Stoneridge, Inc.

Good day and thank you for standing by. Welcome to the conference call of Stone Ridge. At this time, all participants are in a listen mode only. 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'll then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference call is being recorded. I will now like to hand the conference over to your first speaker today, Kelly Harvey, Director of Investor Relations.

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 to our website at stoneridge.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-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 index for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. After Jim and Matt have finished the formal remarks, we will open up the call to questions. With that, I will turn it over to Jim.

Thanks, Kelly, and good morning, everyone. Let me begin on page three. During the third quarter, we continued to build on our second quarter progression to drive significant sequential margin and earnings improvement. Third quarter adjusted EPS of $0.10 is an increase of $0.15 versus the second quarter, while EBITDA margin improved by 260 basis points, or approximately $5 million. We continue to focus on gross margin improvements through production efficiency, material cost reduction, and excellence in execution. Despite volatility in our end markets, we continue to deliver on our commitments driven by an unwavering focus to both execute on our long-term strategy and drive continuous operational excellence. Our third quarter performance, which builds on improved results last quarter, continues to establish a good foundation to drive operating performance as we continue to grow the company. Given the strength of the foundation, Even in the face of market-based revenue headwinds, our full-year 2023 performance, exclusive of the impact of the UAW strike, is expected to be directly in line with our original guidance. We are refining our guidance, still keeping it within our original range, but reducing the adjusted EPS midpoint by $0.05, which is equal to the estimated impact of the UAW strike. Our updated full year midpoint guidance implies fourth quarter revenue of approximately $238 million and adjusted EPS of 15 cents or a 5 cent improvement relative to the third quarter. We will continue to build on the foundation of the last couple of quarters to drive strong performance to finish the year and provide a good runway heading into 2024. This morning we are providing a preliminary revenue expectation of over 5% growth in 2024. This significantly outpaces our underlying end markets, which are expected to contract by 1.5%. Matt will provide additional detail on our full year guidance and our expectations for 2024 later in the call. As we continue to drive margin performance, we are also focused on executing on the program launches that will continue to drive growth for the company. During the third quarter, we launched a Smart2 tachograph program in the European commercial vehicle market. This next generation smart tachograph was designed to meet the EU mobility package standards and provides us with significant revenue opportunities in both the OEM and the aftermarket applications over the next several years. I will discuss this program launch and our expectations for final contributions in more detail later in the call. Finally today, we're also announcing our participation in the Department of Energy Super Truck II Innovation Program with the largest North American commercial OEMs, including Natastar, Daimler Truck North America, Peterbilt, and Volvo Trucks. We are thrilled to partner with these OEMs on this program as the camera mirror system supplier to not only increase fuel efficiency and meet the Super Truck Program goals, but also provide significant safety benefit to the drivers. I'll provide additional details on our involvement in this program as well later in the call. Now moving to page four. Page four summarizes our key financial metrics for the third quarter relative to the prior quarter in more detail. For comparison purposes, we have excluded the favorable impact of the $3.3 million of non-recurring retroactive pricing that was recognized in the second quarter that was applicable to prior periods. Third quarter adjusted sales of $237.2 million declined by approximately 8% relative to the second quarter of 2023, due in part to variation in seasonal production and an unfavorable foreign currency translation impact of $1.3 million. Additionally, we are seeing slower than expected ramp ups in certain electrified vehicle platforms, as well as reduced demand in our on and off highway commercial vehicle end markets. Third quarter adjusted gross margin of 22.1% was approximately in line with the second quarter of 2023, primarily due to material cost improvements and improved freight costs offset by reduced fixed cost leverage on decremental revenue versus the second quarter. Adjusted operating margin improved by approximately 200 basis points to $7.3 million, primarily due to a significant step down in engineering costs. As we outlined last quarter, we expected this reduction to continue through the end of the year as program launch costs declined and due to the timing of customer engineering reimbursements as we close the year. We continue to deliver on our commitments driven by our focus to both execute on our long-term strategy and drive continuous operational excellence. Throughout 2023, we continue to take actions to optimize our organizational structure, reduce discretionary spending, and improve operating leverage. As a result, we expect continued operating margin expansion as revenue continues to grow. And finally, adjusted EBITDA margin of 7.2% improved by approximately 380 basis points over the prior quarter. And going forward, we will significantly outperform our underlying end markets as we continue to launch new programs and recognize the benefit of ramp up of recently launched programs. Additionally, we expect to further build on our margin momentum and drive significant earnings growth. Now turning to page five, the UAW's strike began on September 15th with incremental strike targets announced through mid-October. Over the last week, the UAW announced tentative agreements with Ford, Stellantis, and GM, which will bring the strikes to an end once the agreements are ratified by the union members. UAW began to strike targeted for GM's plants in the middle of September. And in September, given the specific plants on strike and the lag in production downtime we saw between the strike and order reduction from the OEs, the final impact on the third quarter was relatively small. That said, the impact of the fourth quarter will be more substantial as additional strikes continued into October. In October, the UAW strikes reduced revenue by approximately $3.5 million and operating income by approximately $1 million or 3 cents for the month. We expect there to be some residual impact of the strikes as we, as impacted facilities return to work and ramp up production to normalized output. We expect this residual impact to reduce revenue by an incremental $3 million and approximately $800,000 in operating income or an additional 2 cents in November before normalizing in December. In total, we expect that the UAW strikes will reduce revenue $7 million, reduce operating income by $2 million, and reduce adjusted EPS by approximately 5 cents. We have refined our guidance midpoint to reflect this 5 cent impact. As a company, we are committed to working to offset this and other externalities to ensure continued strong financial performance without sacrificing future growth or deviating from our long-term strategy. We remain focused on responding to strike impacts as appropriate with consideration for an efficient ramp up as strikes ended. We can continue to move forward with stable production now and efficiency in our supply chains, our customer orders, and in the business operations. Now turning to page six. This morning, I want to highlight yet another recent program launch, the launch of our next generation tachograph, the SMART2, in Europe. The program aligns with our overall strategy and continued focus on vehicle intelligence and connectivity as we expand our content for vehicle aligned with industry megatrends and, in this case, also aligned with regulatory requirements. The Smart2 tachograph is the next generation of our existing tachograph product, providing incremental capabilities to conform with the EU mobility package standards. Our platform makes drive time analysis more flexible and consistent and provides for the opportunity to add features and functionality to the platform going forward to ensure continued compliance with the latest regulatory requirements. The current market is primarily served by Storm Ridge and one other competitor and regulatory barriers exist for entry for other competitors. Beginning in August of 2023, the next generation smart tachograph is required to be on all newly registered vehicles, commercial vehicles over 3.5 tons that are involved with international transport. The new European standard also has incremental regulations requiring adoption on various vehicle types over the next several years, including the requirements for existing vehicles on the road. And as a result, we expect this program to drive significant growth opportunities with both European OEMs and in the aftermarket. The product launched in the third quarter and will ramp up next year, continuing to grow as new vehicles fall under the updated requirements. We are estimating Smart II tachograph revenue to be approximately $20 million in 2023 and more than $60 million in 2024 for both OEM and aftermarket opportunities. This is the latest in a long line of program and product launches over the last several years, including our digital driver information systems, our parked-by-wire actuators, our axle-based actuators, our Mirai, and now our most innovative tachograph yet. Storm Ridge continues to build a strong portfolio of technologies and vehicle systems aligned with the global industry megatrends. Now turning to page seven. I'm happy to announce and discuss our involvement with the Department of Energy Super Truck 2 innovation program with our Mirai platform. The Super Truck 2 program was launched by the Department of Energy in 2016 with the goal of achieving 120% increase in freight efficiency for the Super Truck 1 program that launched in 2009. The Department of Energy has indicated that heavy duty trucks haul 80% of goods in the United States and use about 28 billion gallons of fuel per year accounting for approximately 22% of total transportation energy usage. This presents a significant opportunity for carbon emissions reduction and energy savings for a key segment of our nation's transportation sector. The DOE has funded four projects to develop and demonstrate cost-effective technologies that collectively will more than double the freight efficiency of Class 8 trucks. And as I mentioned with Natastar, with Daimler Truck North America, with Peterbilt, and with Volvo Trucks. Mirai was selected as a partner for all four Super Truck II teams to help achieve significant increases in freight efficiency with the application of the Mirai and resulting in improved fuel economy. Mirai continues to gain momentum in North America. Mirai launched with Kenworth in North America in the second quarter of this year and is expected to launch on the Peterbilt nameplate soon. In addition, two additional North American OEMs are expected to launch in 2025. And in Europe, we are anticipating our largest OEM program to launch the first half of 2024. As we continue to expand awareness of the system through our expanding fleet trials and retrofit applications, as well as through the highly visible programs like Super Truck 2, we expect take rates to continue to improve along with incremental program launches. StoneRidge remains well positioned as the industry continues to focus on both vehicle efficiency as well as vehicle safety. Now turning to page eight, and in summary, we're so very pleased with our performance in the third quarter as we demonstrated our ability to execute yet another quarter over quarter improvement in financial performance. We continue to be laser focused on operating performance, and as a result, we have continued to deliver on our commitments set at the beginning of the year. This is driven by an unwavering focus to both execute on our long-term strategy and drive continuous operational excellence throughout all of the functions within the company. Our third quarter performance, which builds upon improved results last quarter, continues to establish a strong foundation to drive operating performance as we continue to grow the company. StoneRidge remains well positioned with a strong backlog of awarded business and a robust portfolio of innovative technologies aligned with the key industry megatrends. We will remain focused on execution to ensure that we not only significantly outgrow our underlying end markets, but we optimize earnings as we do so. With that, I will turn it over to Matt, and he'll discuss our financial results in more detail. Matt.