets as well. As we look forward to this year, we have a lot to be excited about.

We are focused on reducing material costs through engineering changes supply chain strategy and continued conversations with their customers, where the price to material relationship still requires attention.

As a result of these focused efforts our midpoint guidance includes 140 basis points of gross margin improvement in 2024.

We are also focused on leveraging our global footprint to maximize our capabilities and output specifically, we are better utilizing our existing talent by refining our global engineering structure and investing in capabilities and capacity that will allow us to both expand margins and continue the pace of development that has fueled our backlog and <unk>.

James Zizelman: Our 2024 revenue is expected to grow by 4% while our underlying end markets are expected to decline by approximately 5%. To continue this growth, we are focused on leveraging our global footprint to service our global customers and win new business, and at Control Devices, we're focused on business development, aligned with industry trends, including growing our core product portfolio aligned with drivetrain agnostic technologies and product applications. Electronics, we're focused on new product development, continued momentum with our existing products and technologies, and continued expansion of our products into more substantial platforms that will drive long-term sustainable growth. We are focused on gross margin expansion through material cost improvement and enterprise-wide operations. Both our product line and program management organizations have been centralized, streamlined, and redesigned to specifically focus on pricing, built-in quality, material cost improvement, and manufacturing efficiency.

<unk> growth profile.

Similarly, we took actions last year to centralize many of our global functions and drive synergies between our business units from both a cost and efficiency perspective, we will continue to evaluate and optimize our organizational structure and as a result of these actions. We expect 170 basis points of operating margin improvement in 2000.

24, and continued strong growth going forward.

We're also focused on efficient cash generation more specifically historical supply chain challenges coupled with strong production forecasts have driven inventory levels that are greater than what we've had historically, we're focused on reducing inventory to improve working capital and generate more cash in some cases. This will take some time as we burn.

Down the extra material, we bought when supply chains were more volatile or when production volumes were estimated to be greater than the current views in other cases, we are working to manage engineering changes and work with our suppliers to more quickly reduce the existing balances.

James Zizelman: We are focused on reducing material costs through engineering changes, supply chain strategy, and continued conversations with our customers where the price-to-material relationship still requires attention. As a result of these focused efforts, our midpoint guidance includes 140 basis points of gross margin improvement in 2024. We are also focused on leveraging our global footprint to maximize our capabilities and output. Specifically, we are better utilizing our existing talent by refining our global engineering structure and investing in capabilities and capacity that will allow us to both expand margins and continue the pace of development that has fueled our backlog and forward growth profile. Similarly, we took actions last year to centralize many of our global functions and drive synergies between our business units from both a cost and efficiency perspective.

We are targeting an improvement in inventory in 2020 over 2023 that would align us with our historical averages and provide a runway for continued improvement going forward.

And finally, we're focused on efficient capital deployment, while maintaining an appropriate capital structure. This includes prioritizing our organic investment opportunities with a focus on return on engineering and investing in technology to develop new products for customers that will facilitate future growth in.

In 2024, we are targeting approximately $40 million of capital focused primarily on supporting organic growth initiatives.

Each of our segments plays a critical role in helping us achieve our long term targets I am committed to continuing to execute on our long term plan that stoneridge has in place and driving our companywide priorities to achieve our goals given our focus we will execute on a high level, resulting in strong margin expansion on growth that will continue to outpace.

Our underlying end markets.

James Zizelman: We will continue to evaluate and optimize our organizational structure, and as a result of these actions, we expect 170 basis points of operating margin improvement in 2024 and continued strong growth going forward. We're also focused on efficient cash generation, more specifically, historical supply chain challenges coupled with strong production forecasts have driven inventory levels that are greater than what we have had historically. We are focused on reducing inventory to improve working capital and generate more cash. In some cases, this will take some time as we burn down the extra material we bought when supply chains were more volatile or when production volumes were estimated to be greater than the current view. In other cases, we are working to manage engineering changes and work with our suppliers to more quickly reduce the existing balance.

Now turning to page 10, and in summary, we remain focused on implementing our long term strategy to drive sustainable profitable growth by focusing on technologies that are drivetrain agnostic winning business in critical growth areas and expanding on our existing opportunities.

As evidenced by our progress made this year. This team is focused on strong execution and careful cost control to continue to drive margin improvement. The actions. We took resulted in a successful 2023, and we look forward to continuing that momentum with top line growth above market and earnings expansion in 2024.

Now with that I'll turn it over to Matt to discuss our financial results and guidance in more detail, Matt Alright. Thank you Jim turning to page 12, as Jim mentioned earlier on the call. We are proud of the progress we made last year.

In the fourth quarter, we delivered on our previously provided EPS expectations driving sequential improvement of <unk> <unk> from the third quarter to <unk> 12 in the fourth quarter. Adjusted sales were approximately $229 4 million a decline of three 3% relative to the third quarter. This was primarily due to the incremental impact of the UAW strike of approximately $5 five.

James Zizelman: We are targeting an improvement in inventory in 2020 over 2023 that would align us with our historical averages and provide a runway for continued improvement going forward. And finally, we're focused on efficient capital deployment while maintaining an appropriate capital structure. This includes prioritizing our organic investment opportunities with a focus on return on engineering and investing in technology to develop new products for customers that will facilitate future growth. In 2024, we are targeting approximately $40 million of capital focused primarily on supporting organic growth initiatives. Each of our segments plays a critical role in helping us achieve our long-term targets. I am committed to continuing to execute on the long-term plan that Stoneridge has in place and driving our company-wide priorities to achieve our goals.

In the quarter as well as the continued softening of demand for electric vehicles relative to prior expectations.

Fourth quarter adjusted operating income was $6 2 million or two 7% of adjusted sales a decline of approximately 40 basis points versus the third quarter.

This was due in part to the incremental impact of the UAW strike of $2 million over the third quarter.

As well as continued costs related to the distressed supplier we discussed during our last call of approximately $1 1 million.

Adjusted EBITDA for the quarter was $15 6 million or.

Or six 8%.

Turning to page 13 on our third quarter earnings call, we guided fourth quarter adjusted EPS to a range of 10 to 20.

With an expected revenue midpoint of $238 million.

James Zizelman: Given our focus, we will execute at a high level, resulting in strong margin expansion on growth that will continue to outpace our underlying end market. Now turning to page 10, and in summary, we remain focused on implementing our long-term strategy to drive sustainable profitable growth by focusing on technologies that are drivetrain agnostic, winning business in critical growth areas, and expanding on our existing opportunities. As evidenced by our progress made this year, this team is focused on strong execution and careful cost control to continue to drive margin improvement. The actions we took resulted in a successful 2023, and we look forward to continuing that momentum with top line growth above market and earnings expansion in 2024. Now with that, I'll turn it over to Matt to discuss our financial results and guidance in more detail.

Unfavorable FX movements reduced sales by $7 million, while reduced production volumes resulted in a <unk> <unk> headwind relative to our previously provided guidance primarily due to the slowing growth of electric vehicle platforms.

Fourth quarter operating performance resulted in a <unk> <unk> headwind during the quarter versus previous expectations.

During the fourth quarter, we observed higher we absorbed higher manufacturing costs than previously expected primarily related to elevated warranty and inventory costs on higher than normal inventory balances. This was partially offset by continued run rate material cost improvement as well as reduced operating expenses, primarily driven by engineering reimbursement and the reduction of our annual <unk>.

<unk> of compensation programs.

As we discussed previously we incurred approximately $1 $8 million of costs related to a specific distressed supplier, which we expect it to be relatively minimal in the fourth quarter.

We expect these cost to moderate with improvement in the situation. Unfortunately, we continued to incur incremental cost relative to the third quarter to provide additional support to the supplier.

Although we are still incurring some costs related to the situation of the costs are moderating as we navigate the first half of this year, we will pursue routes to recover these incremental costs. However, our priority remains inventing and customer disruption.

Matthew R. Horvath: Great. Thank you, Jim. As Jim mentioned earlier on the call, we are proud of the progress we made last year. In the fourth quarter, we delivered on our previously provided EPS expectations, driving sequential improvement of $0.02 from the third quarter to $0.12 in the fourth quarter. Adjusted sales were approximately $229.4 million, a decline of 3.3% relative to the third quarter.

After tax net impact of foreign currency versus prior expectations resulted in approximately <unk> <unk> of net benefit in the quarter.

The below the line favorable impact of foreign currency more than offset the unfavorable FX impact to operating income of approximately $900000 recognized during the quarter.

We remain focused on operational execution and controlling the variables within our control to drive performance. We will continue to respond to the externalities as necessary to insulate the company from macroeconomic headwinds and drive overall performance.

Matthew R. Horvath: This was primarily due to the incremental impact of the UAW strike of approximately $5.5 million in the quarter, as well as the continued softening of demand for electric vehicles relative to prior expectations. Fourth quarter adjusted operating income was $6.2 million, or 2.7% of adjusted sales, a decline of approximately 40 basis points versus the third quarter. This was due in part to the incremental impact of the UAW strike of $2 million in the third quarter, as well as continued costs related to the distressed supplier we discussed during our last call of approximately $1.1 million. Adjusted EBITDA for the quarter was $15.6 million, or 6.8%.

Page 14 summarizes our key financial metrics specific to control devices.

Whole devices fourth quarter sales declined by approximately $15 million versus the third quarter due to the UAW strike as well as a slower rate of penetration for electric vehicles.

Fourth quarter operating operating margin of one 2% declined by 500 basis points compared to the third quarter, primarily due to reduced fixed cost leverage on decremental sales and incremental costs recognized in the fourth quarter related to the distress fire outlined previously in.

In total we estimate that the UAW strike and distress supplier costs expected control devices operating margin by approximately $3 6 million or 440 basis points in the fourth quarter.

Excluding the impact of these headwinds adjusted operating margin was relatively in line with prior quarters, despite significantly lower sales.

Matthew R. Horvath: Turning to page 13, on our third quarter earnings call, we guided fourth quarter adjusted EPS to a range of $0.10 to $0.20 with an expected revenue midpoint of $238 million. Unfavorable FX movements reduced sales by $7 million, while reduced production volumes resulted in a $0.02 headwind relative to our previously provided guidance, primarily due to the slowing growth of electric vehicle platforms. Fourth quarter operating performance resulted in a 4 cent headwind during the quarter versus previous expectations. During the fourth quarter, we observed higher and absorbed higher manufacturing costs than previously expected, primarily related to elevated warranty and inventory costs on higher than normal inventory balances. This was partially offset by continued run rate material cost improvement, as well as reduced operating expenses primarily driven by engineering reimbursements and the reduction of our annual incentive compensation program. As we discussed previously, we incurred approximately $1.8 million of costs related to a specific distress supplier, which we expected to be relatively minimal in the fourth quarter.

Control devices full year sales of $345 $3 million were approximately in line with 2022 generating operating income of $13 4 million or three 9% of sales for the full year, we estimate that the UAW strike in distress supplier costs impacted control devices operating margin by approximately 120 basis points.

In addition to relatively flat end market performance, we expect a continued ramp up of electric vehicle platforms. However, at a lower pace than previously expected, which will impact some of our recently launched actuation applications. As a result, we expect control devices sales to slightly decline this year relative to last year.

That said, we have identified several opportunities to reduce material costs through redesigns or supply chain strategies to help improve gross margin going forward and offset this slight decline in sales.

The modest decline in sales that we expect for control devices. In 2024, we are expecting a stable margin profile.

As discussed on previous calls we remain focused on drivetrain agnostic technologies to drive New business awards as the market evolves. We continue to focus on operational excellence and enterprise wide cost reduction, including material cost reduction plans to drive margin improvement going forward.

Okay.

Page 15 summarizes our key financial metrics specific to electronics electronics fourth quarter sales increased by $4 4 million or three 1% compared to the third quarter full year sales of $593 6 million increased by approximately 25% compared to the prior year.

Matthew R. Horvath: We expected these costs to moderate with improvement in the situation. However, unfortunately, we continue to incur incremental costs relative to the third quarter to provide additional support to the supplier. Although we are still incurring some costs related to the situation, the costs are moderating as we navigate the first half of this year. We will pursue routes to recover these additional costs. However, our priority remains preventing end customer disruption. The after-tax net impact of foreign currency versus prior expectations resulted in approximately three cents of net benefit in the quarter.

Sales growth was driven primarily by higher customer production volumes. The mirror launch with Kenworth in North America, the smart to tachograph launch in Europe, and the continued growth of our existing nearby OEM program in Europe.

We expect continued strong sales growth in 2024, driven by mirror launches with Peterbilt and volatile in Europe, both mid year as Jim discussed earlier on the call.

Similarly, we expect significant growth related to the smart to tachograph as regulatory requirements force adoption, both in OEM applications as well as in the retrofit market.

Matthew R. Horvath: The below-the-line favorable impact of foreign currency more than offset the unfavorable FX impact on operating income of approximately $900,000 recognized during the quarter. We remain focused on operational execution and controlling the variables within our control to drive performance. We will continue to respond to externalities as necessary to insulate the company from macroeconomic headwinds and drive overall performance. Page 14 summarizes our key financial metrics specific to control devices. Control Devices' fourth quarter sales declined by approximately $15 million versus the third quarter due to the UAW strike, as well as the slower rate of penetration for electric vehicles.

Fourth quarter adjusted operating margin of seven 5% expanded by 130 basis points compared to the third quarter, primarily due to lower engineering costs due to the timing of customer reimbursements. This was partially offset by elevated warranty and inventory related costs incurred on higher than normal inventory balances.

Full year operating margin expanded by approximately 400 basis points compared to the prior year, primarily due to contribution on incremental revenue stabilization in the supply chain and material cost improvements, including the impact of incremental pricing. This was partially offset by incremental engineering costs related to the launch of new programs.

We are proud of the progress we made this year in electronics led by our strong sales growth and cost improvement actions looking forward. We expect continued margin expansion as we focus on improving our manufacturing performance and focus on quality driven processes and efficient execution of new program launches as well as the continued ramp up of our existing programs electric.

Matthew R. Horvath: Fourth quarter operating operating margin of 1.2% declined by 500 basis points compared to the third quarter, primarily due to reduced fixed cost leverage on decremental sales and incremental costs recognized in the fourth quarter related to the distressed spire I outlined previously. In total, we estimate that the UAW strike and distressed supplier costs impacted control devices operating margin by approximately $3.6 million, or 440 basis points in the fourth quarter. Excluding the impact of these headwinds, adjusted operating margin was relatively in line with prior quarters despite significantly lower sales. Control Devices full-year sales of $345.3 million were approximately in line with 2022, generating operating income of $13.4 million, or 3.9% of sales. For the full year, we estimate that the UAW strike and distress supplier cost impacted control devices' operating margin by approximately 120 basis points. In addition to relatively flat and market performance, we expect a continued ramp-up of electric vehicle platforms, however, at a lower pace than previously expected, which will impact some of our recently launched actuation applications. As a result, we expect control devices sales to slightly decline this year relative to last year.

The electronics remains well positioned to take advantage of significant future growth and margin expansion as a result of our strong product portfolio, a substantial and growing backlog of awarded programs continued improvement in material cost and cost structure organizational optimization.

Page 16 summarizes our key financial metrics specific to Stoneridge, Brazil, Stoneridge, Brazil full year sales total approximately $57 2 million, an increase of $4 9 million or nine 5% relative to the prior year.

Full year adjusted operating income increased by approximately 190 basis points relative to the prior year, primarily driven by lower material costs and fixed cost leverage on incremental sales, resulting in adjusted operating margin of 7%.

We expect stable revenue and operating margin in 2024, as we continue to shift our portfolio in Brazil to more closely align with our global growth initiatives and further expand our local OEM programs to support our global customers, Brazil has become a critical engineering center as we continue to expand our global engineering capabilities and capacity, we will continue to utilize.

Our global footprint to cost effectively support our global business.

Turning to page 17, net debt to trailing 12 month EBITDA as calculated for compliance purposes remained relatively flat quarter to quarter, resulting in a leverage ratio of approximately three one times.

With supply chain, mostly normalized we are focused on improving cash performance and reducing that debt through targeted actions to reduce net working capital and more specifically our inventory balance over the course of the last couple of years, we have procured materials when available during supply chain shortages and committed to future material purchases to ensure material availability forward.

Matthew R. Horvath: That said, we have identified several opportunities to reduce material costs through redesigns or supply chain strategies to help improve gross margin going forward and offset this slight decline in sales. Nevertheless, despite the modest decline in sales that we expect for control devices in 2024, we are expecting a stable margin profile. As discussed on previous calls, we remain focused on driving training agnostic technologies to drive new business awards as the market evolves. We continue to focus on operational excellence and enterprise-wide cost reduction, including material cost reduction plans to drive margin improvement going forward. Page 15 summarizes our key financial metrics specific to electronics. Electronics fourth quarter sales increased by $4.4 million, or 3.1%, compared to the third quarter; full year sales of $593.6 million increased by approximately 25% compared to the prior year.

Our response to those supply chain challenges along with planned inventory build to support significant growth in new program launches has resulted in an inventory balance of that is higher than our historical average we.

We are focused on improving our inventory turns this year to more closely aligned with our historical averages going forward, we see additional opportunities to streamline our operations evolve our supply chain strategies and continue to design products to enable efficient material procurement and production to drive inventory turns even higher we are focused on reducing net working cap.

To improve cash performance reduce net debt and related interest expense.

Based on our 2020 for guidance and net working capital initiatives, we expect our compliance leverage ratio of less than 275 times at the end of the first quarter of this year and between two and two five times by the end of the year.

We are focused on maximizing cash performance to drive value to shareholders.

Turning to slide 18, we are establishing guidance for our 2024 financial performance.

We are guiding 2020 for revenue to a midpoint of $1 billion on.

An increase of approximately 4% versus 2023.

This revenue growth is expected to significantly outperform our weighted average OEM end markets, which are expected to decline by approximately 5%, resulting in nine percentage points of market outperformance.

Matthew R. Horvath: Sales growth was driven primarily by higher customer production volumes, the Mirai launch with Kenworth in North America, the Smart2TAC graph launch in Europe, and the continued growth of our existing Mirai OEM program in Europe. We expect continued strong sales growth in 2024, driven by Mirai launches with Peterbilt and Volvo in Europe, both mid-year, as Jim discussed earlier on the call. Similarly, we expect significant growth related to the SMART2 tachograph as regulatory requirements force adoption both in OEM applications as well as in the retrofit world. Fourth quarter adjusted operating margin of 7.5% expanded by 130 basis points compared to the third quarter, primarily due to lower engineering costs due to the timing of customer reimbursement. This was partially offset by elevated warranty and inventory-related costs incurred due to higher-than-normal inventory balances.

We expect strong contribution margins on our growth and the ability to take advantage of our existing cost structure to drive operating leverage as we grow.

We are guiding gross margin to a midpoint of 22, 4% operating margin to a midpoint of 3% and EBITDA to a midpoint of $67 million or six 7% of sales.

Our mid point guidance implies EBITDA margin expansion of 170 basis points and approximately $19 million relative to 2023 based thereon and considering an expected tax rate of approximately 33%, we're guiding to a midpoint of 35 of EPS for the full year.

Turning to slide 19, we expect strong growth in 2024, driving midpoint revenue guidance to $1 billion.

<unk> continues to be a major growth driver as Jim discussed earlier on the call. We expect $100 million of mirror revenue in 2024, an increase of $46 million versus the prior year or almost double the total sales due.

Due to the incremental launches on Peterbilt in North America, and Volvo in Europe, both mid year, we expect incremental <unk> revenue to accelerate in the second half of the year.

Matthew R. Horvath: Full year operating margin expanded by approximately 400 basis points compared to the prior year, primarily due to contribution from incremental revenue, stabilization in the supply chain, and material cost improvements, including the impact of incremental pricing. This was partially offset by incremental engineering costs related to the launch of new programs. We are proud of the progress we made this year in electronics, led by our strong sales growth and cost improvement actions. Looking forward, we expect continued margin expansion as we focus on improving our manufacturing performance and focus on quality-driven processes and efficient execution of new program launches, as well as the continued ramp-up of our existing programs. Electronics remains well-positioned to take advantage of significant future growth and margin expansion as a result of a strong product portfolio, a substantial and growing backlog of awarded programs, continued improvement in material costs, and cost structure and organizational optimism. Page 16 summarizes our key financial metrics specific to Stoneridge Brazil. Stoneridge Brazil's full-year sales totaled approximately $57.2 million, an increase of $4.9 million, or 9.5% relative to the prior year.

Another specific growth driver in 2024, as the expected ramp up of our smart <unk> graph programs that launched in the third quarter of last year.

This next generation smart tack graph will be required to be on vehicles across weights and usage applications over the next several years with the current market primarily served by Stoneridge and only one other competitor. This will drive both OEM growth as well as aftermarket opportunities as existing vehicles are also subject to the regulations.

As a result, we expect <unk> to contribute $30 million of incremental revenue in 2024.

<unk> said, we expect the adoption of this next generation device to ramp up in the second half of the year as the adoption deadlines approach.

Other factors contributing to our growth in 2024 include the continued growth in our off highway vision systems with our lack of branded products and OEM programs launching in Brazil, as we continue to expand our OEM product offerings in South America.

Due to the second half weighting from Euro and the tachograph ramp up as well as improved production forecast in the second half of the year, we are expecting revenue to be more back half weighted than usual overall, we expect a first half second half revenue split of approximately 48% to 52% with a slight ramp up between the first and second quarter relatively larger growth between the second and.

Third quarter aligned with our key program launches and another gradual ramp up into the fourth quarter.

We continue to significantly outperform or outpace our underlying end markets, creating a runway for sustainable long term growth.

Page 20 summarizes our expectations for full year EBITDA relative to 2023 and 2024, we are expecting EBITDA growth of approximately $19 million and EBITDA margin expansion of approximately 170 basis points. We are expecting contribution margins aligned with our historical average of 25% to 30% on approximately $38 million of <unk>.

Matthew R. Horvath: Full-year adjusted operating income increased by approximately 190 basis points relative to the prior year, primarily driven by lower material costs and fixed cost leverage on incremental sales, resulting in an adjusted operating margin of 7%. We expect stable revenue and operating margin in 2024 as we continue to shift our portfolio in Brazil to more closely align with our global growth initiatives and further expand our local OEM programs to support our global customers. Brazil has become a critical engineering center as we continue to expand our global engineering capabilities and capacity.

Revenue growth, resulting in over $10 million and EBITDA growth.

We are expecting gross margin expansion driven by material cost improvement and enterprise wide initiatives aimed at improving manufacturing performance, including the reduction of quality related costs.

More specifically, we continue to focus on improving the price cost relationship of our products through redesign reengineering and other supply chain strategies aimed at reducing overall material costs. We are expecting a moderate increase in SG&A, primarily driven by annual inflationary labor increases and the normalization of our annual incentive cost programs back to targeted levels in.

2024 after they were reduced in 2023, we expect to continue to invest in the engineering resources that will drive our growth and expect to offset these investments with continued footprint optimization, resulting in approximately flat <unk> expenses year over year.

Matthew R. Horvath: We will continue to utilize our global footprint to cost-effectively support our global business. Turning to page 17, net debt to trailing 12 month EBITDA, as calculated for compliance purposes, remained relatively flat quarter to quarter, resulting in a leverage ratio of approximately 3.1 times. With supply chains mostly normalized, we are focused on improving cash performance and reducing that debt through targeted actions to reduce networking capital and, more specifically, our inventory. Over the course of the last couple of years, we have procured materials when available during supply chain shortages and committed to future material purchases to ensure material availability in the future. Our response to those supply chain challenges, along with planned inventory levels to support significant growth and new program launches, has resulted in an inventory balance that is higher than our historical average.

Aligned with our revenue cadence for the year, we expect EBITDA to be more back half weighted we expect first quarter EBITDA slightly declined relative to the fourth quarter of 2023, primarily due to the <unk> of our targeted incentive compensation programs and timing of engineering reimbursements compounded by slightly lower production in our commercial vehicle end markets.

This will result in slightly below breakeven first quarter EPS, we expect gross margin improvement in the first quarter to continue into the second quarter. However, we are expecting some incremental engineering spend in the second quarter to ensure an efficient launch of our next two OEM mirror programs.

As our next mirror programs launch smart to tachograph adoption accelerates and production increases aligned with current third party forecast, we expect a significant improvement in EBITDA from the second to third quarter and continued improvement into the fourth quarter.

We will continue to leverage our above market topline growth targeted gross margin improvements and an efficient operating cost structure to drive earnings growth.

Matthew R. Horvath: We are focused on improving our inventory turns this year to more closely align with our historical average. Going forward, we see additional opportunities to streamline our operations, evolve our supply chain strategies, and continue to design products to enable efficient material procurement and production to drive inventory turns even higher. Additionally, we are focused on reducing net working capital to improve cash performance, reduce net debt, and related interest expense.

Moving to slide 21 in summary, we expect continued strong revenue growth in 2020 for continued focus on operational improvement and material cost reduction and continued optimization of our cost structure to drive earnings growth for the year.

Longer term stoneridge remains well positioned to significantly outpace our underlying markets with strong contribution margins and structural cost leverage driving a targeted five year revenue midpoint of 101 45 billion.

And midpoint EBITDA margin of 13%, resulting in a midpoint target of $190 million of EBITDA by 2028 as always driving shareholder value is at the forefront of all of stoneridge strategic initiatives with that I will open up the call to questions.

Matthew R. Horvath: Based on our 2024 guidance and networking capital initiatives, we expect a compliance leverage ratio of less than 2.75 times at the end of the first quarter of this year and between two and two and a half times by the end of the year. We are focused on maximizing cash performance to drive value to shareholders. Turning to slide 18, we are establishing guidance for our 2024 financial performance. [Inaudible] We expect strong contribution margins on our growth and the ability to take advantage of our existing cost structure to drive operating leverage as we grow. We are guiding gross margin to a midpoint of 22.4%, operating margin to a midpoint of 3%, and EBITDA to a midpoint of $67 million, or 6.7% of sales. Our midpoint guidance implies an EBITDA margin expansion of 170 basis points and approximately $19 million relative to 2023. Based on that, and considering an expected tax rate of approximately 33%, we are guiding to a midpoint of 35 cents of EPS for the full year.

Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment, while we compile our Q&A roster.

And our first question is going to come from the line of Justin long with Stephens. Your line is open. Please go ahead.

Thanks, and good morning.

Hey, Allison good morning, Justin.

Hey, good morning, So maybe to start by just taking a step back when I think about the 2020 for guidance. It implies that you'll be growing EBITDA in excess of 30% in an environment, where the weighted average end markets are down about 5%.

Can you just speak about your level of visibility and confidence.

You have in this 2020 for guidance and let's just say the end markets end up being worse than anticipated can you speak to your ability to adjust and flex the business for that.

Matthew R. Horvath: Turning to slide 19, we expect strong growth in 2024, driving midpoint revenue guidance to $1 billion. MirrorEye continues to be a major growth driver. As Jim discussed earlier on the call, we expect $100 million of MirrorEye revenue in 2024, an increase of $46 million versus the prior year, or almost double the total sales. Due to the incremental launches of Peterbilt in North America and Volvo in Europe, both mid-year, we expect incremental Mirai revenue to accelerate in the second half of... Another specific growth driver in 2024 is the expected ramp-up of our Smart2TactGraph programs that This next generation SmartTactGraph will be required to be on vehicles across weights and usage applications over the next several years, with the current market primarily served by Stoneridge and only one other competitor.

Yes, Justin really appreciate the question.

Our our guidance. This year is very much aligned with some very specific stoneridge drivers right. When you think about the launch of the <unk>.

Mirror programs in mid year. The continued adoption of smart to those things are really not market dependent on any significant improvement in production forecast, that's really a stoneridge specific product that will drive a lot of content for us in the back half of the year.

So I feel I feel very confident in our ability to to look at that as improvement for the back half and on the contribution margins that we get on that type of content you can expect pretty strong EBITDA growth as well to follow that.

In addition.

The aftermarket products generally have a higher margin than the overall business. So those those products in particular can drive.

Pretty significant earnings expansion as well so when you look at the volume side I feel pretty comfortable that we have enough stoneridge specific drivers that.

But we have a lot of momentum going into the back half of the year with those launches.

Matthew R. Horvath: This will drive both OEM growth as well as aftermarket opportunities, as existing vehicles are also subject to the regulations. As a result, we expect Smart2TechGraph to contribute $30 million of incremental revenue in 2024. That said, we expect the adoption of this next-generation device to ramp up in the second half of the year as the adoption deadlines approach. Other factors contributing to our growth in 2024 include the continued growth in our off-highway vision systems with Orlaco-branded products and OEM programs launching in Brazil as we continue to expand our OEM product offerings in South America. Due to the second half waiting for Mirai and the tachograph ramp-up, as well as improved production forecasts in the second half of the year, we are expecting revenue to be more back half-weighted than usual. Overall, we expect a first-half and second-half revenue split of approximately 48 to 52 percent, with a slight ramp-up between the first and second quarter, relatively larger growth between the second and third quarter aligned with our key program launches, and another gradual ramp-up into the fourth quarter.

And I'll, let Jim comment on this a little bit too, but when you look at the.

The operational performance and what we really have set as a foundation in 2023. The continued annualized <unk> of those initiatives should drive some pretty significant improvement both starting in the first quarter, but obviously as revenue ramps up it gets compounded in the second half. So I feel really good about the runway that we're on which drives improvement improvement in the first half.

And then follows a pretty significant revenue growth in the second half with that improvement. So I feel very confident in our ability to see the year and that kind of split.

Okay.

Okay great.

To follow up on your eyes to the guidance for the full year, the $100 million in revenue, but it sounds like that will ramp as we move into the second half. So is there anything you can share in terms of the annual run rate for mirror revenue as we exit 2024.

Yes so.

Youre going to see continued ramp in 2025 right. We've got we've announced the first of all the volatile program, we'll be launching in North America in 2025.

Matthew R. Horvath: We continue to significantly outpace our underlying end markets, creating a runway for sustainable long-term growth. Page 20 summarizes our expectations for full-year EBITDA relative to 2023. In 2024, we are expecting EBITDA growth of approximately $19 million and EBITDA margin expansion of approximately 170 basis points. Additionally, we are expecting contribution margins aligned with our historical average of 25-30% on approximately $38 million of revenue growth, resulting in over $10 million in EBITDA growth. We are expecting gross margin expansion driven by material cost improvement and enterprise-wide initiatives aimed at improving manufacturing performance, including the reduction of quality-related costs. More specifically, we continue to focus on improving the price-cost relationship of our products through redesign, re-engineering, and other supply chain strategies aimed at reducing overall material costs.

As well as by another program that we haven't given a tremendous amount of detail yet on specifically, but we've got two programs in 2025 Youll also get the annualized <unk> of the programs that we're launching mid year this year both.

In North America, and in Europe with Volvo.

So <unk> will continue to grow significantly.

20% to 25, just based on program launches annualize Asian, and Justin I would also argue that we.

We announced three additional fleets. This morning, the more of the system becomes available at the Oes the more of the fleet see the system. The more we expect adoption of the OA system and retrofit opportunities as these fleets kind of commit to full adoption over their fleet. So I think that youll get not only normal annual nation program launches.

So youll get some increase take rate and retrofit expansion as we continue to address that market, particularly in North America and Matt will also see some benefit from the platform technologies that really are spawned by the base nearby platform specifically.

Specifically things like like the rearview trailer camera and its connectivity into the mirror system, along with other technologies that will really grow from that or even more forward into the cockpit of the future that we mentioned this morning. So there is a lot of opportunity here for substance of growth beyond just the base platform or <unk> as well.

Matthew R. Horvath: We are expecting a moderate increase in SG&A, primarily driven by annual inflationary labor increases and the normalization of our annual incentive cost programs back to targeted levels in 2024 after they were reduced in 2023. We expect to continue to invest in the engineering resources that will drive our growth and expect to offset these investments with continued footprint optimization, resulting in approximately flat D&D expense year over year. Aligned with our revenue cadence for the year, we expect EBITDA to be more back half-weighted. We expect first quarter EBITDA to slightly decline relative to the fourth quarter of 2023, primarily due to the annualization of our targeted incentive compensation programs and timing of engineering reimbursements compounded by slightly lower production in our commercial vehicle line market. This will result in a slightly below breakeven first quarter EPS.

Okay. That's very helpful and I guess the last one from me would be on the balance sheet.

Specifically free cash flow I think you mentioned a couple of times in the prepared remarks that there was an opportunity with inventory levels and getting those back to historical averages, but can you help us kind of understand the order of magnitude in terms of the working capital opportunity in 2024 and <unk>.

What youre, assuming for free cash flow generation in the guide.

Yes, Jeff it's a great question, so really an area of focus for us as we come off some of these supply chain challenges of the last couple of years and things have started to normalize.

Matthew R. Horvath: We expect gross margin improvement in the first quarter to continue into the second quarter. However, we are expecting some incremental engineering spend in the second quarter to ensure an efficient launch of our next two OEM Mirai programs. As our next MIRI programs launch, SMART-II tachograph adoption accelerates, and production increases aligned with current third-party forecasts, we expect significant improvement in EBITDA from the second to third quarter and continued improvement into the fourth quarter. We will continue to leverage our above-market top-line growth, targeted gross margin improvements, and an efficient operating cost structure to drive earnings growth. Moving to slide 21.

Our inventory balances and turns are relatively worse than what they've been historically some part of that is planned obviously to support the tremendous amount of growth that we expect this year and going forward.

The normalization of supply chain will help us burn down some of that inventory and generate cash out of working capital. That's currently on the balance sheet. So.

Right now we're five turns or so we can expect that to improve by a turn or two in.

In a relatively shorter term as we burn down existing inventory.

That should generate $20 million to $30 million of cash.

We also expect because earnings are growing that we're pretty cash efficient.

And we should generate cash on a normal base business. So if you look at the implied guidance for the end of the year. It does obviously include some expectations for cash generation.

Unknown Executive: In summary, we expect continued strong revenue growth in 2024, continued focus on operational improvement and material cost reduction, and continued optimization of our cost structure to drive earnings growth for the year. Longer term, Stoneridge remains well positioned to significantly outpace its underlying markets with strong contribution margins and structural cost leverage, driving a targeted five-year revenue midpoint of $101.45 billion and a midpoint EBITDA margin of 13%, resulting in a midpoint target of $190 million of EBITDA by 2028. As always, driving shareholder value is at the forefront of all of Stoneridge's strategic initiatives. With that, I will open up the call to questions, and you, as a reminder, are welcome to ask a question. Press 11 on your telephone and wait for your name to be called. To withdraw your question, please press star 1.

Please remain on the line your conference will resume shortly again, ladies and gentlemen, please stand.

Your line your conference will resume shortly.

And speakers ICU.

MS Reconnected you guys can continue.

Sorry, I think we may need to make sure we know where we were adjusting to justin's question complete.

Or was it was it was a cut during his question.

Hi, Jim Matt. This is Jeff and can you hear me Okay. Yes, John we can hear you can you hear US okay, great I can hear you.

I think I heard your 20% to $30 million.

Cash generation opportunity from inventory and then cut off shortly thereafter.

Yes.

And sorry for the technical difficulty there we our inventory has.

Unknown Executive: One moment while we compile our Q&A roster. And our first question is going to come from the line of Justin Long with Stevens. Your line is open. Please go ahead.

It is really built as we prepare for some of the growth, particularly in electronics as we look at some of the components that have long lead time. There. So if we think about a return to historical inventory averages or we should even have improvement on that going forward. There is a couple of turns opportunity here some of that will be shorter term as we addressable some more specific issues of burn down inventory in particular.

Justin Trennon Long: Thanks and good morning. Hey Justin, Hey, good morning Justin. Hey, good morning.

Matthew R. Horvath: So maybe to start by just taking a step back, when I think about the 2024 guidance, it implies that you'll be growing EBITDA in excess of 30% in an environment where the weighted average in markets is down about 5%. So can you just speak about the level of visibility and confidence that you have in this 2024 guidance? And let's just say the end markets end up being worse than anticipated. Can you speak to your ability to adjust and flex the business to accommodate that? Yeah, Justin. I really appreciate the question.

Italy with the launch of these programs, but some of that will take some time as we burn down existing balances. So.

We should expect a turn or two of inventory improvement going forward at least which should generate like I said about $20 million to $30 million of working capital benefit and then like we said, we're pretty capital efficient so.

The earnings expansion will also drive drive cash performance. So if you look at our EBITDA guidance and net debt levels, we do imply some cash generation and the ability to reduce that leverage profile by the end of the year.

Okay, Great. That's all I had thank you so much for the time, thanks, Jonathan Thanks Joseph.

Thank you and one moment as we move on to our next question.

And our next question is going to come from the line of Gary <unk> with Barrington Research. Your line is open. Please go ahead.

Matthew R. Horvath: You know, our guidance this year is very much aligned with some very specific Stoneridge drivers, right? When you think about the launch of the Mirai programs in mid-year, the continued adoption of Smart2, those things are really not market dependent on, you know, any significant improvement in production forecast. That's really a Stoneridge-specific product that will drive, you know, a lot of content for us in the back half of the year.

Hi, good morning, all.

We are hearing.

My question is really revolve around bureau is it starting to ramp up.

You're going from I think 54 million of sales to $100 million of sales this year.

As the sales ramp up how much.

Margin.

Matthew R. Horvath: So, you know, I feel very confident in our ability to look at that as improvement for the back half. And on the contribution margins that we get on that type of content, you know, you can expect pretty strong EBITDA growth as well to follow that. In addition, you know, the aftermarket products generally have a higher margin than the overall business.

Incremental margin increase do you get on that product overall or is it still at a point, where because you're winning new programs.

Youre not getting expansion on the margin in terms of.

On the new sales growth coming in no a great question Gary I appreciate the question.

Matthew R. Horvath: So those products in particular can drive, you know, some pretty significant earnings expansion as well. So when you look at the volume side, I feel pretty comfortable that we have enough Stoneridge drivers that we have a lot of momentum going into the back half of the year with those launches. You know, and I'll let Jim comment on this a little bit too, but when you look at the operational performance and what we really have set as a foundation in 2023, the continued annualization of those initiatives should drive some pretty significant improvement, both starting in the first quarter, but obviously, as revenue ramps up, it gets compounded in the second half. So I feel really good about the runway that we're on, which drives improvement, you know So I feel very confident in our ability to see the year and that kind of split. Okay, great. And maybe we will follow up on MirrorEye.

Okay.

Amir I had as we've talked about for several years mirror had a pretty significant investment to ramp up for some of the new technology in development of these programs and you saw that in the increased <unk> over the last several years.

Going forward, we have we have always said that mirror eye at quoted take rates is basically at.

Our corporate average contribution margins.

The benefit there is as the take rates increase leverages really well on fixed cost right. So take rate it take rates were to significantly improve versus where they are today you can expect an accretive margin profile on that growth, particularly on the OEM side.

Retrofit just by the nature of the programs aftermarket margins are generally higher.

Just premier I, but generally across our business.

Matthew R. Horvath: So the guidance for the full year is 100 million in revenue, but it sounds like that will ramp as we move into the second half. So is there anything you can share in terms of the annual run rate for MirrorEye revenue as we exit 2024? Yeah, so there's, you know, you're going to see continued growth in 2025. Right, we've got, we've announced the first of all, the Volvo program will be launching in North America in 2025. You know, I, as well as another program that we haven't given a tremendous amount of detail yet on specifically, but we've got two programs in 2025. You'll also get the annualization of the programs that we are launching midyear this year, both in North America and in Europe with Volvo. So Murai will continue to grow significantly, 24 to 25, just based on program launches and annualization.

So you can expect some some accretive margin on those programs as well, although the yields are a little bit less volume as we've talked about so.

So given where you are where you will be this year with $100 million of sales would that be at.

The average margins that you guys are describing.

Or forecasting for 'twenty.

I think Thats fair Thats roughly right out areas.

Okay and then.

Couple of other questions here.

Number one.

On the control devices side, which is more auto related.

Has the situation where during the pandemic. The OEM order patterns were very erratic stuff like that has all of this really normalized.

Within the system given the fact that we've had a year or two are good.

Matthew R. Horvath: And Justin, I would also argue that, you know, we announced three additional fleets this morning; the more the system becomes available at the OEs, the more the fleets see the system, the more we expect adoption of the OEs system and retrofit opportunities as these fleets kind of commit to, you know, full adoption across their fleet. So I think that you'll get not only normal annualization and program launches, but you'll get some increased take rates and retrofit expansion as we continue to address that market, particularly in North America. And Matt will also see some benefit from the platform technologies that are really spawned by the base Mirai platform. You know, specifically things like the rearview trailer camera and its connectivity to the Mirai system, along with other technologies that will really grow from that or even more forward into the cockpit of the future that we mentioned this morning. So there's a lot of opportunity here for substantive growth beyond just the base platform of Mirai. Okay, that's very helpful.

Growth in auto production.

Generally yes.

Chaos in the ordering has stopped but what has instead come in a bit Gerry is that.

With the <unk>.

I'll say the weaker than expected growth in electric vehicle platforms.

I'm sure reading a lot about Oems.

Considering how theyre going to go forward with with various types of Drivetrains certain Oes has suggested that they were going to be electric only going forward and many of those folks have reverse that so now we're going to go back to some hybrids and we may even be investing a bit in some of our existing internal combustion engine technologies given the law.

<unk> heard that this these technologies will last a little bit longer. So so we're seeing a little bit of a change in terms of what's being requested of us in terms of uptick in terms of what their quota.

We're well placed for that just by the nature of the fact that we've been very careful about how we're focusing on technologies, making sure that the great majority is drivetrain agnostic. So they are from a technology perspective, it can be applied to electrics to hybrids origin of internal combustion engines, depending on the particular application.

Matthew R. Horvath: And I guess the last one for me would be on the balance sheet and specifically free cash flow. I think you mentioned a couple times in the prepared remarks that there was an opportunity with inventory levels and getting those back to historical averages. But can you help us kind of understand the order of magnitude in terms of the working capital opportunity in 2024? And what are you assuming for free cash flow generation in the guide? Yeah, Justin. It's a great question.

Matthew R. Horvath: It's really an area of focus for us as we come off some of these supply chain challenges in the last couple of years, and things have started to normalize. You know, our inventory balances and turns are relatively worse than what they've been historically. Some part of that is planned, obviously, to support the tremendous amount of growth that we expect this year and going forward. But the normalization of the supply chain will help us burn down some of that inventory and generate cash out of the working capital that's currently on the balance sheet.

But yeah, that's what I'm trying to I'm trying to understand if youre drivetrain agnostic, obviously evs are bringing all the rosy projections are you can throw them out so that baby out with the bathwater, So youre going to get a shift.

Maybe to more hybrids in.

Growth in ice.

Does it require you to to.

To win the business on some of these other programs or do you just shift what youre doing for the various automakers to their plans for more hybrids versus electrics more ice versus where they thought they'd be.

Matthew R. Horvath: So, you know, right now, we're five turns or so, and we can expect that to improve by a turn or two, in a relatively shorter term, as we burn down existing inventory, which should generate, you know, 20 to $30 million of cash. We also expect, because earnings are growing, that we're pretty cash efficient. And we should generate cash out of normal base business. So if you look at the implied guidance for the end of the year, it does obviously include some expectations for cash generation. Again, resume. Speakers, I see you guys have reconnected. Sorry, I think we may need to, I'm not sure we know where we were. Justin, did Justin's question get answered, or was he, was it, was it cut during? Hi Jim, Matt, this is Justin. Can you hear me?

I think in some cases, there will be a need to window businesses, but I think more often than not it will be extension of current business. We have in the IC space.

There'll be extended for a longer period of time the types of technologies are working with today and there might be some continued continuous improvement on those technologies or products, but there'll be for the most part extensions.

Okay. Thank you.

Thank you and I would now like to hand, the conference back to Jim <unk> for closing remarks.

Yes.

Well, thanks, everyone for joining us for the call today I know your time is really important and we do appreciate your willingness to engage us today.

Justin Trennon Long: Okay. Yeah, we can hear you. Can you hear us? Okay, great. I can hear you, Matt.

We're very proud of our performance in 2023 is consistent with the commitments we made at the start of the year.

Matthew R. Horvath: I think I heard your 20 to 30 million kind of cash generation opportunity from inventory, and then it cut off shortly thereafter. So I can let you finish that up. Yeah, and sorry for the technical difficulty there.

We will continue to deliver on our commitments by focusing on our long term strategy, our 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. Thanks again, everyone.

Matthew R. Horvath: We are, you know, inventory has really built as we prepare for some of the growth, particularly electronics, as we look at some of the components that have long lead times there. So if we think about a return to historical inventory averages, and if you look at our EBITDA guidance and net debt levels, you know, we do imply some cash generation and the ability to reduce that leverage profile by the end. Okay, great. That's all I had. Thank you so much for your time.

This concludes today's conference call. Thank you for participating you may now disconnect.

[music].

Justin Trennon Long: Thanks, Justin. Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Gary Prestopino with Barrington Research. Your line is open.

Gary Frank Prestopino: Hi, good morning, all. My questions really revolve around your ramp-up. You know, you're going from, I think, $54 million in sales to $100 million in sales this year. Um, as the sales ramp up, how much incremental margin increase do you get on that product overall? Or is it still at a point where you're winning new programs? that you're not getting expansion on the margin in terms of, you know, the new sales growth coming in. Great question, Gary.

Yes.

[music].

Matthew R. Horvath: I appreciate the question. You know, Mirai has, as we've talked about for several years, Mirai has had a pretty significant investment to ramp up for some of the new technology and development of these programs, and you saw that in the increased D&D over the last several years.

Matthew R. Horvath: Going forward, we have always said that Mirai at, you know, quoted take rates is basically at, you know, corporate average contribution. The benefit there is that as the take rates increase, it leverages really well on fixed costs, right? So you know, if take rates were to significantly improve versus where they are today, you can expect an accretive margin profile on that growth, particularly on the OEMs. Retrofit, you know, just by the nature of the programs, aftermarket margins are generally higher, not just Premier Eye but generally across our business.

Yes.

Sure.

Yes.

[music].

Matthew R. Horvath: So you can expect some accretive margin on those, although those are a little bit less volume. So, given where you are, where you will be this year with 100 million sales, would that be at, you know, the average margins that you guys are describing or forecasting for 2020? Yeah, I think that's fair. It's roughly right.

Matthew R. Horvath: Okay, and then there are a couple of other questions here. Number one, on the control devices side, which is, you know, more auto related, there was the situation where, you know, during the pandemic, the OEM order patterns were very erratic, stuff like that. Has all of this really normalized within the system, given the fact that we've had a year or two of good growth in auto production? Generally, yes, the chaos in the ordering.

Gary Frank Prestopino: But what has instead come in a bit, Gary, is that they're seeing weaker than expected growth in electric vehicle platforms, and are reading a lot about OEMs, you know, reconsidering how they're going to go forward with various types. So we're seeing a little bit of a change in terms of what's being requested of us. Transcribed by https://otter.ai. Well, yeah, that's what I'm trying to understand if you're drivetrain agnostic, obviously, EVs are, you know, all the rosy projections are, you can throw them out, throw that baby out with the bathwater. So you're going to get a shift more, maybe two more hybrids, you know, growth and ice. Does it require you?

James Zizelman: to win the business on some of these other programs, or do you just shift what you're doing for the various automakers to their plans for more hybrids versus electrics, more ICE versus where they thought they'd be? I think in some cases, there will be a need to win the businesses, but I think more often than not, it will be an extension of the current business we have in the ice. So they'll be extending for a longer period of time the types of technologies they're working on; there might be some continuous improvement on those technologies or products, but they'll be, for the most part, Okay, thank you, you and I would now. Well, thanks everyone for joining us on the call today. You know, I know your time is really important, and we do appreciate your willingness to engage us today.

James Zizelman: You know, we are very proud of our performance in, consistent with the commitments we made at the start of the year. We will continue to deliver on our commitments by focusing on our long-term strategy. Broad Operational Improvements and Excellence. We expect that our performance, along with our unique mix of industry-changing product platforms, will continue to drive strong shareholders. This concludes today's conference call. Page 1, Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music, © The Ultimate Parody Site!