STONERIDGE INC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Operational Efficiency: Focus on operational efficiency led to reduced quality-related costs and operating expense reductions to offset market challenges. Generated $13.3 million in cash in the first nine months of 2024, an improvement of $31.3 million vs. the same period in 2023, primarily from improved working capital including an $11.3 million reduction in inventory.
• MirrorEye Momentum: MirrorEye continued to gain momentum in OEM and aftermarket channels. Announced a new MirrorEye program with Daimler Truck North America on their new fifth generation Freightliner Cascadia truck, launching in mid-2025. MirrorEye will also launch on a European brand of an existing global OEM as standard equipment on several models. Existing European OEM customers DAF and Volvo made their camera monitor systems standard on several truck platforms.
• New Award: Control Devices was awarded a leak detection module program for an all-new hybrid vehicle from a Chinese OEM customer, applicable to both hybrid and traditional powertrain vehicles, positioning the company for growth in the expanding global hybrid vehicle market.

Segment Performance

• Control Devices: Third quarter sales were $74.3 million, a decrease of 8.1% compared to the second quarter of 2024, primarily due to continued pressure in the North American passenger car market and lower sales in the Chinese commercial vehicle end market. The third quarter operating margin was 3.1%, a decline of 150 basis points compared to the second quarter, despite a 20-basis point reduction in material costs.
• Electronics: Third quarter sales were $135.7 million, a decrease of approximately 12% versus the second quarter of the year. The third quarter adjusted operating margin was 2.8%, a decline of approximately 480 basis points compared to the second quarter, primarily due to unfavorable sales mix and reduced fixed cost leverage.
• Stoneridge Brazil: Third quarter sales improved by approximately 15% versus the second quarter, driven by an increase in sales to local OEM customers and higher aftermarket sales. Third quarter operating profit increased from breakeven performance in the second quarter to approximately $700,000, with foreign currency unfavorably impacting operating profit by approximately $400,000.

Guidance

• Revenue: Updated full-year 2024 revenue guidance to midpoint of approximately $900 million, driven by continued production headwinds in primary end markets. MirrorEye revenue expected to be $65 million to $70 million for the year, a 25% increase over 2023.
• EBITDA: Adjusted EBITDA guidance updated to reflect unfavorable third quarter impacts of operating FX and non-operating expenses, with decremental contribution margins on revenue guidance at the high end of historical range (25%-30%).
• MirrorEye Outlook: Expect significant MirrorEye growth in 2025 with multiple new launches and key customers making MirrorEye standard equipment on many platforms.

Risks

• Macroeconomic Pressures: Continued macroeconomic pressures in primary end markets, including reduced customer production and inventory conditions in the auto industry.
• Foreign Currency Impacts: Unfavorable foreign currency rates had a non-cash, non-operating impact on EBITDA in the third quarter.
• Production Volume Headwinds: Persistent production volume headwinds across primary end markets, with potential for incremental reductions in off-highway end market into the fourth quarter.

Question and Answer

Q: Daniel Imbro with Stephens asked about macroeconomic impact and revenue growth in the medium term.

A: James Zizelman noted focus on aftermarket and non-OEM products, and Matthew Horvath highlighted MirrorEye launches and take rates as growth drivers.

Q: Daniel Imbro asked about OEM ramp expectations.

A: James Zizelman stated expectation of recovery in the second half of 2025, especially in commercial vehicles due to emissions regulations and pre-buy activity.

Q: Daniel Imbro asked about MirrorEye program with Daimler Truck North America.

A: Matthew Horvath explained the program starts production in mid-2025, with favorable customer feedback expected to outperform initial assumptions.

Q: Gary Prestopino with Barrington Research asked about the leak detection module.

A: James Zizelman explained the module addresses evaporative emissions challenges in hybrid vehicles, a must-have as standards become stricter.

Q: Gary Prestopino asked about revenue projections and segment performance.

A: Matthew Horvath discussed recovery delays in Control Devices, North American passenger car and commercial vehicle headwinds, and shift from fleet to OE adoption.