Stoneridge, Inc.

Welcome to the Stone Ridge, Inc. Second Quarter 2024 Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. I would now like to turn the call over to Kelly Harvey, Director of Investor Relations. Ms. Harvey, please go ahead.

Good morning, everyone, and thank you for joining us to discuss our second quarter 2024 results. The release and accompanying presentation was filed with the SEC and is posted on our website at StoneRidge.com in the Investor section under Presentations and Events. Joining me on today's call are Jim Zisselman, our President and Chief Executive Officer, Matt Horvath, our Chief Financial Officer, and Troy Koopreiter, our Chief Technology 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 yesterday with the Security 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 Slide 3 for a more detailed description of these non-GAAP measures and the appendix for a reconciliation of these non-GAAP measures to the most directly comparable gap measures. After Jim, Matt, and Troy have finished their formal remarks, we will then open up the call to questions. And with that, I will hand the call over to Jim.

Thank you, Kelly, and good morning, everyone. Beginning on page four, our second quarter financial performance highlights our continued focus on improving the fundamentals of our business, leading to significantly improved margins in the quarter. This is primarily driven by continued material cost improvements and operating cost control as we continue to execute on the key initiatives we set at the beginning of the year. Our efforts resulted in a 250 basis point improvement in gross margin, a 210 basis point improvement in adjusted operating margin, and a 410 basis point improvement in adjusted EBITDA margin over the first quarter. Matt will provide additional detail regarding our quarterly financial performance and expectations for the remainder of the year later in the call. We remain focused on flawless execution of the program launches that will drive strong growth going forward. We are excited to announce that during the second quarter, we began shipping our first Mirai OEM systems to Volvo for the launch of their FH Aero model in Europe. Similarly, our program with Peterbilt North America launched on models 579 and 567 in July. Both customers are focusing significant marketing efforts on Mirai as a differentiating product in the market, and our initial customer feedback has been excellent. I will provide a more detailed update on our OEM programs also later in the call. Finally, this morning, I will provide some additional detail on the recent announcement by Volvo Bus that they have partnered with StoneRidge to provide connected services and digital solutions using our artificial intelligence fuel advice system in a pilot program this year. This partnership is aligned with our continued focus on data services, software, and AI to drive advanced system capabilities and an expansion of our existing technology platforms and products. As a follow-on to that discussion, this morning we welcome Troy Koopreiter, our Chief Technology Officer, to the call to expand on our advanced development activities, including what's next for StoneRidge, utilizing our capabilities in advanced software and AI. We continue to improve the financial performance of the business through a robust focus on core operating performance and investing in the technologies and capabilities that will drive continued long-term growth. Page 5 summarizes our key financial metrics for the second quarter compared to the first quarter of the year. Second quarter sales of $237.1 million were approximately in line with first quarter sales when you exclude the impact of foreign currency. Driven by continued progression on our key company initiatives, margins expanded significantly in the second quarter. A continued focus on broad operational excellence, including material cost improvement actions and reduced quality-related costs, drove the gross margin to 22.7%, a 250 basis point improvement over the first quarter. Adjusted operating profit of $5.4 million resulted in adjusted operating margin of 2.3%, which is an improvement of 210 basis points over the first quarter. This expansion was primarily due to gross margin improvement and overall lower engineering spend as we continue to focus on controlling operating costs to improve earnings performance. Finally, second quarter adjusted EBITDA of just over $16 million drove an adjusted EBITDA margin of 6.8%, which is improved sequentially by 410 basis points. This was driven by improved operating performance I just outlined as well as the favorable impact of non-operating foreign currency of $2.3 million. This favorable non-operating FX impact more than offsets the unfavorable impact that occurred in the first quarter of approximately $2 million for a total quarter over quarter benefit of $4.3 million. Matt will provide further details on our second quarter performance later in the call. Now turning to page six. In April, we announced that Natalia Noble was appointed as President of Electronics, effective September 1st of this year. She will succeed Peter Osterberg, who by mutual agreement has left the company to pursue other opportunities. Natalia's appointment marks an exciting new chapter for the company. Natalia has more than 20 years of automotive and commercial vehicle experience. Prior to StoneRidge, Natalia spent nearly two decades at Wabco, where she held progressively challenging roles across operations, sourcing and purchasing, project management, quality, Six Sigma lean, and change management. Following Wabco's acquisition by ZF in 2020, Natalia seamlessly transitioned into various leadership positions within ZF, focusing on integration, quality assurance, and P&L ownership. In her new role as president of the electronics division, Natalia will be responsible for leading financial performance, product development, business strategy, and technical vision. She will also manage the division's engineering, sales, and manufacturing functions to ensure alignment with StoneRidge's business and operational strategy, drive operational excellence, and deliver long-term shareholder value. Her proven track record of leadership and innovation align with our commitment to delivering cutting-edge solutions for the mobility industry to drive long-term profitable growth. And I'm confident that under her leadership, our electronics division will continue to accelerate its drive forward. Turning to page 7, as mentioned earlier on the call, our largest OEM Mirai program has launched with Volvo on the FH aero model in Europe. Our system replaces the traditional mirrors on the new Volvo truck with aerodynamic wings that contribute to significant improvements in fuel efficiency on the new vehicle. Our system improves driver visibility and improves overall vehicle safety through the reduction of vehicle blind spots software-based safety improvements, including auto panning, and improved performance versus traditional mirrors in inclement weather. We are proud to support Volvo on the brand-new FH Aero with our industry-leading camera mirror technology and look forward to launching the technology on their North American platform, the all-new VNL, early next year. The initial feedback in the system from customers and industry experts has been exceptional. as they have praised the clarity of the image, the responsiveness, and the overall safety improvements facilitated by the system. As can be the case with new program launches, we are seeing a broad range of potential volumes for the remainder of the year. While we are very early into the launch, current orders for the year are relatively lower than our initial expectations. However, the feedback directly from Volvo has been to expect volumes in line with our original expectations. And as such, we have expanded potential volume outcomes for this year in our guidance. Overall, we continue to be very bullish on the launch of this product as we continue to see incremental orders for the system. For example, just last week, orders increased by more than 10% for the remainder of the year. In addition, customer feedback continues to support incremental volume, including a public announcement by Volvo that they have secured one of their largest deals ever an order of 1,500 vehicles from an Italian transportation and logistics company, all of which will be equipped with Mirai and delivered throughout 2024 and 2025. Given the strength of the customer feedback, we expect run rate customer take rates to at least reach the levels initially expected at approximately 45%. And we'll continue to provide updates on this progress as the year continues. In addition, our Mirai program with Peterbilt in North America on models 579 and 567 launched in July, with their marketing focused on the system's core features, including maximizing driver visibility and safety. We continue to work with all of our customers to reach their end customers to drive awareness of the system with the ultimate goal to drive take rate expansion. This morning, I'm also excited to provide an update on a partnership that was recently announced between Volvo Bus and StoneRidge related to our connected services and digital solutions. StoneRidge's data and artificial intelligence fuel advice solution will be available to Volvo Bus customers in selected markets in a pilot program starting this year. This technology uses artificial intelligence to provide predictive insights to fleets about their drivers, planned routes, and fleet performance, allowing for more efficient and intelligent decision-making. Our innovative collaboration with Volvo Bus enables them to support their customers' transformation into connected and sustainable people transport solutions. Expanding on our existing products and technology platforms with advanced capabilities, applications, and data services, is core to our long-term strategy. To expand more on some of the exciting advanced development activities that will continue to propel our long-term growth, I'd like to welcome Troy Cooprider, our Chief Technology Officer, to the call.