Stoneridge, Inc.

Good day and welcome to the Stone Ridge Inc. Fourth Quarter 2024 Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Kelly Harby, Director of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us to discuss our fourth quarter and full year 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 Zisleman, our President and Chief Executive Officer, and Matt Horvath, our Chief Financial Officer. During today's call, we will be referring to certain non-GAAP financial measures. Please see slide two of the presentation for a more detailed description of these non-GAAP financial measures and the appendix for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. In addition, 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 on page 3 of the presentation and in our 10-K, which will be filed with the Securities and Exchange Commission under the heading Forward Looking Statements. After Jim and Matt 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, and good morning, everyone. Let me begin on page four. In 2024, Stone Ridge-specific growth drivers, our continued focus on the execution of our major program launches, continuous improvement in our manufacturing facilities, and structural cost control enabled us to navigate through a very challenging macroeconomic environment. Driven primarily by our key growth products, including Mirai and our next-generation tachograph, the Smart2, we were able to outperform our weighted average end markets by 490 basis points. As our growth products continue to mature and our end markets continue to improve, we remain focused on improving our ability to drive earnings growth and cash performance through improved material and structural costs and improvements in working capital, particularly in inventory. In 2024, we were able to reduce our overall material costs by 120 basis points and improve direct labor by 30 basis points, which is effectively a 7% improvement year over year. Additionally, our focus on cash performance and inventory management resulted in positive free cash flow of approximately $24 million, an increase of approximately $56 million versus the prior year. While we are proud of our achievements in 2024, we recognize there is still opportunity for significant improvement, especially in quality. Additionally, we are focused on overall cost structure, as evidenced by our recent actions to de-layer certain corporate functions, which reduce costs and is improving operational efficiency. Finally, in 2024, we initiated a project in our largest manufacturing facility in Juarez, Mexico to streamline our operations, reduce manufacturing costs, improve material flow, and reduce our structural overhead. While we began to see the benefits of this project in 2024, we expect to annualize these savings and add to them as we complete the project this year. Quality-related costs, material cost improvement, and structural cost reductions remain our key priorities for 2025. Page 5 summarizes our key financial metrics for the full year 2024 compared to the prior year. In an environment where our weighted average OEM end markets declined by 10.4%, our full year 2024 sales of $908.3 million outperformed those end markets by 490 basis points. More specifically, Mirai revenue increased 22% year-over-year, driven primarily by the launch of our program with Volvo in Europe. We expect continued success with Mirai in 2025 as we launch additional programs in North America with Volvo and Daimler Truck, driving more than $50 million of additional growth for Mirai. Additionally, Smart2 Tachograph continued to ramp up in 2024 in both the OEM and aftermarket in Europe, resulting in just under $60 million in revenue for the full year. Again, these tachograph programs provided significant growth over the prior year, with sales almost doubling relative to 2023. We expect continued success with our Smart II tachograph in 2025, as more vehicles become subject to the European regulations requiring this device. Storage remains well-positioned for growth in our key product areas. Full-year gross margin was relatively in line with 2023, despite the decline in revenue. This was driven by our actions to improve material costs, manufacturing performance, and quality-related costs. Driven by our continued focus on supply chain strategy, including resourcing and negotiated price downs with our suppliers, as well as re-engineering components, we were able to reduce material costs by 120 basis points year over year. We continue to focus on operational improvement throughout our facilities, which contributed to a 30 basis point improvement in direct labor, again, which is a 7% reduction year over year. Finally, we continue to focus on built-in quality, responsiveness, and proactive process to address any quality issues we find as we continue to enhance our engineering capabilities and capacity globally. Full-year adjusted EBITDA margin declined by approximately 80 basis points compared to the prior year. Despite significant top-line headwinds driven primarily by challenging end markets, our focus on improved operational performance drove a decremental contribution margin of just 19% versus our historical average of 25% to 30%. And finally, I mentioned previously, our focus on cash and inventory management drove positive free cash flow of approximately $24 million, an increase of approximately $56 million versus the prior year. This was driven primarily by significant improvement in our inventory balances, which declined by $36 million this year. Overall, despite continued and significant challenges in our end markets, we were able to outperform our weighted average end markets, significantly improve our operational performance, and drive much stronger cash performance in 2024. Turning to slide six, Mirai continued to gain momentum in 2024 through our global OEM programs as well as continued expansion in both the aftermarket and bus end markets. We expect strong momentum to continue in 2025 as Mirai continues to be the industry-leading camera monitor system for the global commercial vehicle and bus markets. Full year 2024 Mirai revenue of $66 million grew by 22% compared to the prior year. This is primarily driven by newly launched OEM programs offset by significant headwinds impacting global commercial vehicle production volumes, particularly in Europe, where production declined by 24% versus 2023. We launched our European Volvo program on the FM and FH model trucks in mid-2024. As expected, this program contributed significant incremental revenue in the fourth quarter due to strong market penetration as a new truck model ramped up production. Additionally, we launched with Peterbilt on Models 579 and 567 in North America, joining the already-launched Kenworth program, driving incremental sales during the year. This year, we are launching Mirai programs on Volvo's all-new V&L truck in North America and Daimler truck North America's fifth-generation Freightliner Cascadia truck. Both launches include the independent wing design, which separates the system from the traditional mirrors. As such, the system falls under Stone Ridge's FMCSA exemption, allowing owners to remove conventional rearview mirrors and operate using only the factory-installed camera monitor system. This allows the end customer to fully recognize the benefits of the aerodynamic wing design that reduces drag by eliminating the traditional side mirrors, contributing to improved fuel efficiency. As a result, we expect the take rates of these systems to improve. as the new truck models ramp up throughout this year and into 2026. This morning, I'm also happy to announce that we are partnering with the final primary North American OEM customer to roll out retrofit applications to their customers through a pre-wire option and direct installation with a selected aftermarket upfitter. Similar to other pre-wire programs, this program is without an official volume-based award However, it creates a significant opportunity to showcase our system specifications and capabilities to both this OEM partner as well as their end customers. With this program, Mirai will continue to be the only system available on new production vehicles in the United States and with every major OEM in North America. As has been historically the case, we will continue to work with this OEM to expand the pre-wire program into a permanent OEM available system. Based on current market indications, additional program launches, and the expected ramp-up of new truck models, we expect significant Mirai revenue growth in 2025. Full-year 2025 revenue is expected to grow by at least $54 million, or almost double to $120 million, of which $100 million relates to OEM program revenue. As discussed on previous earnings calls, many of our existing customers have begun to equip their trucks with Mirai as standard equipment. including certain long-haul trucks for DAF and Volvo in Europe. Additionally, Mirai continues to be optional on many other models for these same customers. Given the adoption on some trucks as standard equipment, as well as the continued positive feedback from our customers and their end customers, we are expecting higher take rates for the system in 2025 and beyond. We are confident market adoption of this industry-changing technology will continue to accelerate. As a result, and as we will discuss in more detail later in the call, we are updating our long-term revenue targets to reflect Mirai OEM revenue to almost triple by 2029 to almost $300 million annually. This estimation is based on our targeted European take rate of approximately 50%, based on the extrapolation of current take rates, and targeted North American take rates of 25% to 35%. This North American improvement is driven by customer feedback from both our OEM and fleet partners, expected momentum and overall market adoption, maturing launches, and design and functionality changes in our new and existing programs. By the end of 2025, we'll have all four global OEM programs launched on a number of different nameplates and models. With so many models already offering Mirai as standard equipment, we are confident market adoption will continue to accelerate. Now, turning to slide seven, and as we have discussed in the past, we continue to expand our core technology and product areas to drive long-term growth. Aligned with our focus on commercial vehicle safety and efficiency, we have developed a suite of products related to trailer connectivity to the tractor. The ability to connect the tractor to the trailer seamlessly stems from our proprietary technology, enabling data to be transmitted through the existing power cables in the trailer and connected to the tractor through the existing harness and wiring. This allows for fast and easy adoption of the capabilities and does not require any additional training or change to driver habits. This point of connection enables many different trailer connectivity products and capabilities. The most impactful and most desired by our fleet partners with which we are working is the trailer backup camera. The digital backup camera is mounted on the back of the trailer with integrated lighting and software overlays, to illuminate and guide the driver as they maneuver the trailer in low light or tight parking conditions. The key differentiator with our product is the ability to integrate the backup camera through a hardwired connection providing effectively no latency and a very high quality digital image. This configuration avoids the adverse effects of wireless systems such as the distance to the camera or impediments to the video signal. The value proposition for the backup camera is very strong and we expect good adoption once the system is broadly available, which we expect to start later this year. With the hardware connection of the trailer, the possibilities for connectivity and system expansion are almost limitless. We are able to add additional camera and sensor applications throughout the trailer, both inside and out, to address a number of the issues drivers deal with today. Through the secondary display that can be integrated with the current climate and infotainment display, we can transmit critical information to the driver such as tire pressure and temperature, rear door jar status, and the ability to monitor cargo on the interior of the trailer with an integrated camera. We have been working with select key fleet partners to design the system features and align the value proposition before expanding our commercial focus and broadly launching the system. We expect to begin to roll out the system on a limited basis in 2025, followed by significant expansion in 2026. Our suite of trailer connectivity products and solutions highlight our continued focus on expanding on our core technologies and platforms to drive long-term growth. With that, I'll turn it over to Matt to discuss our financial performance and expectations in more detail. Matt? Thanks, Jim.