Stoneridge, Inc.

Good morning and welcome to the Stone Ridge First Quarter 2022 conference call. My name is Zanara and I'll be the operator for today's call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session. During the question-and-answer session, if you have a question, please press 01 on your touchtone phone. As a reminder, this conference is being recorded. I'll now turn the call over to Ms. Kelly Harvey, Director of Investor Relations. Ms. Harvey, you may begin.

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 Webcast and Presentation. Joining me on today's call are John DeGainer, 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. 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 with the Securities and Exchange Commission under the heading Forward-Looking Statements. During today's call, we will 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 Matt have finished their formal remarks, we will open up the call to questions. I would ask that you keep your question to a single follow-up. With that, I will turn the call over to John.

Thanks, Kelly, and good morning, everyone. Let me begin on page three. In the first quarter, we continued to navigate through the challenges resulting from the global pandemic, including continued supply chain disruptions, production volatility, and rising material costs. We focused on responding to fluctuating production schedules, limited component availability, managing our cost structure, and continuing to engage with our customers and suppliers on cost recovery actions. These actions resulted in improved financial performance during the quarter. Our first quarter adjusted sales of $196.6 million resulted in an adjusted gross margin of 21.1%, translating to an adjusted operating margin of negative 1.5%. Adjusted EPS for the quarter was negative 27 cents. During the first quarter, we made significant progress with the majority of our customers on pricing actions to offset a large portion of the incremental material and supply chain costs we are focusing or forecasting for 2022. These negotiations resulted in increased pricing that offset approximately 90% of the incremental material costs we incurred during the quarter relative to the fourth quarter of last year. The price increases agreed upon in the first quarter will continue to provide relief related to incremental material costs going forward. Additionally, we continue to pass spot purchases through to our OEM customers, offsetting more than $24 million in spot buys. We will continue to evaluate macroeconomic conditions and expect ongoing discussions with our customers regarding price increases as necessary. This morning, we are confirming our full-year revenue and adjusted EPS guidance. We are raising our midpoint adjusted gross operating and EBITDA margin expectations by 25 basis points to account for the continued impact of pricing actions taken in the first quarter. Our adjusted EPS guidance reflects the expectation of continued strong margin performance offset by expected incremental tax expense due to our forecasted geographic mix of earnings. Matt will provide additional detail on our full year guidance later in the call. Finally, while we continue to work to efficiently execute and respond to market externalities, we are also focused on the growth initiatives that will drive long-term profitable growth in 2022 and beyond. During the quarter, we continue to make progress with our mirror eye platform, focusing on our first OEM program launch in Europe. and continued expansion of our retrofit programs with some of the largest fleets in North America. I will provide additional details on our fleet activities and OEM take rates later in the call. Page 4 summarizes our key financial metrics relative to the prior quarter. During the quarter, we saw improved stability in customer production volumes in our passenger vehicle end markets and continued strong performance in our commercial vehicle and off-highway end markets. Thank you for joining us. First quarter gross margin declined by 170 basis points relative to the fourth quarter of 2021, primarily due to continued and incremental supply chain related costs net of customer recoveries. Given the price and cost recovery actions taken in the first quarter and the expectation of continued volume improvement as the year progresses, we expect that first quarter gross margin will be the trough with sequential improvement going forward. During the quarter, we entered into agreements with several of our key OEM customers, resulting in price increases and other cost recoveries that significantly benefited first quarter performance and will continue to offset incremental material costs. We have made significant strides in stabilizing margins. Adjusted operating margin improved 260 basis points relative to the fourth quarter of 2021, primarily due to the favorable impact of engineering recoveries related to the timing of customer funding and lower SG&A costs. The pricing and supply chain actions taken in the first quarter contributed to improved performance for the quarter and will provide us with a strong foundation to drive significantly improved financial performance in 2022, despite our expectation of ongoing macroeconomic challenges. Slide five provides an update on the supply chain related costs and actions taken to offset these costs during the quarter. Similar to the second half of 2021, We continue to pass through material spot buy purchases to our customers. During the quarter, we offset $24.4 million of the $25 million of gross spot buy costs. We expect to continue to offset a significant majority of spot buy related costs going forward. As expected, gross supply chain related costs continued to increase in the first quarter. Excluding spot buys, we were able to offset approximately 90% of the incremental supply chain costs from Thank you for joining us. due to the actions we took in the first quarter and will continue to take to offset incremental supply chain related costs as necessary. Turning to page six, we continue to see strong momentum with our mirror eye platform in both OEM and retrofit and markets. As discussed during our fourth quarter call, we launched the first OEM mirror eye program in late 2021. The check rates on this first OEM program remain strong as we have delivered over 2,500 systems to date. We are optimistic that the tape rate will continue to expand as supply chain issues subside. Similarly, we continue to expand our retrofit activity with existing and new customers. We are announcing several Mirai retrofit expansions with some of the largest fleets in North America. First, we are announcing the expansion of retrofit programs at Schneider and Maverick to customers that we have talked about previously. Schneider is expanding their retrofit programs across new divisions, operating units, and locations. In addition, we have seen continued growth with Maverick, where we have installed over 550 systems to date, representing a large portion of the newer trucks in their fleet. Maverick has been vocal in the trucking community about the safety benefits they are seeing with the system, which has driven the rapid expansion of installations on their vehicles as they target installing Mirai systems across their entire fleet. We expect to install over 1,000 systems on Maverick trucks by the end of 2022. Finally, we are announcing a new partnership with Nussbaum, who has also expanded their fleet evaluations and have the expectation of continued expansion across their fleet. Retrograde expansions with new and existing fleet partners demonstrate Mirai's ability to improve safety, driver satisfaction, and fuel efficiency. We are excited about the continued market adoption and expect to have additional and incremental fleet announcements with both our existing main partners and new partners in the coming quarters. We believe that continued retrofit expansion and strong initial OEM take rates are strong indicators of future performance for the system. We will continue to invest the necessary resources and effort to expand on our current successes and accelerate mirrorized adoption through all of our channels. Turning to page seven. In summary, our performance for the first quarter demonstrates our ability to execute despite the many challenges we still face related to global supply chains. During the quarter, we entered into agreements with the majority of our customers to offset a large portion of the incremental material and supply chain related costs we are forecasting for 2022 through agreed upon price increases and other cost recovery actions. In addition, we remain committed to delivering on our strategic priorities and continuously improving the business to drive strong financial performance. While we continue to work to efficiently execute and respond to market externalities, We are also focused on the growth initiatives that will drive long-term profitable growth in 2022 and beyond. With that, I'll turn it over to Matt to discuss our financial results in more detail. Thanks, John.