STONERIDGE INC Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Delivered strong first quarter performance with operating margin improvement across all segments, adjusted gross margin up 210 basis points. Adjusted EBITDA and cash performance exceeded expectations.
• MirrorEye revenue increased 24% QoQ, driven by bus market sales and OEM program ramp-up. System is standard on additional truck models.
• Achieved 220 basis points in material cost improvement and reduced quality-related costs by $2.5 million QoQ. Free cash flow $4.9 million, inventory reduced by $28 million from prior year.
• Tariff exposure: 91% of Mexico sales exempt via USMCA; price increases secured for non-exempt products; working on supply chain mitigation for remaining exposure.

Segment Performance

• Control Devices: First quarter sales of $69.9 million, a 10.6% increase relative to the fourth quarter of the prior year. Adjusted operating income improved by 470 basis points, driven by higher sales, lower quality-related costs (~$800,000), and reduced engineering spend. Contributed 46% of incremental sales in the quarter.
• Electronics: First quarter sales $140.5 million, slightly lower than the fourth quarter. MirrorEye sales grew 24% QoQ, driven by OEM program ramp-up and bus market sales. SMART 2 tachograph set a second consecutive quarterly sales record. Adjusted operating margin expanded by 130 basis points, with a $1.8 million improvement in quality-related costs.
• Stoneridge Brazil: First quarter sales $14.4 million, a 16% increase relative to the fourth quarter. Driven by higher local OEM sales. Operating profit improved by 320 basis points, primarily from fixed cost leverage on incremental sales.

Guidance

• Maintaining full-year guidance based on first quarter outperformance. Second quarter performance expected to slightly increase.
• Expect revenue to be evenly split between first and second halves of the year, with continued expansion of MirrorEye sales in the second-half.
• EBITDA margin expected to improve as margin expansion actions (material costs, quality) compound throughout the year.

Risks

• Tariff volatility impacting consumer demand and production volumes.
• Potential impact of non-USMCA certified products and future tariff implementations on non-exempt products.

Question and Answer

Q: Details on electronics momentum and margin expectations.

A: MirrorEye ramping with Volvo in Europe and Daimler in North America; aftermarket and bus market growth. Margin expected to progress linearly as material cost and quality initiatives mature.

Q: Tariff impact on customers and demand.

A: Moderate impact so far from customers, but monitoring closely; robust orders through first quarter with some recent changes observed.

Q: Inventory sustainability and growth.

A: Inventory turns can improve further, with potential to hold at high single digits even with growth, sustainable through industry volatility.

Q: Quality-related costs and tariffs on MirrorEye and tachograph.

A: Quality processes improved to limit issues; MirrorEye and tachograph produced in Europe, avoiding tariff issues there.

Q: Connected trailer suite timeline.

A: Tail end of 2025 for initial release, with expansion in 2026 as customers evaluate features.

Q: Production forecasts and guidance.

A: Comfortable with full-year guidance within broad production range volatility, as original assumptions were conservative and align with current range.