STONERIDGE INC Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Record MirrorEye Sales: Second quarter set a record for MirrorEye sales with 21% growth relative to the first quarter of 2025, driven by ramp-up of OEM programs and new launches. Announced largest program award in company history, a MirrorEye program extension through 2033 with ~$535 million lifetime revenue.
• New Program Awards: Electronics business awarded programs for SMART2 tachograph, secondary displays for medium-duty trucks, and electronic control units. Stoneridge Brazil awarded a $85 million lifetime revenue contract for an infotainment electronic control unit.
• Balance Sheet Improvement: Reduced inventory by $7.3 million, generated $7.6 million in free cash flow, and reduced debt by $38.8 million through tax-efficient international cash repatriation.
• Strategic Review: Announced review of strategic alternatives for Control Devices division, potentially selling it to focus resources on Electronics and Stoneridge Brazil growth to drive higher returns for shareholders.

Segment Performance

• Control Devices: Second quarter sales were $71.2 million, up 1.9% from the first quarter. Adjusted operating income was $2.8 million, representing a 180 basis point improvement compared to the prior quarter. The North American passenger vehicle market is improving, but volatility remains a concern due to tariff policies.
• Electronics: Second quarter sales were $149.6 million. Excluding the impact of foreign currency, sales were approximately in line with the first quarter. MirrorEye revenue grew 21% relative to the first quarter. Adjusted operating margin declined by approximately 190 basis points, but the company expects margin progression later in the year as key initiatives mature.
• Stoneridge Brazil: Second quarter sales totaled $15.3 million, an increase of 6% relative to the first quarter. This was driven by higher aftermarket product sales and strong local OEM sales. Operating profit improved by 230 basis points, primarily due to lower material costs and favorable foreign currency impacts. The company expects stable revenue and margins in 2025 as it expands its local OEM business.

Guidance

• Revenue: Maintaining full year revenue guidance of $860 million to $890 million, reflecting lower North American commercial vehicle production volume expectations offset by favorable foreign currency impacts.
• EBITDA: Updating EBITDA guidance to account for nonoperating foreign currency expenses of $3.4 million and ~$1 million in incremental tariff-related costs. Targeted compliance net debt-to-EBITDA leverage ratio to ~2.5x by end of the year.

Risks

• Market Volatility: Complex market conditions, including volatility in the North American commercial vehicle market and potential impact of tariff policies.
• Foreign Currency Impact: Nonoperating foreign currency expenses on intercompany loans which do not affect operating performance.
• Tariff Costs: Incremental tariff-related costs due to strategic cost-sharing agreements, though expecting to leverage these into new business opportunities.

Question and Answer

• Q: Confirm MirrorEye contract won't affect 2025/2026 numbers and if it expands the Total Addressable Market (TAM). A: The contract is an extension, not impacting 2025/2026 revenue. It expands the TAM by enabling expansion into connected trailer and sensing technologies.
• Q: Impact of new fleet orders on 2026 outlook. A: New fleet orders with recent OEM wins improve the 2026 outlook, especially from new fleets adopting MirrorEye technology.
• Q: FX impact on guidance. A: Nonoperating FX in the second quarter is accounted for, and current FX rates don't imply incremental headwinds; forward guidance incorporates current FX rates.