Q3 2024 Stoneridge Inc Earnings Call

Good day and welcome to the Stone Ridge Inc. 3rd Courter, 2024 Results Conference Call.

Speaker Change: All participants will be in listen-only mode. Should you need assistance? Please signal a conference specialist by pressing the star key you followed by zero. After today's presentation, there will be an opportunity to ask questions.

Speaker Change: To ask a question you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Kelly Harvey, director of Investor Relations. Please go ahead.

Kelly Harvey: Good morning everyone and thank you for joining us to discuss our third court of 2024 results. The release in a Cooprider presentation was filed with the SEC and it's posted on our website at stonerich.com in the Investors section under presentations and events.

Kelly Harvey: Joining me on today's call, our Jim Zizelman, our President and Chief Executive Officer and Matt Horvath, our Chief Financial Officer.

Kelly Harvey: Before we begin, I need to inform you that certain statements today may be forward looking statements. For looking statements, include statements that are not historical in nature, and include information concerning our future results or plans.

Kelly Harvey: Although we believe that such statements are based upon reasonable assumptions, you should understand that these statements are subject to risk and uncertainties, and actual results may differ materially.

Kelly Harvey: Additional information about such factors and uncertainties that could cause actual results to differ. Maybe found in our 10Q, which was filed yesterday with the Securities and Exchange Commission under the heading forward-looking statement.

Kelly Harvey: 3 Today's call, we will also be referring to certain non-gap financial measures. Please see slide 3 for a more detailed description of these non-gap measures and the appendix for reconciliation of these non-gap measures to the most directly comparable gap measures.

Speaker Change: After Jim and Matt have finished their formal remarks, we will open up the call to question. And with that, I will hand the call over to Jim.

Jim Zizelman: Thank you, Kelly, and good morning, everyone. Beginning on page four, during the third quarter, we continue driving improvements in the fundamentals of our business.

Jim Zizelman: Our focus on operational efficiency resulted in reduced quality related costs while reductions to operating expenses help to offset some of the significant market related challenges we faced.

Jim Zizelman: We continue to focus on our key initiatives to drive cash performance as well.

Jim Zizelman: As a result, during the first nine months of the year, we generated $13.3 million in cash.

Jim Zizelman: and improvement of $31.3 million versus the same period in 2020-3, primarily driven by improved working capital, including an $11.3 million reduction in inventory.

Jim Zizelman: That will provide additional detail regarding our quarterly financial performance and expectations for the remainder of the year later in the call.

Jim Zizelman: We remain focused on our key growth initiatives, including new business awards and the flawless execution of the program launches at Woodrive Strong Growth going forward.

Jim Zizelman: We continue to bring strong momentum with Mirai in both our OEM and Fleet channels as the system continues to roll out in Europe and North America.

Jim Zizelman: Earlier this week, we announced that our next Mirrioium program will be launching with Diomolute Truck North America on their new fifth generation Freight Lanark S. Gadya truck, which began series production in mid 2025.

Jim Zizelman: DTNA has always been supportive of Mirai, offering the first pre-wire option for the trucks in production.

Jim Zizelman: Now they continue to build on that momentum by offering an independent wing design to their customers, including advanced technology features so they can fully take advantage of the driver visibility and vehicle efficiency benefits of the system.

Speaker Change: Another launch is coming as expected, one of our global OEM customers has announced they will be launching the new year I have yet another European brand.

Speaker Change: This launch signifies another milestone in their global MIRI program and will now be offered a standard equipment on several of their truck platforms, as well as an option on several others, beginning in the fourth quarter of this year.

Speaker Change: Similarly, our existing European OEM customers, Doth and Volvo, have now made their respective camera monitor system standard on several heavy duty truck platforms.

Speaker Change: Mirribe coming standard on several customer models underscores the overwhelmingly positive response from the market, resulting in significant customer demand, and an opportunity to outperform the volumes assumed at Pro-Ram Award.

Speaker Change: Similarly, we also continue to expand our retrofit applications with new partnerships with DB Shanker North America and VDL bus and coach in Europe. Both of these partnerships demonstrate our ability to continue to drive broader marketing acceptance of the mirror.

Speaker Change: Our investment in the Mirri platform continues to drive year over year growth, strong take rate expectations, and continued momentum across all of our end markets and applications.

Speaker Change: Finally, during the quarter, control devices was awarded our first ever leak detection module program for an all new hybrid vehicle from a Chinese OEM customer.

Speaker Change: This strategic technology is situated for growth amid the global hybrid vehicle expansion, but it's applicable to traditional power train vehicles as well.

Speaker Change: I will discuss our mirror eye progress across all over and markets as well as this award and more detail later in the call.

Speaker Change: Page five summarizes our key financial metrics for the third quarter compared to the second quarter of the year.

Speaker Change: 3rd quarter sales of $213.8 million decreased by 9.8% compared to the second quarter, due in part to typical seasonality and production, but more significantly by the continued macroeconomic pressures in each of our primary end markets and geographies.

Speaker Change: The global auto industry remains under pressure as automakers continued to balance regional demand dynamics and inventory conditions. In addition, commercial vehicle manufacturers continue to face macroeconomic pressures in both North America and Europe.

Speaker Change: Marges declined in the third quarter compared to the second quarter, primarily due to reduced to fixed cost leverage on lower sales and unfavorable sales mix.

Speaker Change: This was partially offset by an improvement in variable overhead of 60 basis points versus a second quarter as a result of reduced quality related costs. And our continued focus on broad operational excellence.

Speaker Change: adjusted operating profit of $700,000 resulted in a just operating margin of 0.3%. Which was a decline of 200 basis points over this second quarter.

Speaker Change: This decline was primarily due to lower gross margin, partially offset by a $4.5 million whole reduction to operating expenses quarter to a line with current market conditions.

Speaker Change: Finally, third quarter adjusted EBITDA of $9.2 million drove an adjusted EBITDA margin of 4.3% a decline of 250 basis points versus the second quarter.

Speaker Change: and the addition to the operating drivers I just discussed, this decline was driven by the unfavorable quarter quarter impact of net non-operating expenses related to equity losses on FX of $2.6 million or approximately 110 basis points.

Speaker Change: Matt will provide further detail on our third quarter performance relative to our prior expectations later in the call.

Speaker Change: from the slide 6.

Speaker Change: We continue to develop innovative technologies that address current, market needs and expand our customer base to better defrosify our end market and geographic exposure.

Speaker Change: This morning, we are excited to announce a new award with a new technology in control devices. Primarily focused on the globally growing hybrid vehicle segment, which is applicable to traditional power trains as well.

Speaker Change: We had been awarded our first ever program for our new week Detection Module or LDM on an all new hybrid vehicle platform with the Chinese vehicle manufacturer with an anticipated start of production in the fourth quarter of 2025.

Speaker Change: This is one of several technologies being developed in control devices as we continue to expand the business utilizing our drivetrain agnostic approach.

Speaker Change: driven by the advent of more hybrid vehicles in the market and the need to address greater evaporative emissions challenges on traditional power train vehicles. The LDM is a new technology designed to enable leaf checks on emissions systems through the implementation of a vacuum pump.

Speaker Change: This unique systems-based solution combines our mission systems' desired expertise with our cancer-vents cellinoid technology to provide an integrated solution focused on improving a evaporative emission system performance.

Speaker Change: Although this First Award has a relatively small peak annual volume with the single platform and customer, there is a significant growing demand for this technology and it positions us for growth amid the global hybrid vehicle expansion.

Speaker Change: As such, it is expected to bring incremental opportunities for us as a global supplier with new OEMs and new vehicle platforms across multiple geographies.

Speaker Change: Control devices continues to focus on bringing system-based solutions and improved technologies to each of our and markets and customer applications.

Speaker Change: and we remain focused on dry-prane agnostic technologies to drive new business awards as the market continues to evolve. As the global hybrid vehicle market continues to expand, we are well positioned to take advantage of these opportunities.

Speaker Change: Furned this slide 7.

Speaker Change: Mirri continues to gain momentum in both the OEA market with new program launches and improved take-rate expectations and in the aftermarket with flea expansions and new bus applications.

Speaker Change: Earlier this week, we announced our next Mirriy program with DiMolar Truck North America on their new fifth generation freight liner test-gative truck, which begins series production in the middle of next year.

Speaker Change: This marks Stoleg's third North American OEM program featuring a factory installed camera-moderate system.

Speaker Change: We are extremely proud to collaborate with DTNA to introduce this cutting-edge system that drives significant advancement in driver visibility and vehicle efficiency. I'm one of the top performing and top selling class aid trucks in North America.

Speaker Change: The DTNA system features an independent camera wing design with a high mounting position that provides an extended field of view to spline front and side views through three high resolution in cab displays.

Speaker Change: has such a system falls under Stone Ridge's FMCSA exemption, allowing owners to remove conventional rear-view mirrors and operate using only the factory installed camera monitor system.

Speaker Change: This allows the end customer to fully recognize the benefits of the aerodynamic wing design that reduces drag by eliminating the traditional side mirrors contributing to improve fuel efficiency.

Speaker Change: The DTNA system also highlights our ability to integrate advanced features and aid-ass functionality through its side-view cameras that automatically adjust based on trailer position, identifies trailer length.

Speaker Change: and displays alerts which notify the driver when objects or pedestrians are detected. Based on initial feedback from the customer, we expect to take rates to exceed original expectations by the time it reaches peak production in 2026.

Speaker Change: Additionally, in my ride, we'll be launching on a European brand of a previously launched global OEM, with production beginning in the fourth quarter of this year.

Speaker Change: Starting with the 2025 model year, we are happy to announce the vision system will be standard equipment on certain models while remaining optional on others.

Speaker Change: The system helps support the brands' efforts to provide their customers with increased productivity while reducing their carbon footprint, including fuel savings of up to 3% compared to the previous models.

Speaker Change: As I mentioned earlier on the call, many of our existing customers have begun to equip their trucks with the camera monitor system as standard equipment.

Speaker Change: Recently, Doppenous, its vision system is now standard equipment on certain long-haul trucks. In addition, the vision system continues to be optional on most of their other class aid trucks.

Speaker Change: Our dot program continues to have strong stable take rates as our most mature OEM program.

Speaker Change: Given the change to standard equipment, as well as the continued positive feedback from staff and their end customers, we are expecting higher take rates for the system beginning in mid 2025.

Speaker Change: Similarly, Volvo's FH Arrow truck in Europe will also include the camera monitor system as standard equipment. Volvo continues to heavily mark the system focusing on the driver, ergonomics and safety benefits, as well as the positive environmental impact of the system through reduced emissions.

Speaker Change: Given the strength of customer feedback and the standardizing of the system on the FH Arrow truck, we expect customer take race to continue to improve. We also look forward to launching the technology on their North American platform, the all new VNL in the first half of next year.

Speaker Change: with so many models. Now offering mirror eye standard equipment, we are confident market adoption of this industry changing technology will continue to accelerate. We are extremely proud to be the market leader in commercial vehicle camera monitor systems throughout the world and expect continued market adoption of this new technology over time.

Speaker Change: Now, turning this slide eight.

Speaker Change: In addition to the continued momentum with our Mirri O.M. programs, we continue to expand with our fleet and bus customers in both Europe and North America.

Speaker Change: Earlier this month, we announced our fleet partnership with DB Shanker, a global leader in supply chain management logistics.

Speaker Change: DB Shanker was currently piloting 75 MIRI systems on its North American fleet. Assuming a successful pilot program, DB Shanker intends to expand the implementation of MIRI across its entire North American fleet.

Speaker Change: BB Schengers Investment Mirror Eye reflects their ongoing commitment to safety and sustainability and their fleet operations.

Speaker Change: Through approved aerodynamics and fuel savings, when traditional mirrors are removed from the vehicle, Mirri supports the company's comprehensive emissions reductions effort for CO2 savings across its land transportation business.

Speaker Change: We are excited to collaborate with DV Shanker on this program and support their commitment to improving driver's safety and reducing emissions.

Speaker Change: In the bus market, VDL bus encodes recently announced a large order from a key customer of over 150 new generation electric buses equipped with mirror eye to be delivered in the first half of 2025.

Speaker Change: A reava, a leading European passenger transport partner, focused on contributing to a more sustainable future, ordered the buses to be used in West Bravant Netherlands, where bus transportation is the main form of public transport.

Speaker Change: These Mirriac-equipped electric buses will be fully emissions-free. Aligned with the Revers Zero-Amission Ambitions will also provide significant safety benefits.

Speaker Change: Our fleet and bus partnerships continue to drive broader market acceptance of the Mirai technology, supporting our partners' safety, efficiency, and sustainability goals.

Speaker Change: That said, while we continue to expand our relationship with Fleet and Bus customers, recognize that many of these fleets are evaluating the technology of lower volumes prior to the availability as a factory installation.

Speaker Change: We expect this will increase the OEM volumes as evidence by several of our OEM customers making the system standard equipment. However, it naturally reduces the demand for the retrofit application.

Speaker Change: Our investment in the Mirri platform continues to drive year over your growth, strong take rate expectations, and continued momentum across our end markets and applications.

Speaker Change: 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.

Speaker Change: With that, I will turn it over to Matt for a more detailed update on our quarterly financial performance and our forward expectations. Matt, thanks Jim. Turning to page 10, sales in the third quarter were $213,000,000,000,000,000.

Avenue was significantly impacted by continued pressure across all of our major end markets, resulting in reduced customer production, as well as lower revenue in our off-highway end market, and despite continuing expansion with several fleets, reduced volumes related to mirror-eye after market products, as Jim discussed previously.

Speaker Change: We continue to drive improved performance throughout the business and as a result, variable overhead declined by 60 basis points in the third quarter relative to the second driven primarily by reduced quality related costs.

Speaker Change: We are focused on continuing to make progress on the variables that we can control, lacking efficiently and effectively to mitigate the external headwinds we continue to face.

Speaker Change: 3rd quarter, adjusted gross profit was $44.6 million or $20.9% of sales. Adjusted EBITDA was $9.2 million or $4.3% of sales.

Operating performance was driven by the unfavorable impact of lower sales, partially offset by continued cost control, particularly related to reduced operating expenses.

Speaker Change: As Jim Outland previously, operating expenses declined by $4.5 million quarter to quarter, as a result of continued focus on discretionary spend control, as well as reduce incentive compensation to align with current market conditions.

Speaker Change: Third quarter EBITDA was also impacted by net non-operating expenses of approximately $400,000. Primarily related to a non-cast reduction in the fair value of our investment in auto-tech ventures.

Speaker Change: Finally, we remain focused on inventory management to improve cash performance, which has resulted in an $11.3 million reduction to inventory in the first nine months of 2024. Despite lower-than-expected volumes, we continue to make good progress in inventory reduction.

As a result, overall cash performance has continued to improve significantly as we have generated $31.3 million more cash year to date than the same period last year. I will provide a more detailed update on our

Starting the page 11, our third quarter results were significantly impacted by similar macroeconomic factors as those impacting our peers across the transportation industry.

Speaker Change: As we discussed on our second quarter earnings call, we expected reduced revenue in the third quarter, relative to the second quarter due to its normal seasonality and production.

However, 34 revenue was significantly impacted by reduced customer production across all of our primary and markets, reductions in our off-highway and market and reduced mirror-eye after market volume relative to our prior expectations.

Our off-highway and mirror-high-after-market products are generally higher margin, and as a result, the EBITDA impact from reduced revenue in the quarter approximated the high end of our historical contribution margin range of 25 to 30%.

Faith Barron, reduced sales created an approximately $5 million event that had when during the quarter versus our prior expectations.

Speaker Change: Third quarter operating performance was also impacted by the unfavorable change in foreign currency rates and the non-cash non-operating impact of the reduced fat value of our investment in auto-tech ventures.

Speaker Change: Combined, this resulted in an unfavorable impact to EBITDA in the quarter of approximately $2.6 million versus previous expectations.

We continue to focus on improving the fundamental performance of the business. We are confident that these actions will drive earnings expansion as we continue to launch new programs and expand on our existing products and technologies.

Page 12 summarizes our key financial metrics specific to control devices.

Control devices, third quarter sales of $74.3 million, decreased by 8.1% versus a second quarter of this year. Primarily driven by continued pressure and reduced demand in the North American passenger car market, as well as lower sales in the commercial vehicle on market in China.

Speaker Change: Partially offsetting these declines were stronger failed in the China passenger vehicle and market.

Third quarter operating margin of 3.1% decreased by 150 basis points compared to the second quarter of 2024. Despite a 20 basis point reduction in material costs, primarily due to reduced cost leverage on decremental sales.

Speaker Change: As this got on previous earnings calls, we remain focused on dry-turning domestic technology to drive new business awards as the market continues to evolve.

This is highlighted by our recent new business award for the League Detection Module, which provides global opportunities primarily for hybrid vehicle applications a market that continues to grow as well as traditional power trains.

Speaker Change: We continue to focus on operational excellence and enterprise-wide cost reduction, including material cost reduction plans, to continue to drive margin improvement going forward.

Page 13 summarizes our key financial metrics specific to electronics.

Speaker Change: Electronics third quarter sales were $135.7 million. A decrease of approximately 12% versus the second quarter of the year.

This was primarily driven by continued macroeconomic pressures, driving lower sales volumes in the commercial vehicle and market in both Europe and North America as well as the off highway market. Revenue was also impacted as expected by the typical seasonality of Summer shutdowns in Europe.

Third quarter adjusted operating margin of 2.8% declined by approximately 480 basis points compared to the second quarter, primarily due to unfavorable sales mix and reduced fixed cost leverage as a result of lower sales.

We will continue to focus on discretionary cost control and improved operating efficiency, including reduced quality related costs, to drive margin performance as we continue to grow. Again, we continue to focus on the factors that we can control to offset the macroeconomic conditions impacting our industry.

During the Corps, we continue to make progress on our initiatives to improve our overall operating performance.

Electronics remains well positioned to take advantage of significant future growth and margin expansion, as a result of a strong product portfolio, a substantial backlog of awarded programs, continuing improvement in material and quality related costs and organizational optimization.

Page 14 summarizes our key financial metrics specific to Stonebridge Brazil.

Speaker Change: Stoner's Brazil's third quarter sales improved by approximately 15% versus the second quarter. This was primarily due to an increase in sales to local OEM customers as well as higher aftermarket sales. For an currency unfavorably impacted quarterly revenue by approximately $700,000.

Third quarter operating profit increase from break even performance in the second quarter to approximately $700,000.

For Encurrents, the unfavorably impacted operating profit in the quarter, but I approximately $400,000 or approximately $240 base is points.

We continue to shift our portfolio in Brazil to more closely aligned 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 align our global engineering capabilities and footprint.

We will continue to utilize our global footprint to cost effectively supports our global business.

Turning aside 15, we are updating our full year 2024 guidance to reflect current market conditions.

As discussed on our second quarter earnings call, our previous provided revenue guidance range considered potential volatility in our non-OE and customer-demand-based products, including our off-fi way and aftermarket products.

Speaker Change: Our current expectations assume that these products will be at the low end of our previously provided range or approximately $940 million prior to adjustment space on current market conditions.

Our updated revenue guidance is primarily driven by the continued production headwind in our primary end markets.

Similar to our peers, we continue to face production bym headwinds across all of our primary end markets.

Speaker Change: Overall, our weighted average end markets are expected to decline 3.6% for the full year relative to the expectations as of our previously provided guidance. This translates to an approximately $34 million reduction relative to our previously provided expectations.

Additionally, there is a potential for incremental reductions in our off-highway end market for the remainder of the year, as the headwind we experienced in the third quarter could persist into the fourth.

Similarly, although we continue to expand our relationships with our fleet and bus customers in both Europe and North America, the volume ramp up continues to be slower than expected.

Speaker Change: As Jim I'll line earlier, several of our fleet customers continue to evaluate the technology in anticipation of OEM availability, shifting our expectations from aftermarket retrofit products to OEM applications.

Overall, this year we are expecting approximately $65 to $70 million in Murari Revenue, which represents a 25% increase over 2023.

Although overall Mirri revenue is less than we expected at the beginning of the year, Mirri continues to expand and gain momentum forward with multiple new launches in the next 12 months. And the announcements that several of our key customers have now included Mirri as standard equipment on many of their key platforms.

We're also working with several large North American leads to expand mirror eye applications and evaluations. We continue to expect significant mirror eye growth in 2025.

As a result, we are expecting midpoint revenue of approximately $900 million for the full year.

As a relapse to our updated EBITDA expectations, the reduction in mirror eye after market applications and off-highway products overall will create an unfavorable mix impact for the full year.

As such, we are expecting detrimental contribution margins on our adjustment to revenue guidance to be at the high end of our historical range, or approximately 30% similar to the impact in the third quarter.

Speaker Change: Additionally, we are updating our EBITDA guidance to reflect the unfavorable third-quarter impact of operating effects and non-operating expenses that was not considered in our previous guidance.

We will continue to improve the fundamental performance of the business and are still expecting to be able to offset a portion of the overall revenue decline with improved operational performance.

Most importantly, we are continuing to build a foundation for strong incremental earnings and continue to improve and in cash performance as we grow next year and beyond. We will continue to drive strong financial performance to finish the year and provide a good runway heading into 2025.

Speaker Change: Turning to slide 16, during the first nine months of the year, we generated $13.3 million in cash driven by our continued focus on reducing that working capital, including an $11.3 million reduction in inventory.

compared to the same period in the prior year, overall cash performance improved by $31.3 million.

As mentioned earlier on the call, we will remain focused on inventory management to improve cash performance and reduce overall interest expense.

As permissible under the terms and conditions of our existing credit facility, we've elected to update our compliance calculation to add back certain accueless expenses and apply to cash payments when they occur as expenses for compliance purposes.

Speaker Change: The chart on slide 16 represents the compliance leverage ratio considering a similar change historically for comparison purposes. As a result, net debt to trailing 12 month EBITDA as calculated for compliance purposes was approximately 2.8 times.

Speaker Change: Similarly, despite reduced expectations for the remainder of the year, we expect to remain compliant with all of our credit facility covenants.

We will remain focused on maximizing cash performance to reduce interest expense, the level of the business, and drive value to shareholders. With that, I will turn it over to Jim for some closing remarks.

Thank you, Matt. During the page 17, in summary, we continue to focus on improving the fundamentals of our business despite the current macroeconomic conditions.

As a company, we remain focused on the right things, including flawless execution of our program launches, material costs improvement, continued cost control, and improved cash performance.

Our efforts were highlighted by our year-to-date cash performance improvement of $31.3 million, compared to the same period in 2023.

Speaker Change: All we expect continued challenges across our end markets for the remainder of the year and into 2025, we continue to focus on things we can control and respond efficiently and effectively to macroeconomic headwinds that are prevalent across our industry.

We are confident that our effort to fundamentally improve business performance and focus on key growth initiatives will drive long-term profitable growth for our shareholders.

During the quarter we made great strides in continuing the trajectory of our long-term growth profile. We are excited about our new award for the leaked detection module and our control devices segment.

This new technology aligns primarily with the globally growing hybrid vehicle segment and is applicable to traditional power trains as well. And it's one of several technologies being developed in-fledalizes as we continue to expand the business utilizing our dry-prane agnostic approach.

Speaker Change: Similarly, we continue to build momentum with Mirai in both our OEM and Fleet channels.

Our program with DiMla Truck, North America on their new fifth generation freight-linner test Katie at Truck, so we'll apply a strong custom demand for the system as DTA transitions from the prewire option on their existing trucks to affect reinstalled camera monitor system with advanced technology features including object detection.

Speaker Change: We also announced that Mirri will be launching a European brand of an existing global OEM with the system offered a standard equipment on several models.

Similarly, our other European OEM customers, Doth and Volvo, have now made their respective camera monitor systems standard on several key truck platforms.

As the global leader in commercial vehicle camera vision systems, we expect strong take rates as our global programs continue to launch and ramp up over the next several years.

Finally, we continue to expand our retrofit applications with new partnerships with DB Shankar and North America and VDL Buson Coach in Europe. Our fleet and bus partnerships continue to drive broader market acceptance of the mirror eye technology supporting our partner safety, efficiency and sustainability goals.

Our investment in Mirri platform continues to drive Euro-Beeer growth, strong take rate expectations, and continued momentum across our markets and applications.

Speaker Change: We will continue to invest in its technologies and adjacent product opportunities to optimize our position in this market and draft technology innovation and prove safety, efficiency and driver retention for our customers.

Speaker Change: Stoneridge remains well positioned to outpace our underlying in-market and drive significant earnings expansion going forward. As always, driving shareholder value is at the forefront of all of Stoneridge's strategic initiatives. With that, I'll open the call for questions.

We will now begin the question in answer session. Do ask a question, you may be pressed R, then one on your telephone keypad. If you were using a speakerphone, please pick up your hands that will pull for pressing the keys.

Speaker Change: If at any time your question has been addressed and you would like to withdraw your question please press star of N2.

First question comes from Daniel and Bro with Steven's. Please go ahead.

Yeah, hangin' word of God, thanks for your questions.

Good morning, Daniel.

Daniel: I want to start maybe just on the macro here so the end market is weak and this is seem like a true demand issue Kind of given the financials that Matt walked through but Jim I guess I'd love to hear more details on just what you guys could do to either influence or drive revenue growth in the medium term in between 25 if it's tougher macro for cis

Trying to think about how you guys can maybe change your growth outlook in the middle of a town in Macro here. What's in your control?

Jim: Thanks for the question Daniel. I think as you know, our business is made up of both OEM, based business as well as aftermarket and sort of non-OEM type orders.

and we can take a better focus in that second space where we could work more effectively in aftermarket. We can drive product offerings that are typically not associated with the regular production run of a passenger car or of a commercial vehicle.

Jim: So from that perspective, if they are persisting weekend market conditions, our focus would, of course, increase in those bases, and we could drive additional revenue by making that focus a primary priority for us.

Speaker Change: Daniel, I would add to that, you know, with all of the mirror eye launches that we have and as you heard obviously the excitement around several vehicles making it standard equipment, you know, we would expect to continue that a significant growth in that space.

going forward, which is obviously not necessarily macro-driven, obviously one more truck, equals one more opportunity to sell the system, but that's a pretty significant jump from the awarded expectations for some of those vehicles.

Not only can we, you know, maybe unusually in our space, we have a lot more opportunity in the aftermarket in non-OE products, and as well as some of the new launches and take rates related to mirrored that can also drive some significant growth there.

Well, it relates to that just here he's on the OEMS had jam, but what are your OEM customers telling you around when they expect to ramp? When this production back up, as we look forward to toy play-five.

Well, I mean, obviously 2025 is still looking, you know, not very strong, but the expectation, you know, is that in the second half of the year that we start to see some recovery, maybe especially in the course of the occult side.

This is a cycle, like every other automotive and commercial vehicle cycle, and we expect to be on the ramping upside of this cycle here soon. So this I think even gets better as we get into 2026.

Speaker Change: especially in the commercial vehicle space, several truck manufacturers are now telling us that because of the...

and Mission Regulations are coming into play the following year to expect a lot of pre-bi. So they expect the recovery but also on top of that some pre-vying prior to the 2027 regulation coming into play.

Speaker Change: Yeah, Daniel, I think if you look at kind of I just forecast you'll see that you know passenger car is expected to be relatively flat next year at this point, but there is some significant uptick on the commercial business. I like Jim said particularly as we go into the second half of the year. Yeah, so we see some of the macro trends turning and some of the you know, particularly the C.V. side, some of the markets headwinds turning into tailwinds by the back after year. So when you combine that with.

Some of the non-OE and Mirriy launch activity that we talk about, you know, there's clearly a ramp up here coming both on the cell health side as well as the macroside particularly on the CV kind of CV space.

Speaker Change: really helpful. I made a last one for us. Just follow up on, oh you said a minute ago, Matt, you recently won another Marriott program with time-lure. You talked about this expected timing and take great assumptions of this program in any color on the state of rural size or expected P-revenue. This could be.

Speaker Change: Yeah, so it was not an additional award Daniel just to be clear it was a clarification and an announcement of who that previous award was with.

So, you know, if you look back, you know, we've been talking about several awards launching here in North American Europe over a period of time. This is just the announcement that that is, in fact, the Diamondwood's Rock and North America. So, they're beginning serious production on that launch and ramp up in mid-25.

We have talked about that in North America being relatively low-take rates.

and the ramps up. Like Jim said, the prepared remarks, we do think that based on the customer feedback that we will exceed those expectations, we're getting very favorable customer feedback. And that's even to go further. We talked about Diamond Truck North America being one of the first pre-wire customers, so they have a pretty good sense of...

The demand that they're seeing from some of their fleets, obviously a very popular vehicle in North America. So we are very optimistic that as that program launches and ramps up in mid-25, that will be able to outperform that.

and that was something that some big news relative to Amirai and take rates.

is that again several of our customers have decided to make the product as standard equipment on several of their truck models. That is news.

and that will in fact offer a greater effective take rate with those customers going forward.

Great, thank you.

Speaker Change: Thanks Daniels.

Speaker Change: The next question comes from Gary, Prestapeno with Barrington Research.

Please go ahead.

Hi, the morning home. I'm diggering.

Speaker Change: Jim.

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

Jim: Well, I'll try not to be too technical there Gary.

for anyone listening to be honest.

But the hybrid application, any hybrid vehicle has a greater challenge with regard to what is called evaporative emissions. It's evaporative emissions.

Speaker Change: is the evaporation of gasoline on board the vehicle that goes into the atmosphere. This sophisticated system today that capture those vapors and put those vapors back to the engine that be consumed in combustion so they don't become a hydrocarbon emissions.

Speaker Change: and a hyper vehicle because you can drive it.

A lot on the electric motor only, you have a gas tank that's sloshing around creating vapor, but none of that vapor has an opportunity to be used because it's being driven essentially on the electric motor only for 20, 30, 40, 50 miles.

and therefore that a bad part of a mission's challenge becomes bigger because you don't have a continuous consumption of that vapor.

I've always had greater challenges from an evaporative emissions perspective. There's a lot of extra sophistication in the systems today.

This system actually simplifies that that solution and is much more effective at addressing the consumption and the, I'll say the retention of those vapors before consumption on board the vehicle.

Speaker Change: So is it a must have? I think going forward as standards become more strict. It's a must have. It makes the, it's a big pain point for current OEMs with their hybrids. And this is addressing a key pain point with a very effective highly integrated solution.

So, yeah, that makes a lot of sense. Are you the first to embark it with a product like this or are there others out there that are on domestic OEMs?

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

Speaker Change: Okay.

Speaker Change: Alright, and then, um...

Matt, I'm just going through some numbers here and...

Speaker Change: Trying to get a handle on it looks like we started the year 1 billion midpoint for revenues and 67 million midpoint of EBITDA. We're now at 943 million.

and you said that the mirror I revenue this year is going to be 65 to 75 million and you started the year with about a hundred.

Speaker Change: So, yeah, is it safe to say that controlled the obviously controlled devices as slipped between 65 and 75 million?

But I'm kind of getting an idea of when you put your projections together, what were the IHS numbers you were using that would basically drive?

Your initial estimates for...

Speaker Change: What the revenues would be in control devices and where are they now?

Speaker Change: We're the idol Chessie, not in the name.

Speaker Change: So Gary what I would say is, remember this is not just control devices. In fact we've seen the recovery in CB had not come as soon as we had expected. So this is really both segments.

So, obviously there has been a reduction in control devices. I think when we started the year, you know, Saur was somewhere called 16 million, a little bit south, 16 million. Right now what we're seeing is more like a 10 and a half.

Right, so North American pastor, the car certainly has been a headwind, but it's not all the headwind, right? Commercial vehicle has also declined.

Speaker Change: So, yeah, you're right. There's there's there's 30 million or so on the mirror, I thought like we talked about some of that is the slower than expected ramp up in North America and the very initial ramp up here with Volvo which we said we expect to turn around here going forward. We've seen some increase in orders there. The other side that is a little bit of a shift in bucket is like you mentioned the fleet to OE. Abspect, right. I think we had expected that more of the fleets would adopt after the evaluation periods and what we're seeing is because the OE programs are launching and being marketed pretty heavily and looking to be very successful. More of the fleets are using those as evaluation units and anticipation of those OE launches. So, it's just really shifting from an aftermarket to probably a more OE focused by going forward. For some particularly for some of those very...

and I'm very, very, very, largely team of some that we haven't talked about yet. So I would say there is a portion of it's mirror-eye, some of that is timing. The remainder is certainly some downturn in control devices, but then, you know, the laid recovery on the commercial vehicle side, and that's like, it has definitely been worse than I think people expected to be getting a year.

Speaker Change: Okay, and then you said, I don't know, this was globally or North American basis. The car production is expected to be flat, is that a global or North American number for 2025.

Speaker Change: For 2025, that's North America. Our primary exposure is on the passenger car side of North America and China trying to expect a return to some moderate level of low to mid-single digit growth in 2025 and North America is looking roughly flat right now from an, you know, based on what I adjust is suggesting.

Speaker Change: Okay.

Alright, thank you.

Thank you, Eric.

Speaker Change: This concludes our question in the answer session. I would like to turn the conference back over to Jim, so we'll mince for any closing remarks.

Jim Zizelman: Well thank you everyone for joining us for the call. I know your time is really quite important and we do truly appreciate your willingness to engage us once again today for our earnings call.

In the third quarter, we continue to drive improvements in the fundamentals of our business. Our focus on operational efficiency resulted in reduced quality-related costs, while reductions to operating expenses, helped to offset some of the significant marker-related challenges that we did face.

At Discuss Earlier on the Call, Mirri continues to gain momentum in both the OEM Market with new program launches and improved take-grade expectations and in the aftermath of the fleet expansions and new bus applications as well.

We will continue to deliver our commitments by focusing on the long term strategy, broad operational improvements and excellence and execution. We expect that our performance along with our unique mix of industry changing product platforms will continue to drive strong shareholder value. So once again, thanks everyone.

The conference of now concluded, thank you for attending today's presentation. You may now disconnect.

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Good day, and welcome to the StoneRidge, Inc. 3rd Quarter 2024 Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.

To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2.

Speaker Change: Please note this event is being recorded. I would now like to turn the conference over to Kelly Harvey, Director of Investor Relations. Please go ahead.

Good morning everyone and thank you for joining us to discuss our third quarter 2024 results. The release and accompanying presentation was filed with the SEC and is posted on our website at StoneRidge.com in the investor section under presentations and events.

Joining me on today's call are James Zizelman, our President and Chief Executive Officer, and Matt Horvath, our Chief Financial Officer.

Before we begin, I need to inform you that certain statements today may be forward-looking statements. Forward-looking statements include statements that are not historical in nature and include information concerning our future results or plans.

Speaker Change: Although we believe that such statements are based upon reasonable assumptions, you should understand that these statements are subject to risks and uncertainties, and actual results may differ materially.

Additional information about such factors and uncertainties that could cause actual results to differ may be found in our 10-Q which was filed yesterday with the Securities and Exchange Commission under the heading forward-looking statements.

During today's call, we will also be referring to certain non-GAAP financial measures. Please see slide 3 for a more detailed description of these non-GAAP measures and the appendix for a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures.

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

Thank You Kelly and good morning everyone. Beginning on page 4, during the third quarter we continue driving improvements in the fundamentals of our business.

Jim: Our focus on operational efficiency resulted in reduced quality-related costs, while reductions to operating expenses helped to offset some of the significant market-related challenges we faced.

Jim: We continue to focus on our key initiatives to drive cash performance as well.

As a result, during the first nine months of the year, we generated $13.3 million in cash, an improvement of $31.3 million versus the same periods in 2023, primarily driven by improved working capital, including an $11.3 million reduction in inventory.

Speaker Change: Matt will provide additional detail regarding our quarterly financial performance and expectations for the remainder of the year later in the call.

Speaker Change: We remain focused on our key growth initiatives including new business awards and the flawless execution of the program launches that will drive strong growth going forward. We continue to bring strong momentum with Mirai in both our OEM and fleet channels as the system continues to roll out in Europe and North America.

Earlier this week, we announced that our next Mirai OEM program will be launching with Daimler Truck North America on their new fifth-generation Freightliner Cascadia truck, which begins series production in mid-2025.

Speaker Change: DT&A has always been supportive of Mirai, offering the first pre-wire option for the trucks in production.

Now, they continue to build on that momentum by offering an independent wing design to their customers, including advanced technology features so they can fully take advantage of the driver visibility and vehicle efficiency benefits of the system.

Another launch is coming, as expected, one of our global OEM customers has announced they will be launching Mirai on yet another European brand.

This launch signifies another milestone in their Global Mirai program and will now be offered as standard equipment on several of their truck platforms, as well as an option on several others, beginning in the fourth quarter of this year.

Similarly, our existing European OEM customers, Doff and Volvo, have now made their respective camera monitor systems standard on several heavy-duty truck platforms.

Mirai becoming standard on several customer models underscores the overwhelmingly positive response from the market resulting in significant customer demand and an opportunity to outperform the volumes assumed at program award.

Similarly, we also continue to expand our retrofit applications with new partnerships with DB Schenker North America and VDL Bus & Coach in Europe. Both of these partnerships demonstrate our ability to continue to drive broader market acceptance of the Mirai technology.

Our investment in the Mirai platform continues to drive year-over-year growth, strong take-rate expectations, and continued momentum across all of our end markets and applications.

Finally, during the quarter, Control Devices was awarded our first-ever leak detection module program for an all-new hybrid vehicle from a Chinese OEM customer.

This strategic technology is situated for growth amid the global hybrid vehicle expansion, but it's applicable to traditional powertrain vehicles as well.

Speaker Change: I will discuss our Mirai progress across all of our end markets as well as this award in more detail later in the call.

Page 5 summarizes our key financial metrics for the third quarter compared to the second quarter of the year.

Third quarter sales of 213.8 million dollars decreased by 9.8 percent compared to the second quarter, due in part to typical seasonality and production, but more significantly by the continued macroeconomic pressures in each of our primary end markets and geographies.

The global auto industry remains under pressure as automakers continue to balance regional demand dynamics and inventory conditions. In addition, commercial vehicle manufacturers continue to face macroeconomic pressures in both North America and Europe.

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Margins declined in the third quarter compared to the second quarter primarily due to reduced fixed cost leverage on lower sales and unfavorable sales mix. This was partially offset by an improvement in variable overhead of 60 basis points versus the second quarter as a result of reduced quality-related costs and our continued focus on broad operational excellence.

Speaker Change: This decline was primarily due to lower gross margin, partially offset by a $4.5 million total reduction to operating expenses quarter-to-quarter to align with current market conditions.

Finally, third quarter adjusted EBITDA of 9.2 million dollars drove an adjusted EBITDA margin of 4.3 percent, a decline of 250 basis points versus the second quarter.

In addition to the operating drivers I just discussed, this decline was driven by the unfavorable quarter-to-quarter impact of net non-operating expenses related to equity losses on FX of $2.6 million, or approximately 110 basis points.

Speaker Change: Matt will provide further detail on our third-quarter performance relative to our prior expectations later in the call.

Speaker Change: Turning to slide six.

We continue to develop innovative technologies that address current market needs and expand our customer base to better diversify our end market and geographic exposure. This morning, we are excited to announce a new award with a new technology in control devices, primarily focused on the globally growing hybrid vehicle segment, which is applicable to traditional powertrains as well.

We have been awarded our first ever program for our new leak detection module or LDM on an all new hybrid vehicle platform with a Chinese vehicle manufacturer with an anticipated start of production in the fourth quarter of 2025.

Speaker Change: This is one of several technologies being developed in control devices as we continue to expand the business utilizing our drivetrain agnostic approach.

Driven by the advent of more hybrid vehicles in the market and the need to address greater evaporative emissions challenges on traditional powertrain vehicles, the LDM is a new technology designed to enable leak checks on emission systems through the implementation of a vacuum pump.

This unique systems-based solution combines our emissions systems design expertise with our canister vent solenoid technology to provide an integrated solution focused on improving evaporative emissions system performance.

Although this first award has a relatively small peak annual volume with a single platform and customer, there is a significant growing demand for this technology, and it positions us for growth amid the global hybrid vehicle expansion.

Speaker Change: As such, it is expected to bring incremental opportunities for us as a global supplier with new OEMs and new vehicle platforms across multiple geographies.

Control Devices continues to focus on bringing system-based solutions and improved technologies to each of our end markets and customer applications.

Speaker Change: And we remain focused on drivetrain agnostic technologies to drive new business awards as the market continues to evolve. As the global hybrid vehicle market continues to expand, we are well positioned to take advantage of these opportunities.

Speaker Change: Turn to slide 7.

Mirai continues to gain momentum in both the OEM market with new program launches and improved take rate expectations, and in the aftermarket with fleet expansions and new bus applications.

Speaker Change: Earlier this week we announced our next Mirai program with Daimler Truck North America on their new fifth generation Freightliner Cascadia truck which begins series production in the middle of next year.

This marks StoneRidge's third North American OEM program featuring a factory-installed camera monitor system.

We are extremely proud to collaborate with DT&A to introduce this cutting-edge system that drives significant advancement in driver visibility and vehicle efficiency on one of the top-performing and top-selling Class 8 trucks in North America.

The DTNA system features an independent camera wing design with a high mounting position that provides an extended field of view, displaying front and side views through three high-resolution in-cab displays.

Speaker Change: As such, this system falls under StoneRidge's FMCSA exemption, allowing owners to remove conventional rear view mirrors and operate using only the factory-installed camera monitor system.

This allows the end customer to fully recognize the benefits of the aerodynamic wing design that reduces drag by eliminating the traditional side mirrors, contributing to improved fuel efficiency.

The DTNA system also highlights our ability to integrate advanced features and ADAS functionality through its side-view cameras that automatically adjust based on trailer position, identifies trailer length,

and displays alerts.

Speaker Change: which notify the driver when objects or pedestrians are detected.

Speaker Change: And based on initial feedback from the customer, we expect take rates will exceed original expectations by the time it reaches peak production in 2026.

Speaker Change: Additionally, MRI will be launching on a European brand of a previously launched global OEM, with production beginning in the fourth quarter of this year.

Starting with the 2025 model year, we are happy to announce the vision system will be standard equipment on certain models, while remaining optional on others.

Speaker Change: The system helps support the brand's efforts to provide their customers with increased productivity while reducing their carbon footprint, including fuel savings of up to 3% compared to the previous models.

As I mentioned earlier on the call, many of our existing customers have begun to equip their trucks with the camera monitor system as standard equipment.

Speaker Change: Recently, DOF announced its vision system is now standard equipment on certain long-haul trucks. In addition, the vision system continues to be optional on most of their other Class A trucks.

Our DOC program continues to have strong, stable tick rates as our most mature OEM program.

Given the change to standard equipment, as well as the continued positive feedback from DOF and their end customers, we are expecting higher take rates for the system beginning in mid-2025.

Similarly, Volvo's FH Aerotruck in Europe will also include the camera monitor system as standard equipment. Volvo continues to heavily market the system focusing on the driver ergonomics and safety benefits as well as the positive environmental impact of the system through reduced emissions.

Given the strength of customer feedback and the standardizing of the system on the FH Aero truck, we expect customer take rates to continue to improve. We also look forward to launching the technology on their North American platform, the all new VNL in the first half of next year.

Speaker Change: With so many models now offering Mirai as standard equipment, we are confident market adoption of this industry-changing technology will continue to accelerate.

We are extremely proud to be the market leader in commercial vehicle camera monitor systems throughout the world and expect continued market adoption of this new technology over time.

Now turning to slide 8.

Speaker Change: In addition to the continued momentum with our Mirai OEM programs, we continue to expand with our fleet and bus customers in both Europe and North America. Earlier this month we announced our fleet partnership with DB Schenker, a global leader in supply chain management and logistics.

Speaker Change: D.B. Schenker is currently piloting 75 Mirai systems on its North American fleet. Assuming a successful pilot program, D.B. Schenker intends to expand the implementation of Mirai across its entire North American fleet.

D.B. Schenker's investment in Mirai reflects their ongoing commitment to safety and sustainability in their fleet operations.

Speaker Change: Through improved aerodynamics and fuel savings, when traditional mirrors are removed from the vehicle, Mirai supports the company's comprehensive emissions reductions effort for CO2 savings across its land transportation business.

We are excited to collaborate with DB Schenker on this program and support their commitment to improving driver safety and reducing emissions.

In the bus market, VDL Bus & Coach recently announced a large order from a key customer of over 150 new generation electric buses equipped with Mirai to be delivered in the first half of 2025.

Arriva, a leading European passenger transport partner focused on contributing to a more sustainable future, ordered the buses to be used in West Brabant, Netherlands, where bus transportation is the main form of public transport.

These Mirai-equipped electric buses will be fully emissions-free, aligned with ARIVA's zero-emission ambitions, will also provide significant safety benefits.

Speaker Change: Our fleet and bus partnerships continue to drive broader market acceptance of the Mirai technology, supporting our partners' safety, efficiency, and sustainability goals.

Speaker Change: That said, while we continue to expand our relationships with fleet and bus customers, recognize that many of these fleets are evaluating the technology at lower volumes prior to the availability as a factory installation.

Speaker Change: We expect this will increase the OEM volumes, as evidenced by several of our OEM customers making the system standard equipment. However, it naturally reduces demand for the retrofit application.

Speaker Change: Our investment in the Mirai 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.

With that, I will turn it over to Matt for a more detailed update on our quarterly financial performance and our forward expectations. Matt. Thanks, Jim. Turning to page 10, sales in the third quarter were $213.8 million.

Revenue was significantly impacted by continued pressure across all of our major end markets, resulting in reduced customer production, as well as lower revenue in our off-highway end market, and despite continued expansion with several fleets, reduced volumes related to Mirai aftermarket products, as Jim discussed previously.

Speaker Change: We continue to drive improved performance throughout the business and as a result variable overhead declined by 60 basis points in the third quarter relative to the second driven primarily by reduced quality related costs.

We are focused on continuing to make progress on the variables that we can control while acting efficiently and effectively to mitigate the external headwinds we continue to face.

Third quarter adjusted gross profit was $44.6 million or 20.9% of sales. Adjusted EBITDA was $9.2 million or 4.3% of sales.

Operating performance was driven by the unfavorable impact of lower sales partially offset by continued cost control, particularly related to reduced operating expenses.

Speaker Change: As Jim outlined previously, operating expenses declined by $4.5 million quarter-to-quarter as a result of continued focus on discretionary spend control, as well as reduced incentive compensation to align with current market conditions.

Speaker Change: Third quarter EBITDA was also impacted by net non-operating expenses of approximately $400,000 primarily related to a non-cash reduction in the fair value of our investment in AutoTech ventures.

Speaker Change: Finally, we remain focused on inventory management to improve cash performance, which has resulted in an 11.3 million dollar reduction to inventory in the first nine months of 2024. Despite lower-than-expected volumes, we continue to make good progress in inventory reduction.

As a result, overall cash performance has continued to improve significantly as we have generated $31.3 million more cash year-to-date than the same period last year. I will provide a more detailed update on our capital structure and cash performance later in the call.

Speaker Change: Starting to page 11, our third-quarter impacted by similar macroeconomic factors as those impacting our peers across the transportation industry.

As we discussed on our second quarter earnings call, we expected reduced revenue in the third quarter relative to the second quarter due to normal seasonality and production.

Speaker Change: However, third quarter revenue was significantly impacted by reduced customer production across all of our primary end markets, reductions in our off-highway end market, and reduced mirror-eye aftermarket volume relative to our prior expectations.

Speaker Change: Our off-highway and mirror-eye aftermarket products are generally higher margin, and as a result, the EBITDA impact from reduced revenue in the quarter approximated the high end of our historical contribution margin range of 25 to 30 percent.

Based thereon, reduced sales created an approximately $5 million EBITDA headwind during the quarter versus our prior expectations.

Third-quarter operating performance was also impacted by the unfavorable change in foreign currency rates and the non-cash, non-operating impact of the reduced fair value of our investment in Autotech Ventures. Combined, this resulted in an unfavorable impact to EBITDA in the quarter of approximately 2.6 million dollars versus previous expectations.

We continue to focus on improving the fundamental performance of the business. We are confident that these actions will drive earnings expansion as we continue to launch new programs and expand on our existing products and technologies.

Page 12 summarizes our key financial metrics specific to control devices.

Speaker Change: Control Devices' third quarter sales of $74.3 million decreased by 8.1% versus the second quarter of this year, primarily driven by continued pressure and reduced demand in the North American passenger car market, as well as lower sales in the commercial vehicle end market in China. Partially offsetting these declines were stronger sales in the China passenger vehicle end market.

Third quarter operating margin of 3.1 percent decreased by 150 basis points compared to the second quarter of 2024, despite a 20 basis point reduction in material costs, primarily due to reduced cost leverage on decremental sales.

As discussed on previous earnings calls, we remain focused on drivetrain agnostic technologies to drive new business awards as the market continues to evolve. This is highlighted by our recent New Business Award for the Leak Detection Module, which provides global opportunities primarily for hybrid vehicle applications, a market that continues to grow, as well as traditional powertrains.

We continue to focus on operational excellence and enterprise-wide cost reduction, including material cost reduction plans, to continue to drive marginal improvement going forward.

Page 13 summarizes our key financial metrics specific to electronics.

Electronics third quarter sales were 135.7 million dollars, a decrease of approximately 12% versus the second quarter of the year. This was primarily driven by continued macroeconomic pressures driving lower sales volumes in the commercial vehicle and market in both Europe and North America, as well as the off-highway market.

Revenue was also impacted, as expected, by the typical seasonality of summer shutdowns in Europe.

Third quarter adjusted operating margin of 2.8% declined by approximately 480 basis points compared to the second quarter, primarily due to unfavorable sales mix and reduced fixed cost leverage as a result of lower sales.

Speaker Change: We will continue to focus on discretionary cost control and improved operating efficiency, including reduced quality related costs, to drive margin performance as we continue to grow.

Speaker Change: Again, we continue to focus on the factors that we can control to offset the macroeconomic conditions impacting our industry.

During the quarter, we continue to make progress on our initiatives to improve our overall operating performance.

Electronics remains well-positioned to take advantage of significant future growth and margin expansion as a result of a strong product portfolio, a substantial backlog of awarded programs, continued improvement in material and quality related costs, and organizational optimization.

Speaker Change: Thank you. I appreciate it. Thank you.

Speaker Change: Page 14 summarizes our key financial metrics specific to Stonehenge Brazil.

Speaker Change: Stonehenge Brazil's third quarter sales improved by approximately 15% versus the second quarter. This was primarily due to an increase in sales to local OEM customers as well as higher aftermarket sales. Foreign currency unfavorably impacted quarterly revenue by approximately $700,000.

Third quarter operating profit increased from break-even performance in the second quarter to approximately $700,000.

foreign currency unfavorably impacted operating profit in the quarter by approximately $400,000 or approximately 240 basis points.

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 align our global engineering capabilities and footprint. We will continue to utilize our global footprint to cost-effectively support our global business.

Turning to slide 15. We are updating our full year 2024 guidance to reflect current market conditions.

As discussed on our second quarter earnings call, our previously provided revenue guidance range considered potential volatility in our non-OE and customer demand-based products, including our off-highway and aftermarket products.

Our current expectations assume that these products will be at the low end of our previously provided range, or approximately $940 million prior to adjustments based on current market conditions.

Our updated revenue guidance is primarily driven by the continued production headwinds in our primary and markets.

Similar to our peers, we continue to face production volume headwinds across all of our primary end markets.

Speaker Change: Overall, our weighted average end markets are expected to decline 3.6% for the full year relative to the expectations as of our previously provided guidance. This translates to an approximately $34 million reduction relative to our previously provided expectations.

Additionally, there is a potential for incremental reductions in our off-highway end market for the remainder of the year, as the headwinds we experienced in the third quarter could persist into the fourth.

Similarly, although we continue to expand our relationships with our fleet and bus customers in both Europe and North America, the volume ramp up continues to be slower than expected.

As Jim outlined earlier, several of our fleet customers continue to evaluate the technology in anticipation of OEM availability, shifting our expectations from aftermarket retrofit products to OEM applications.

Overall, this year we are expecting approximately 65 to 70 million dollars in Murai revenue, which represents a 25% increase over 2023.

Although overall Mirai revenue is less than we expected at the beginning of the year, Mirai continues to expand and gain momentum forward with multiple new launches in the next 12 months and the announcements that several of our key customers have now included Mirai as standard equipment on many of their key platforms.

We are also working with several large North American fleets to expand mirror eye applications and evaluations. We continue to expect significant mirror eye growth in 2025.

Speaker Change: As a result, we are expecting midpoint revenue of approximately $900 million for the full year.

Speaker Change: As it relates to our updated EBITDA expectations, the reduction in Mirai aftermarket applications and off-highway products overall will create an unfavorable mix impact for the full year.

As such, we are expecting decremental contribution margins on our Adjustment to Revenue Guidance to be at the high end of our historical range, or approximately 30 percent, similar to the impact in the third quarter.

Speaker Change: Additionally, we are updating our EBITDA guidance to reflect the unfavorable third-quarter impact of operating FX and non-operating expenses that was not considered in our previous guidance.

We will continue to improve the fundamental performance of the business and are still expecting to be able to offset a portion of the overall revenue decline with improved operational performance.

Speaker Change: Most importantly, we are continuing to build a foundation for strong incremental earnings and continued improvement in cash performance as we grow next year and beyond. We will continue to drive strong financial performance to finish the year and provide a good runway heading into 2025.

Turning to slide 16, during the first nine months of the year, we generated $13.3 million in cash driven by our continued focus on reducing networking capital, including an $11.3 million reduction in inventory. Compared to the same period in the prior year, overall cash performance improved by $31.3 million.

Speaker Change: As mentioned earlier on the call, we will remain focused on inventory management to improve cash performance and reduce overall interest expense.

As permissible under the terms and conditions of our existing credit facility, we have elected to update our compliance calculation to add back certain accrual-based expenses and apply the cash payments when they occur as expenses for compliance purposes. The chart on slide 16 represents the compliance leverage ratio considering a similar change historically for comparison purposes.

As a result, net debt to trailing 12-month EBITDA, as calculated for compliance purposes, was approximately 2.8 times. Similarly, despite reduced expectations for the remainder of the year, we expect to remain compliant with all of our credit facility covenants.

We will remain focused on maximizing cash performance to reduce interest expense, de-lever the business, and drive value to shareholders. With that, I will turn it over to Jim for some closing remarks.

Thank you, Matt. Turning to page 17. In summary, we continue to focus on improving the fundamentals of our business despite the current macroeconomic conditions. As a company, we remain focused on the right things including flawless execution of our program launches,

Material Cost Improvement, Continued Cost Control, and Improved Cash Performance.

Speaker Change: Our efforts were highlighted by our year-to-date cash performance improvement of $31.3 million compared to the same period in 2023.

While we expect continued challenges across our end markets for the remainder of the year and into 2025, we continue to focus on things we can control and respond efficiently and effectively to macroeconomic headwinds that are prevalent across our industry.

We are confident that our effort to fundamentally improve business performance and focus on key growth initiatives will drive long-term profitable growth for our shareholders.

Speaker Change: During the quarter we made great strides in continuing the trajectory of our long-term growth profile. We are excited about our new award for the leak detection module in our control devices segment.

This new technology aligns primarily with the globally growing hybrid vehicle segment and is applicable to traditional powertrains as well, and is one of several technologies being developed in control devices as we continue to expand the business utilizing our drivetrain agnostic approach.

Speaker Change: Similarly, we continue to build momentum with Mirai in both our OEM and fleet channels.

Our program with Daimler Truck North America on their new 5th generation Freightliner Cascadia truck solidifies a strong customer demand for the system as DTNA transitions from the pre-wire option on their existing trucks to a factory installed camera monitor system with advanced technology features, including object detection.

We also announced that Mirai will be launching on a European brand of an existing global OEM, with the system offered as standard equipment on several models.

Speaker Change: Similarly, our other European OEM customers, Doff and Volvo, have now made their respective camera monitor systems standard on several key truck platforms.

As the global leader in commercial vehicle camera vision systems, we expect strong take rates as our global programs continue to launch and ramp up over the next several years.

Finally, we continue to expand our retrofit applications with new partnerships with DB Schenker in North America and VDL Bus & Coach in Europe. Our fleet and bus partnerships continue to drive broader market acceptance of the Mirai technology, supporting our partners safety, efficiency, and sustainability goals.

Our investment in the Mirai 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 adjacent product opportunities to optimize our position in this market and drive technology innovation, improve safety, efficiency, and driver retention for our customers.

Speaker Change: StoneRidge remains well positioned to outpace our underlying end markets and drive significant earnings expansion going forward. And as always, driving shareholder value is at the forefront of all of StoneRidge's strategic initiatives. With that, I'll open the call for questions.

Speaker Change: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.

If at any time your question has been addressed and you would like to withdraw your question, please press star of N2.

Speaker Change: Our first question comes from Daniel Imbrough with Stevens. Please go ahead.

Daniel Imbrough: Hey, good morning guys. Thanks for taking our questions.

Speaker Change: Good morning. Morning, Daniel.

I want to start maybe just on the macro here. So the end market is weak, and it does seem like a true demand issue, kind of given the financials that Matt walked through. But, Jim, I guess I'd love to hear more details on just what you guys could do to either influence or drive revenue growth in the medium term into 2025 if this tougher macro persists.

Just trying to think about how you guys can maybe change your growth outlook in the middle of a challenging macro here. What's in your control?

So thanks for the question, Daniel. I think as you know, our business is made up of both OEM-based business as well as aftermarket and sort of non-OEM type orders.

and we can we can take a better focus in that second space, right, where we could work more effectively in aftermarket, you know, we can drive

product offerings that are typically not associated with the regular production run of a passenger car or of a commercial vehicle.

Speaker Change: So, from that perspective, if there are persisting weakened market conditions, our focus would of course increase in those spaces and we could drive additional revenue by making that focus a primary priority for us.

Speaker Change: Yeah, Daniel, I would add to that, you know, with all of the MirrorEye launches that we have, and as you heard, obviously, the excitement around several vehicles making it standard equipment, you know, we would expect to continue that significant growth in that space.

going forward, which is obviously not necessarily macro-driven. Obviously, one more truck equals one more opportunity to sell the system, but that's a pretty significant jump from the awarded expectations for some of those vehicles. So, not only can we, you know...

Maybe unusually in our space, we have a lot more opportunity in the aftermarket in non-OE products, as well as some of the new launches and take rates related to Mirai that can also drive some significant growth there.

Speaker Change: Related to that, just curious on the OEM side, Jim, what are your OEM customers telling you around when they expect to ramp from this production back up as we look forward to 2025?

Jim: Well, I mean, obviously 2025 is still looking, you know, not very strong, but the expectation, you know, is that in the second half of the year that we start to see some recovery, maybe especially in the commercial vehicle side.

Jim: You know this is a cycle like every other automotive and commercial vehicle cycle and you know we expect to be on the ramping up side of the cycle here soon. So this I think even gets better as we get into 2026.

Speaker Change: You know, as especially in the commercial vehicle space, as several, you know, truck manufacturers are now telling us that because of the

emissions regulations are coming into play the following year, they expect a lot of pre-buy, so they expect the recovery but also on top of that some pre-buying, you know, prior to the 2027 regulation coming into play.

Yeah, Daniel, I think if you look at the kind of IHS forecast, you'll see that, you know, passenger car is expected to be relatively flat next year at this point, but there is some significant uptick on the commercial vehicle side, like Jim said, particularly as we go into the second half of the year. So we see some of the macro trends turning and some of the, you know, particularly on the CV side, some of the market headwinds turning into tailwinds by the back half of the year. So when you combine that with

Speaker Change: some of the non-OE and mirror eye launch activity that we talked about. There's clearly a ramp up here coming both on the self-help side as well as the macro side, particularly on the CV space.

Really helpful. Let me make a last one for us. Just a follow-up on what you said a minute ago, Matt. You recently won another Mirror Eye program with Daimler. Can you talk about just expected timing and take great assumptions of this program than any color on just the overall size or expected peak revenue this could be?

Speaker Change: Yeah, so it was not an additional award, Daniel. Just to be clear, it was a clarification and announcement of who that previous award was with.

So, you know, if you look back, you know, we've been talking about several awards launching here in North America and Europe over a period of time. This is just the announcement that that is, in fact, Daimler Truck North America. So they're beginning series production on that on that launch and ramp up in mid 2025.

Speaker Change: You know, we have talked about that in North America being relatively low take rates.

you know, as it ramps up, but like Jim said in the prepared remarks, you know, we do think that based on the customer feedback that we will exceed those expectations. We're getting very favorable customer feedback. And you know, that's even, to go further, you know, we talked about Daimler Truck North America being one of the first pre-wire customers, so they have a pretty good sense of, you know,

Speaker Change: the demand that they're seeing from some of their fleets, obviously a very popular vehicle in North America, so we are very optimistic that as that program launches and ramps up in mid-2025 that we'll be able to outperform that.

And that, of course, you know, some of the big...

Speaker Change: Some big news relative to Mirai and take rates.

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

Speaker Change: Great. Thanks, guys.

Speaker Change: Thanks, Daniel.

Speaker Change: The next question comes from Gary Prostopino with Barrington Research.

Please go ahead.

Hi, good morning all. Hey Gary.

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

Yeah, well, I'll try not to be too technical here, Gary.

for anyone listening to be honest.

Jim: But the hybrid application, any hybrid vehicle has a greater challenge with regard to what is called evaporative emissions. Evaporative emissions.

Jim: is the evaporation of gasoline on board the vehicle that goes into the atmosphere. There's, you know, sophisticated systems today that...

capture those vapors and put those vapors back to the engine to be consumed in combustion so they don't become hydrocarbon emissions.

Speaker Change: because it's being driven essentially on the electric motor only for 20, 30, 40, 50 miles.

And so therefore that evaporative emissions challenge becomes bigger because you don't have a continuous consumption of that vapor.

Hybrids always have had greater challenges from an evaporative emissions perspective. There's a lot of extra, you know, sophistication in the systems today.

This system actually simplifies that solution and is much more effective at addressing the consumption and I'll say the retention of those vapors before consumption on board the vehicle.

Speaker Change: So is it a must-have? I think going forward as standards become more strict, it's a must-have. It's a big pain point for current OEMs with their hybrids, and this is addressing a key pain point with a very effective, highly integrated solution.

so yeah I mean that that makes a lot of sense I mean are you the first in the market with a product like this or are there others out there that are on like domestic OEMs?

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

Speaker Change: Okay.

All right. And then...

Speaker Change: Trying to get a handle on it. It looks like we started the year at $1 billion midpoint for revenues and $67 million midpoint of EBITDA. We're now at $900 million and $43 million.

Speaker Change: And you said that the Mirai revenue this year is going to be $65 to $75 million, and you started the year with about $100.

So, yeah, is it safe to say that the obviously controlled devices have slipped between $65 and $75 million?

But I'm trying to get an idea of, when you put your projections together, what were the IHS numbers you were using that would basically drive...

your initial estimates for what the revenues would be in control devices and where are they now?

where the IHS is now.

Speaker Change: So, Gary, what I would say is, remember, this is not just control devices. In fact, we've seen the recovery in CV has not come as soon as we had expected. So this is really both segments.

Speaker Change: You know, so obviously there has been a reduction in control devices. I think when we started the year, you know, SAR was somewhere close to 16 million, a little bit south of 16 million. Right now what we're seeing is more like 15 and a half.

Gary: Right, so North American passenger car certainly has been a headwind, but it's not all the headwind, right? Commercial vehicle has also declined.

So yeah, you're right, there's 30 million or so on the Mirai side like we talked about. Some of that is the slower than expected ramp-up in North America and the very initial ramp-up here with Volvo, which we said we expect to turn around here going forward. We've seen some increase in orders there. The other side that is a little bit of a shift in buckets is, like Jim mentioned, the fleet-to-OE aspect, right? I think we had expected that more of the fleets would adopt after the evaluation periods. And what we're seeing is, because the OEM programs are launching and being marketed, frankly, pretty heavily and looking to be very successful, more of the fleets are using those as evaluation units in anticipation of those OE launches. So it's just really shifting from an aftermarket to probably a more OE-focused buy going forward, particularly for some of those very, very small fleets.

Gary: very large fleets, even some that we haven't talked about yet. So I would say there is a portion of that that's mirrorized. Some of that is timing. The remainder is certainly some downturn in control devices, but then, you know, a delayed recovery on the commercial vehicle side, and that cycle has definitely been worse than I think people expected at the beginning of the year.

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

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

Speaker Change: OK.

All right, thank you

Thanks Gary.

Speaker Change: This concludes our question and answer session.

Thank you for watching. And I'll see you next time. Bye-bye.

I would like to turn the conference back over to James Zizelman for any closing remarks.

Thank you for listening. Have a great day.

Well, thank you everyone for joining us for the call. Look, I know your time is really quite important, and we do truly appreciate your willingness to engage us, you know, once again today for our earnings call.

In the third quarter, we continued to drive improvements in the fundamentals of our business. Our focus on operational efficiency resulted in reduced quality-related costs, while reductions to operating expenses helped to offset some of the significant market-related challenges that we did face.

As discussed earlier on the call, Mirai continues to gain momentum in both the OEM market with new program launches and improved take rate expectations and in the aftermarket with fleet expansions and new bus applications as well.

We will continue to deliver our commitments by focusing on long-term strategy, broad operational improvements, and excellence in execution. We expect that our performance, along with our unique mix of industry-changing product platforms, will continue to drive strong shareholder value. So once again, thanks everyone.

Gary Prestopino, Justin Long, Brian