Stoneridge, Inc.

Good day and thank you for standing by. Welcome to the StoneRidge third quarter 2022 conference call. At this time, all are in a 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 one one on your telephone. You will then hear an automated message advising your hand is raised. Please be advised this is being recorded. I would now like to hand the conference over to our speaker today, Kelly Harvey, Director of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us to discuss our third 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 investor 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, including statements that are not historical in nature and include information concerning our future results or plans. Although we believe such statements are based upon reasonable assumptions, you should understand that these statements are subject to risks and uncertainties and may 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 Matt have finished their formal remarks, we will then 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. Turning to page three, in the third quarter, we began to see the impacts of improving material availability on our top-line performance, which drove significantly improved earnings performance, excluding the impact of currency rates, Adjusted sales increased by 6.2% in the quarter, while adjusted EBITDA margin improved by 580 basis points. Margin expansion was driven by fixed cost leverage on revenue growth, the continued benefit of material cost mitigation actions, including historical customer recoveries, and a continued focus on strong operating performance. Each of our segments drove revenue growth and above break-even operating performance in the quarter. Five-year quarter adjusted sales of $214 million resulted in an adjusted gross margin of 23.1%, translating to an adjusted operating margin of 2.9% and adjusted EBITDA margin of 5.6%. Adjusted EPS for the quarter was $0.03. We continued to effectively offset incremental material and supply chain related costs through pricing and supply chain actions, resulting in the recovery of both current and historical costs in the quarter. While incremental material costs have started to moderate, we expect material cost headwinds to persist for the remainder of the year and into 2023. We will continue to evaluate macroeconomic conditions and expect ongoing discussions with our customers to offset cost headwinds. We remain focused on our key growth initiatives. During the quarter, customer demand continued to be strong for our first OEM Mirai program. Take rates were slightly improved at approximately 40%, despite being moderated by material availability. That said, we've made significant progress against those material constraints and expect continued improvement in our near-eye production tick capability for the remainder of the year. We expect to be able to support tick rates on this time that are forecasted to exceed 50% in 2023, as well as additional launches planned for 2023. This morning, we are updating our full-year guidance. Our updated full year guidance implies fourth quarter midpoint revenue of $239 million, or approximately 11.5% growth relative to the third quarter, and midpoint adjusted EPS of 24 cents, or a 21 cent improvement relative to Q3. Our guidance also implies fourth quarter adjusted EBITDA margin of approximately 8%, which would be a 240 basis points improvement over the third quarter, and a 670 basis point improvement over the fourth quarter of last year. We remain on a positive trajectory from both the top line and margin perspective and expect to continue this trajectory in 2023. Matt will provide additional details on our full year guidance later in the call. Page four summarizes our key financial metrics where we saw significantly improved performance versus the prior quarter. During the quarter, we saw strong revenue performance as material constraints eased, creating less customer production volatility and improvements in our own ability to meet strong in-market demand. Excluding the impact of foreign currency, relative to Q2, adjusted sales improved by 6.2% quarter to quarter. The continued ramp-up of new programs, including control devices actuation programs on electrified vehicles, our digital instrument cluster programs, and the first OEM Mirai program contributed to higher sales during the quarter. Excluding the impact of foreign currency, third quarter adjusted gross margin improved by 480 basis points, adjusted operating margin improved by 620 basis points, and adjusted EBITDA increased by 580 basis points, or $12.7 million relative to the second quarter of 2022. This is primarily due to strong margin performance as a result of our ability to offset incremental material costs the recovery of historical costs, continuous improvement in our manufacturing facilities, and the continued impact of reduced operating expenses. We expect these margin trends to continue in the fourth quarter on stronger revenue performance, creating a strong run rate into 2023. Slide five provides our current view on the macroeconomic outlook for the remainder of this year and into next year. Material availability continues to stabilize, which is driving improved production capability. We expect that the material headwinds that have been most challenging this year will continue, but at a more moderate level for the remainder of the year. Similar to material availability, material costs continue to create headwinds. However, pricing fluctuations have become less volatile. We have effectively offset a significant portion of incremental material costs this year. We expect that additional pricing actions and supply chain strategies will be necessary going forward. Looking ahead, We expect continued improvement in end-market production, driven primarily by historically low inventory levels, large customer backlogs, and improving material availability. Stone Ridge is aligned with platforms likely to perform well against overall market dynamics, including our content on electrified vehicle platforms and our North American passenger car exposure being more heavily weighted to light truck, SUV, and CUV platforms. We are positioned well to outperform our underlying markets and expect continued revenue growth and margin expansion. Slide 6 outlines the most recent IHS production data for our primary OEM end markets for the remainder of 2022, as well as expectations for 2023. IHS continues to reflect production risk in both passenger car and commercial vehicle end markets as fourth quarter forecasts have been slightly reduced relative to the forecast considered in our prior values. That said, our weighted average end markets are forecasted to grow by approximately 4.7% in Q4 relative to Q3. In addition to third-party forecasts, we use production planning forecasts from our customers to develop our expectations, which are reflected in our updated guidance. Based on these forecasts, we continue to expect sequential revenue improvement in the fourth quarter, with our midpoint revenue guidance implying 11.5% growth over the third quarter, or approximately 2.5 times our weighted average end markets. Looking forward, We expect continued strength in demand in our end markets and continued improvement in customer production in 2023. IHS is forecasting that our weighted average end markets will grow by approximately 4% compared to 2022. We expect to continue to outperform our underlying end markets through the ramp up of existing programs and new program launches, including the second OEM near life program. Turning to slide seven, over the past several years, Control Devices has transformed from a relatively commoditized traditional automotive components portfolio to a high margin product portfolio aligned with powertrain electrification. Our electromechanical and electromagnetic actuation business is now more than half of Control Devices total sales and growing, driven primarily by electronic axle disconnect actuators, electronic transmission actuation, and various control valve applications. This is a specialized business bridging electronics and software capabilities with mechanical design capabilities. This combination is unique to StoneRidge and gives us a strong platform to better serve our customers and expand our relationships. Our driveline actuation business will continue to grow as we extend our actuation capabilities to address electric vehicle axle disconnect and torque control applications. Similarly, our transmission actuation competencies continue to expand, allowing us to drive growth in new application areas including EV ship control and electric park brakes. We will continue to invest in our actuation business as we anticipate greater opportunities as powertrains become increasingly electrified. Similarly, our temperature sensor business continues to pivot to better align with industry megatrends and provide a foundation for future growth. While the majority of the business today is focused on coolant and exhaust gas temperature monitoring, approximately 20% of our low temperature business in 2022 is related to thermal management in hybrid and fully electric vehicles. We are actively transforming our temperature sensing capabilities to adapt to the drivetrains being sold in the market, whether those are internal combustion engines or the electric powertrains that we expect to grow significantly over time. Finally, for our switches and connectors business, we are seeking differentiation in the real estate we currently own on the vehicle. For example, today we are the market leader in OEM trailer tow applications in North America. As we've discussed on prior calls, that product has evolved to enable the digitized connection required between vehicle and the trailer to facilitate advanced vision and safety solutions. Similarly, our seat track position sensor applications have followed market trends to more safely and efficiently deploy airbags depending on the position of the seat relative to the airbag. The number of these sensors per vehicle application has risen in the past several years as airbag deployment becomes smarter and safer. While we're not investing heavily in these applications and don't expect outside-sized market growth, this is a differentiated business that is generally drivetrain agnostic and will continue to contribute to the overall success of control devices going forward. Control devices is transformed to align our products and capabilities with the powertrain applications and industry megatrends that will drive future growth. Driven by the expected growth in our actuation business, the rotation of our temperature sensing applications and the specific and unique applications in our switches and connectors business. We expect that Control Devices will continue to deliver a strong margin portfolio on long-term growth that will outpace our underlying end markets. Turning to page 8. In summary, we are pleased with our performance in the third quarter as we have demonstrated our ability to execute and drive significantly improved financial performance as our end markets and supply chains continue to stabilize. The actions we have taken to create a foundation for profitable growth are at an inflection point with a launch and ramp up over our mirror eye and actuation platforms globally. We remain well positioned to outperform our underlying end markets, resulting in profitable long-term growth for the remainder of 2022 and beyond. We are committed to delivering on our strategic priorities and continuously improving the business to drive strong financial performance. With that, I'll turn it over to Matt to discuss our financial results in more detail. Thanks, John.