Stoneridge, Inc.

Good day, and thank you for standing by. Welcome to the Stonebridge fourth quarter 2022 conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. Please be advised that this call is being recorded, and 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 fourth quarter and full year 2022 results. The release and accompanying presentation was filed with the SEC yesterday evening and is posted to our website at stonebridge.com in the investor section under webcast and presentation. Joining me on today's call are Jim Ziselman, 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-K, which will be filed today 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 Jim and Matt have finished their formal remarks, we will open up the call to questions. Turning to page three, I would like to introduce Jim Zizzleman, who was recently appointed as President and Chief Executive Officer of Stone Ridge, and was also appointed to the Stone Ridge Board of Directors effective January 30th. After a year of consulting with the company, Jim joined StoneRidge almost three years ago as president of the control devices division and has played an integral role in developing and executing on the strategic priorities, product development, and technical vision for both control devices and StoneRidge more broadly. Jim brings a wealth of knowledge and experience, and we are fortunate to have a proven business leader and experienced executive step into the CEO role.

Thank you, Kelly. I am fortunate enough to have already spent a significant amount of time at the company as president of the Control Devices Division and as a member of the executive staff where I was able to have a broad impact on the overall strategic direction of the company. I focused on aligning the segment with industry megatrends while sustaining strong margins during challenging macroeconomic conditions by placing a key focus on rigor and discipline across all elements of the business. I look forward to working closely with our board, our senior leadership team, and our dedicated global teams as we continue to execute on a strong long-term strategy focused on sustainable, profitable growth. Turning to page four. With my transition to CEO, Rajay Kesed was appointed as president of the control devices business. Rajay was most recently the vice president of sales and product line management for control devices, where during his three-year tenure, he demonstrated the leadership and strategic thinking that has helped advance the division's priorities and performance. Rajay was responsible for overseeing a number of divestitures of non-core business, that helped shape the control devices portfolio to better align with industry megatrends that will drive growth going forward. In his new role, Rajay will be responsible for driving business performance, commercial relationships, product development, and our continued innovation strategy within the segment. Turning to page five. In the fourth quarter, we continue to see sequential revenue improvement with 5.2% growth compared to the third quarter and EBITDA margin expansion of 100 basis points, excluding an adjustment related to a prior quarter correction. This 10 cent correction was driven by the FX impact on non-operating gain recorded in the second quarter related to a derivative security and not material to our operations or baseline operating performance. Matt will provide further detail later in the call. Excluding this correction, adjusted earnings per share was 11 cents, which was an 8 cent increase over the prior quarter. Overall, 2022 sales increased by 12% relative to 2021, while EBITDA increased by over 25%. We expect this trend to continue as we are guiding midpoint revenue growth of approximately 16% in 2023, with EBITDA growth of over 75% and even a margin expansion of approximately 210 basis points based on our midpoint guidance. Most importantly, we continue to focus on the product platforms that will drive future growth. Our first OEM MIRAI program launched over a year ago in Europe and has significantly outperformed original expectations with a take rate of approximately 40% going into 2023. Our next MIRAI program launches in North America in the second quarter of this year with a customer expected take rate of approximately 10%. This morning, I am pleased to announce that our second European OEM partner has increased their forecasted take rate from 25% originally to approximately 45% based on expected market demand. This program is expected to launch in 2024. Similarly, we continue to expand our retrofit applications and develop technologies in adjacent markets that will continue to drive our future growth. Earlier this week, we announced a partnership with KLLM Transport Services and Frozen Food Express, detailing their intention to equip approximately 1,000 new and existing vehicles with Mirai this year. Similarly, we announced a partnership with Grody Industries to introduce the industry's first wired rear-view trailer camera. I will discuss these applications and provide more detail on our progress with the NearEye platform later in the call. As a result of continued success in our core products, this morning we are updating our long-term financial targets to include strong backlog growth, our expectations of significant top-line outperformance relative to our end markets, and substantial market expansion through our five-year plan. Our five-year awarded business backlog grew by 6% in 2022 to $3.6 billion, supporting a five-year compound annual growth rate of more than 7.5%, resulting in a targeted revenue of $1.3 to $1.5 billion and targeted EBITDA margin of 11.5 to 13.5% by 2027. Page six summarizes our key financial metrics by quarter for 2022 and compared to both the full year 2021 and our midpoint guidance for 2023. The global macroeconomic environment continued to provide a challenging backdrop for the industry in 2022. Throughout the year, our revenue grew quarterly as material constraints began to ease and customer production volumes became less volatile. 2022 adjusted sales outperformed our underlying end markets by four times. This was driven by key program launches and expansions, including our part-by-wire programs, digital instrumentation cluster programs, and our first OEM near-eye program in Europe. During the year, we were able to mitigate a significant amount of the material headwinds we experienced through incremental price, driving strong EBITDA margin progression throughout the year. This resulted in base operated adjusted EBITDA margin expansion of 440 basis points in the fourth quarter relative to the first quarter. We expect continued strong growth in 2023 and EBITDA margin expansion despite sustained elevated material costs and rapidly increasing labor costs. We continue to negotiate with our customers to offset incremental material costs with price adjustments and other supply chain improvement strategies. Similarly, we remain focused on operating cost control to leverage our existing cost structure and expand operating margins as revenue continues to grow. And Matt will provide additional detail on our 23 guidance also later in the call. Turning to page seven. we have made a significant investment in Mirai platform over the last several years as it is a key element to our long-range plan. We are seeing the benefits of these investments as Mirai drove approximately $34 million in sales in 22 and is expected to approximately double to $60 million in sales in 2023. Market demand continues to be strong for the first OEM near-eye program. We are expecting year-over-year revenue growth for this program as new model truck volumes continue to increase and current take rates annualize. Similarly, our first OEM program in North America is launching early in the second quarter of this year. And although North American customer has not updated take rate assumptions for this program yet, based on the momentum we are seeing in North American retrofit, as well as the first OEM program we believe there is upside to the take rate assumption in 2023. That said, our guidance reflects customer-forecasted take rates resulting in approximately $6 million of sales related to the North American program this year, again, at a take rate of approximately 10%. Looking forward, we continue to build momentum around our future program launches as our customer for the next OEM programs launching in Europe in 2024 has updated their take rate assumptions from approximately 25% to approximately 45% based on their anticipated . This aligns well with our first OEM launch in Europe and reflects the expectation of continued outperformance relative to our originally quoted take rates for our OEM Mirai programs. As mentioned, we announced a partnership with KLLM Transport Services and Frozen Food Express, detailing their intention to equip approximately 1,000 vehicles with Mirai this year. Together, those fleets represent approximately 3,500 vehicles on the road. Their decision to equip Mirai on new and existing trucks is a demonstration of the tremendous value proposition that Mirai brings to the market. Based on this announcement, as well as the continued expansion of existing trials with some of our largest current fleet partners, we are expecting significant growth in the retrofit market in 2023. Similarly, demand continues to be strong for the system on bus applications, and we are expecting continued growth in this market in 2023 as well. Overall, we are expecting retrofit and bus-related near-eye revenue to grow from approximately $9 million in 2022 to over $20 million this year. And in addition to our current markets and applications, want to talk further on our partnership with grody industries to introduce our vision systems to commercial vehicle trailer applications as we introduce not only the very first wired rear view camera in the industry but also the ability to add additional cameras throughout and within the trailer this application utilizes industry standard trailer to tractor connection technology which maximizes the speed of implementation in addition Through innovation brought forward by StoneRidge, the added trailer cameras, including the rearview camera, will be fully functional, utilizing only the existing wiring in the trailer. While this product is still early in the commercialization strategy, we are seeing a very significant interest from fleets and expect that this product will continue to expand our Mirai platform and provide incremental opportunities going forward. We have not currently included any benefits from this product in our 2023 guidance, although commercialization of this product may be possible this year. Our investment in MirrorEye platform is paying off with substantial year-over-year growth, improved future take-rate expectations, and continued momentum across our end markets and applications. We will continue to invest in the technologies and adjacent product opportunities to optimize our position in this market and drive technology innovation, improve safety, and driver retention for our customers. Turning to page eight. Our long-term strategy focused on transforming our portfolio to align with industry megatrends continues to drive strong long-term growth prospects. Our five-year backlog at the end of 2022 grew by 6% versus the prior year. Mirai contributed to growth in our backlog as OEM takeaways continued to trend up and program launches contributed positively to the five-year window. Digital driver information systems continued to ramp up and expand in 2023. Similarly, our connectivity programs continued to grow, driven by our SMART2 tachograph program, which will launch later this year. This program not only contributes meaningfully to our backlog, but also represents a significant aftermarket opportunity as regulatory requirements will drive retrofit applications for this product over the next several years. This retrofit opportunity, similar to the Mirai retrofit opportunity, is not represented in this backlog. They are not awarded OEM programs. Incremental Mirai penetration rates, particularly in North American programs where customer forecasted take rates lag our European programs, could have a significant positive impact on our backlog. Finally, control devices contributed to our backlog with program expansions for our park-by-wire actuation programs and continued growth in our electrification-focused sensor applications. While 100% of our electronics portfolio is currently drivetrain agnostic, the continued progression in control devices will drive our targets to at least 90% of total product portfolio being drivetrain agnostic by 2027. We have been successful in aligning our portfolio with industry megatrends, and that strategy is paying off as our backlog continues to grow year over year as we expand existing programs, leverage the Mirai platform, and win new business. Turning to page nine. We are updating our long-term revenue and EBITDA targets aligned with our updated five-year backlog in current market conditions. Our long-term strategy has resulted in a growth profile that is expected to outperform the market by two to three times over the next five years and positions us for consistent, strong growth, resulting in substantial EBITDA margin expansion. From a midpoint of $975 million expected in 2023, we are anticipating another several years of strong growth, resulting in a long-term revenue target of $1.3 to $1.5 billion by 2027. Based on our 2027 revenue target, we are targeting an EBITDA margin between 11.5 and 13.5%. This EBITDA margin expansion will be driven by our expectation of continued contribution margin 25% to 30%, a favorable mix primarily aligned with growth in our aftermarket products and continued leverage on our existing fixed cost structure. Over the last four years, I helped craft the overall strategy of the company and provided overarching support to each segment. Now, as the CEO, I will focus on executing on that long-term strategy to drive sustainable performance and achieve our long-term targets. Turning to slide 10, we remain focused on certain key priorities as a company, and more specifically, within each segment to achieve our goals within this year and going forward. As we look forward to this year, we have a lot to be excited about. Overarchingly, we are focused on flawless execution of our major program launches, continuous improvement in our manufacturing facilities, and prudent cost control. control devices we will continue to focus on growing our core product portfolio aligned with powertrain electrification we will continue to invest in our actuation business as we anticipate greater opportunities as powertrains become increasingly electrified during driven by the expected growth in our actuation business and the rotation of our temperature sensing applications we expect that control devices will continue to deliver a strong margin profile on long-term growth that will outpace our underlying end markets. In electronics, our focus remains on executing on program launches, particularly our MirrorEye programs and our Smart2 Tachograph programs, launching this year. With the significant investment we have already made in MirrorEye, we will continue to expand our vision and safety platforms. We are focused on driving advanced development through a refined and more cost-effective global engineering structure, allowing us to both expand margins and continue the pace of development that has fueled our backlog and forward growth profile. Finally, StoneRidge Brazil will focus on continuing to grow our OEM capabilities in region to better support our global customers. This will drive steady future growth and provide a platform to continue to rotate our local portfolio to more closely align with our global business. Similarly, we will continue to leverage the talent and capabilities of our growing engineering team in Brazil to better support our global initiatives and more cost efficiently support our current programs and drive future growth. Each of our segments plays a critical role in helping us achieve our long-term targets. I am committed to continuing to execute on the long-term plans Storm Ridge has in place, as well as driving our company-wide priorities to achieve our goals. With the right focus, we will execute at a high level, resulting in strong margin expansion on growth that will continue to outpace our underlying end markets. Turning to page 11, in summary, we remain focused on implementing our long-term strategy to drive sustainable profitable growth and shareholder value creation. And with that, I will turn it over to Matt to discuss our financial results and guidance in more detail. Thanks, Jim.