Stoneridge, Inc.

Good day and thank you for standing by. Welcome to the Stone Ridge First Quarter 2021 conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your first speaker today, Ms. Kelly Harvey, Director of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us to discuss our first quarter results. The release and accompanying presentation was filed with the SEC yesterday evening and is posted on our website at stoneridge.com in the Investors section under Webcasts and Presentations. Joining me today On today's call are John Degainer, our President and Chief Executive Officer, and Bob Krakowiak, 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. 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 has been filed 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 the appendix for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. After John and Bob have finished their formal remarks, we will then open up the call to questions. I would ask that you keep your questions to a single follow-up. With that, I will turn the call over to John.

Thanks, Kelly, and congratulations on the new job. Welcome to this call. And good morning, everyone. Let me begin on page three. In the first quarter, we continued to navigate through the challenges presented from the global COVID-19 pandemic and subsequent supply chain disruptions. We delivered strong financial performance, exceeding our previously outlined expectations from both a revenue and earnings perspective. Our first quarter adjusted sales of $192.8 million exceeded our previous expectations of approximately $180 million and resulted in an adjusted gross margin of 24.2%, translating to an adjusted operating margin of 1.8%. Adjusted EPS for the quarter was six cents, which also exceeded our previously outlined expectations of a break-even quarter. Most importantly, we continued to focus on controlling the variables that we could control and limiting the impact of externalities. During the quarter, we continued the transformation of the company, entering into an agreement to divest and complete the exit of our sub-sensor business. This is yet another transaction that will allow us to focus our resources on the technology platforms that will drive future growth. We continue to make progress with our Mirai platform, preparing for OEM launches later in 2021 and expanding our retrofit programs as demonstrated by our recent public announcements that two fleets, Maverick and Montgomery, intend to install Mirai on 100% of their new trucks going forward. Additionally, this morning I'm proud to announce that we are expanding our partnership with PACCAR and supporting the launch of their new heavy and medium-duty trucks with the launch of our fully digital driver information system. Finally, this morning we adjusted our full-year guidance to reflect certain macroeconomic factors that we will discuss in more detail later in the call. We are maintaining our revenue guidance despite production headwinds, primarily due to revenue outperformance in the first quarter and the expectation that our product portfolio will continue to outperform the market. Page 4 summarizes our key financial metrics relative to prior quarters, excluding the divested suit sensor business in all periods. During the quarter, we continued to see some volatility in production volumes in our passenger vehicle end markets. However, these headwinds were more than offset by strong performance in our commercial vehicle end markets, and the favorable impact of foreign currency. This resulted in an adjusted revenue growth of 1.3% relative to the fourth quarter of 2020 and 5.1% versus the prior year. During the first quarter, we continued to navigate the global pandemic and related supply chain challenges, which contributed to adjusted gross margin and operating margin declines of 210 and 190 basis points, respectively, relative to the fourth quarter of 2020. The first quarter included $2.7 million of incremental costs specifically related to temporary supply chain issues. These costs reduced gross and operating margin by 140 basis points. It is important to note that this is approximately $1 million above the guidance we gave on our fourth quarter call as supply chain dynamics had deteriorated since that call. Our work provides an additional color on the relative impact that these externalities had on our operating performance on the next page. During the first quarter, operating expenses remained consistent with our prior expectations, a trend which we expect to continue for the remainder of the year. While we expect additional headwinds related to external factors for the remainder of the year, we also expect that our facilities will continue to execute at a high level and limit controllable costs. Turning to slide five, I'd like to provide a more detailed update on the specific supply chain disruptions impacting our business, and our current view of the financial impact of these disruptions for the remainder of the year. In summary, the supply chain disruptions we discussed during our fourth quarter call have become incrementally more challenging. There have been several events that occurred since the last call that have tightened supply of key components, including a fire at one of the largest semiconductor manufacturers in Japan, a freeze in the southern U.S. creating additional material shortages and supply chain turbulence, and the disruption at the Suez Canal. In addition, Inflation in commodity prices has continued to accelerate. Semiconductors, resin, and copper are among the largest impacted areas due to shortages and rising costs. To combat the price increases and shortages, we are committed to doing everything in our power to work to offset these incremental costs. We are actively negotiating these incremental costs with our suppliers, developing strategies to cover these impacts when markets return to a more normalized state, and are working with our customers regarding cost recovery. As discussed on our fourth quarter call, several of our OEM passenger car customers reduced production schedules in the first quarter. Based on our primary platform exposures, the overall impact on our revenue so far has been limited. Forecast and production levels have started to adjust for the expectation that not all of the reduced schedules will be able to be made up in 2021, which we will discuss in further detail later in this call. That said, we are not seeing and do not expect the same type of reduced production schedules in our commercial vehicle end markets, and we do not expect a significant impact on commercial vehicle revenue in 2021. Similarly, our off-highway business remains strong, which is a trend that we expect to continue for the balance of the year. While we do not expect a significant revenue impact, we expect incremental material costs and increased expediting and premium freight costs as a result of the current market conditions. While we expect those costs to be temporary, we have updated our expectations of these incremental costs from $2.5 million for the full year to approximately $5 to $5.5 million for the full year. To date, we have already incurred $2.7 million of incremental costs. We expect additional costs of just over $1 million in the second quarter and up to an additional $1.5 million of incremental costs in the second half of the year. We continue to monitor the global supply chain and the impact on our OEM customers to ensure we respond efficiently and effectively to any disruptions. As it relates to current production volume expectations, slide six outlines the most recent IHS and LMC information for our OEM end markets for 2021, as well as for the second through fourth quarters of the year. As a result of the global supply chain disruptions, passenger car forecasts have declined while commercial vehicle forecasts remain relatively stable or have improved. This results in a forecasted decline of approximately 1% in our weighted average end markets for the full year 2021 relative to our previously provided guidance. Despite this decline, we are maintaining our revenue guidance primarily due to our outperformance in the first quarter and the expectation that our product portfolio will continue to outperform the market. Bob will provide further detail on our revenue guidance later in the call. Turning to page seven. In summary, our performance in the first quarter demonstrates our ability to execute despite the many challenges we still face as a result of the global health crisis and the cascading impact it has had on global supply chains. We remain committed to delivering on our strategic priorities and continuously improving the business to drive strong financial performance and stable long-term profitable growth. We remain focused on our mirror eye retrofit and pre-wire opportunities, as well as our first two OEM program launches later this year. At Stone Ridge, we will continue to execute on the things that we can control and respond effectively and efficiently to a challenging environment. We will maintain our focus on our long-term strategy, driving continuous improvement and refining our capabilities to deliver shareholder value. With that, I'll turn it over to Bob to discuss our financial results in more detail.