Stoneridge, Inc.

Good day and thank you for standing by. Welcome to the Stone Ridge second quarter 2023 conference call. At this time, all participants 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 1 1 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Kelly Harvey, Director of Investor Relations. Kelly, you have the floor.

Good morning, everyone, and thank you for joining us to discuss our second quarter results. The release and accompanying presentation was filed with the SEC yesterday evening and is posted on our website at stoners.com. in the investor section under webcast and presentation. Joining me on today's call are Jim Bisselman, 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 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 then open up the call to questions. With that, I will turn the call over to Jim.

Thanks, Kelly, and good morning, everyone. Let me begin on page three. In the second quarter, we drove strong top-line growth and significant margin improvement resulting in financial performance that exceeded the expectations we outlined on the first quarter call. As expected, we finalized the majority of our pricing negotiations in the second quarter, resulting in retroactive and forward-looking price increases. Additionally, we continued to focus on improving manufacturing performance and optimizing our global cost structure to both reduce costs and improve operational efficiency. This resulted in significant operating margin improvement in the quarter and provides a good foundation to drive continued operating performance as we continue to grow the company. Second quarter adjusted sales grew by 13% relative to the first quarter to $262.4 million. Second quarter growth outpaced the growth in our weighted average end markets by more than five times. Second quarter adjusted gross and operating margin improved by 470 and 390 basis points respectively versus the first quarter, resulting in a gross margin of 23.2%, over $6 million of operating income, and an operating margin of 2.4%. Our adjusted EBITDA margin increased by 300 basis points to 4.5%, while adjusted EPS for the quarter improved by 20 cents relative to the first quarter. Second quarter EPS and adjusted EBITDA included non-operating expenses of $2.7 million, or approximately $0.08, primarily related to below-the-line non-operating foreign currency expenses. Excluding these non-operating expenses, adjusted EPS would be approximately $0.03 in the quarter, while adjusted EBITDA margin would be approximately 5.5%. This morning, we are updating our expectations for operating performance and guiding to the high end of the previously provided range for adjusted revenue, gross margin, and operating margin to reflect improved operating performance, continued strong demand, and the favorable impact of completed price negotiations with our customers. Primarily as a result of the below-the-line non-operating costs recognized to date, we are reaffirming our previously provided four-year guidance ranges for adjusted EPS, EBITDA, and tax expense. Now, on page four, we're summarizing our key financial metrics for second quarter relative to the prior quarter in greater detail. Each of our key financial metrics improved significantly relative to the first quarter. Second quarter adjusted sales grew by 13% relative to the first quarter of 2023, driven primarily by strong performance across each of our primary segments and key end markets. In addition to increased pricing, we saw continued strong demand in our commercial vehicle end markets, stable production in North America, and normalization in our China and off-highway end markets. Easing material constraints contributed to strong production volume and reduced production volatility for both us and our customers. Adjusted gross margin increased by 470 basis points relative to the first quarter of 2023, primarily due to incremental pricing. As expected, gross margin was significantly impacted by the finalization of customer price agreements, as well as contribution on incremental sales. We expect the price agreements reached during the quarter will result in sustainable, improved profitability as we capitalize on our strong forward growth profile. Adjusted operating margin improved by 390 basis points resulting in operating income improvement of $9.7 million relative to the first quarter. During the quarter, we took several actions to optimize our organizational structure, reduce discretionary spending, and improve operating leverage. We expect these actions will continue to drive improved operating margin as revenue continues to grow. During the quarter, operating performance was partially offset by a higher engineering spend as a result of required short-term support for key program launches. We expect D&D costs to be more in line with the first quarter by the end of the year as we progress toward the launch of several major programs, including the launch of the SMART II tachograph this summer. Additionally, we are accelerating our plan to utilize our global resources to align engineering capability and capacity with cost efficiency. Finally, adjusted EBITDA margin improved by approximately 300 basis points as a result of improved operating performance. This is partially offset by the impact of non-operating expenses relative to foreign currency adjustments on intercompany loans and a small adjustment to the fair value of our investment and auto tech ventures. Including these non-operating expenses, adjusted EBITDA would be $14.7 million, resulting in an adjusted EBITDA margin of 5.6%. Overall, we are very pleased with our operating performance in the quarter and even more excited about the foundation we are building to generate improved operating performance on the strong growth we expect going forward. Now turning on to page five, while we continue to focus on improved operating performance, we are also continuing to execute on our long-term strategy focused on drivetrain agnostic technologies across our segments and markets and customers. This morning I want to highlight a new business award aligned with this long-term strategy and consistent with our strategy focused on safety and electronics, We will also provide some very exciting new information regarding our existing Mirai programs. Today, we are announcing new business that encompasses both the extension of an existing front axle disconnect program and the awarding of the next generation program for a major OEM in our control devices segment. The front axle disconnect is an actuation device that decouples and recouples the front axle in 4x4 vehicles. in order to allow for a seamless transition between four-wheel drive and two-wheel drive. The extension and new award secure our strategic position on high-demand light trucks and SUVs through 2032. These programs are expected to generate approximately $20 million in peak annual revenue. This award demonstrates our capabilities in advanced actuation devices and continued expansion in four-wheel drive applications, but in addition, This product aligns with our platform-based driveline agnostic approach as this technology can be applied to hybrid and fully electric vehicles as demonstrated by our disconnect product that was recently launched on the hybrid electric Corvette E-Ray. Next, I would like to provide an update on another product that we believe has significant upside, our very first North American near-eye OEM program. This morning, I am happy to announce that Packar is our first North American customer. The Kenworth T680 truck now offers Mirai as an option, offering improved fuel economy of up to 1.5%, enhanced driver visibility during the day, night, and in inclement weather, and the ability to track the trailer around a corner or while backing through any driving environment. We are so proud to support the launch of this industry-leading and innovative new platform. The program launched in mid-April, and production continues to ramp up on the Tamworth vehicles. Also aligned with our prior expectations, the Peterbilt production launch will soon follow. In addition, our fleet customers have expressed to us their excitement around this OEM offering, which suggests very strong market demand in North America. Additionally, the Mirai OEM program in Europe remains consistent at an approximately 40% take rate. Other OEMs are starting to take note of the strong market demand, both in North America and Europe, and we continue to work with our current and potential customers to expand Mirai onto other OEM programs, platforms, and configurations, and we plan for increasing demand as well. As we outlined last quarter, our next OEM has already increased their expected take rates. Our strategy is working. Our strategy is working. We continue to win new business awards, launch new and exciting technologies across our end markets, and support our customers as they bring best-in-class, industry-changing technologies to market. Now, turning on to page six and in summary, we're so very pleased with our performance in the second quarter as we demonstrated our ability to execute and drive improved financial performance. As a result of our rigor and discipline in completing customer price negotiations in the second quarter, as well as our laser focus on operating performance, we recognize substantial gross margin improvement that translated to improved operating performance during the quarter. Now with the majority of our customer price negotiations complete, we will continue to focus on improving execution in our manufacturing facilities and in all of our supporting functions, resulting in both reduced costs as well as more efficient operations. Now, with that, I'll turn it over to Matt to discuss our financial results in more detail. Matt, it's all yours. Great. Thank you, Jim.