Stoneridge, Inc.

Good day and welcome to Stone Ridge Second Quarter 2026 Earnings 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 touch-tone phone. To try your question, please press star, then two. Please note, this event is being recorded. Now I turn the conference over to Mike Schwartz, Stone Ridge Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us to discuss our second quarter 2026 results for the period ended June 30th, 2026. The release and accompanying presentation were filed with the SEC and are posted on our website at stoneridge.com in the investor section under presentations and events. Joining me on today's call are Natalia Noblet, our President and Chief Executive Officer, and Scott Humphrey, our Chief Financial Officer. Before we begin, I would like to inform you that as a result of the sale of the control devices business segment on January 30, 2026, the company has applied the provisions of discontinued operations accounting guidance and has retrospectively presented the financial results of the control devices segment as discontinued operations in the accompanying presentation for all periods presented. Additionally, in connection with the retrospective presentation of control devices as discontinued operations, prior period segment information has been recast to conform to current period presentation. More information on the basis of presentation is included in the Form 10-Q, which was filed with the Securities and Exchange Commission on August 5, 2026. During today's call, we will be referring to certain non-GAAP financial measures. Please see Slide 2 of the presentation for a more detailed description of these non-GAAP 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. 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 three of the presentation and in our Form 10-Q, which will be filed with the Securities and Exchange Commission under the heading Forward-Looking Statements. After Natalia and Scott have finished their formal remarks, we will then open the call to questions. And with that, I will hand the call over to Natalia.

Thank you, Mike, and good morning, everyone. We are encouraged by our progress in the second quarter, and we believe that initiatives to generate operational efficiencies and enhance profitability are beginning to materialize. In addition to strengthening operational performance, we continue to advance market penetration of our innovative safety and efficiency-enhancing products and technologies. While understanding that this is a journey and not a sprint, I am proud of what we accomplished during the quarter. I want to personally thank the entire StoneReach team. Without your hard work and dedication, this significant progress towards achieving our objectives would not be possible. Before we get started, I would like to extend a warm welcome to our new Chief Financial Officer, Scott Humphrey, who joined us eight weeks ago. Scott is a high-caliber addition to the StoneRidge team. Next to being a seasoned public company executive, Scott's deep financial and strategic acumen, sound leadership, and focus on delivering profitable growth will be invaluable as we execute against our long-term operational and strategic priorities, optimize the capital structure, and pursue opportunities to maximize shareholder value. Later in this call, Scott will offer introductory remarks and provide greater detail on second quarter financial results and full year guidance. Let's now turn to slide four. Second quarter results came in ahead of our expectations. Our revenue, excluding the impact of currency and the Mexico manufacturing agreement related to the sale of the control devices business, grew by nearly 8%. This was the fastest rate of organic growth in over two years. We continue to see signs of stabilization and modest improvement in our European and North American commercial vehicle markets, and our portfolio of products continues to gain traction with customers. Miro Rai hit another sales record in the second quarter, and we recently announced another OEM business award, this time the largest program to date for the bus and coach segment, representing $42 million estimated lifetime revenue, with full commercialization expected in 2027. Actions which we have taken to improve productivity and realign our cost structure also contributed meaningfully during the second quarter. SG&A as a percentage of sales improved 182 basis points versus last year, and EBITDA increased more than six-fold, representing the highest level in eight quarters. We remain on track to reduce operating costs by $5 million this year. Working capital discipline was also a highlight, with cash from operations totaling just over $12 million, A 38% improvement versus last year. Each of these achievements, which Scott and I will discuss in greater detail, serves as a testament to the vision and dedication of the entire StoneRidge team and gives us greater conviction that the successful execution of our strategic objectives will place the company on a firmer path to profitable growth. Finally, we are reaffirming the full year guidance previously communicated in May. As I stated earlier, we are seeing improved commercial vehicle demand in our largest markets, and our year-to-date performance through June is encouraging. Growing OEM adoption of our mirror ICMS technology, cost structure enhancement, and efforts to address inflationary pressures should serve as tailwinds to our business over the remainder of the year. However, we believe it prudent to balance these positives against macroeconomic and geopolitical uncertainty in our key regions. Put simply, we will continue to control what we can control, and we are committed to executing our long-term strategic plan as we navigate the challenging external environment. Now let's turn to slide five for a review of our end markets. Our global commercial vehicle end markets performed largely as expected with generally flattish trends throughout the first half of the year. During the second quarter, we again outperformed the market with organic revenue growth of nearly 8% versus the prior year. This meaningfully outpaced our weighted average OEM end market, which declined nearly 2% for the quarter. As mentioned on our first quarter earnings call, we are seeing the emergence of positive signs in our commercial vehicle markets. In fact, over the past few weeks, several of our largest OEM customers have publicly commented on strengthening order books and plans to run production throughout the second half of 2026. In Europe, we are seeing normalization in demand and expect a transition to modest growth in 2026. Demand in North America, which has gone through a deeper cyclical downturn last year, appears to have bottomed and is now showing signs of recovery driven by a strengthening tracking market. These dynamics should favorably impact our business over the balance of the year. These trends were recently confirmed by IHS, as you can see from the charts on slide five. IHS forecast now suggests that our weighted average OEM and markets will grow by 5.5% year over year in 2026. This compares to the 1.8% rate of growth expected at the time of our first quarter call in May. For 2027, IHS is now anticipating an additional 5.4% year-over-year growth in our OEM end markets. While this is down from the 10% growth expectations for 2027 just three months ago, On an absolute volume basis, the 2027 forecast is largely unchanged. In other words, the revision to the IHS forecast appears to be influenced in part by timing of orders and deliveries favoring 2026. In sum, all the macroeconomic and geopolitical headwinds continue to persist, who are incrementally positive on commercial vehicle demand into the second half of the year. Turning to slide six. Our priority is delivering outstanding value to customers while collaborating with all of our partners to advance next-generation technologies for safer and more efficient transportation. As mentioned before, we have announced a new bus and coach program with a leading global commercial vehicle manufacturer. This latest program award is a strong signal of where the industry is headed and a broader transformation underway as OEMs accelerate the shift toward digitalization and next-generation technologies in several market segments. Transit operators are looking for safer, smarter, and more efficient solutions, and MirrorEye continues to deliver on all fronts. Just as importantly, it reflects the strength of our customer relationships and the trust we've built to create a foundation for continuous collaboration and future program opportunities. This award is also the result of the successful launch of the MirrorEye MP2 system, the latest evolution of StoneRidge's MirrorEye technology platform, specifically engineered for buses and coaches. MirrorEye MP2 integrates advanced safety capabilities, including blind spot information system and moving off information system features, along with digital video out functionality for recording and analysis. Turning to slide seven. Demand for our Murarite technology continues to accelerate, driven by growing market acceptance, the successful launch and ramp of North American programs, and continued commercial momentum across multiple vehicle segments. Next to the truck segment, our systems are present in more than 20 bus and coach programs, accompanied by our expansion into the agriculture of highway markets. This underscores the applicability of our technology and the strength of our relationships with leading OEMs. As mentioned earlier, Mirai set yet another quarterly record with $37 million in sales during the second quarter. This represents 10% growth compared to the first quarter of 2026 and 39% year-over-year driven largely by our European OEM programs with continued strength in market penetration and take rates. Complementing this growth is the continued ramp up of recently launched OEM programs in North America. As we pass through the ramp up phase, we are focused on engineering optimization that will allow us to benefit from platform approach while adding product features at the same time. With the volume increase and maturity gain, We will also see higher capacity utilization and material cost improvement through supply chain optimization. By executing those key activities, we can fully realize the value of our technology. Now, I will turn the call over to Scott for second quarter financial details and the 2026 outlook.

Thank you, Natalia. Before I dive into the financials, I would like to quickly express my gratitude to the entire StoneRidge family for their support over my first two months. During this time, I've had a chance to meet many Stoneridge teammates and stakeholders. From my conversations, the themes are abundantly clear. This is a passionate and dedicated team focused on delivering value to our customers through developing innovative solutions, improving organizational efficiency, and striving to optimize execution. The current product portfolio and future roadmap are truly exciting. and demonstrate Stone Ridge's mission for delivering best-in-class safety and efficiency-enhancing technologies for our customers. I am confident that this team is well-positioned to tackle the opportunities ahead for Stone Ridge as we look to accelerate growth and deliver on our key strategic priorities, which will improve overall profitability. Now to the numbers. Our key financial metrics for the second quarter are summarized on slide nine. All comparisons are depicted relative to the year-ago period ended June 30. Second quarter revenue came in at $181 million. This represented growth in excess of 15% versus last year. On a core basis, which excludes an approximate $4 million benefit from favorable foreign currency translation and the recognition of $7 million of contract manufacturing revenue, Under the Mexico Manufacturing Agreement associated with the sale of the control devices business, second quarter sales grew by nearly 8%. The increase was primarily driven by the North American commercial vehicle market, supported by another record quarter of mirror eye revenue and double digit growth at Stone Ridge, Brazil. Second quarter adjusted gross profit margin declined 277 basis points versus the year-ago period to 20.3%. During the quarter, we continued to make progress on our continuous improvement programs aimed at generating material cost improvements and overhead efficiencies while driving product quality improvements. However, our efforts were overshadowed by a combination of higher material expense due to currency translation losses and discrete inventory-related costs as a result of a gradual shift of our mirror eye adoption in North America from retrofit solution towards factory-built products in order to support our recent OEM launches. Lower sales of our Smart II tachograph product in 2026 following the completion of last year's European regulatory retrofit campaign also weighed on gross margin percentage during the quarter. Assuming constant currency, we anticipate that these items will have a lesser impact on profitability over the balance of the year. Second quarter adjusted operating income margin improved by 100 basis points as the higher revenue base and benefits from our cost improvement program more than offset the decline in consolidated gross profit margins. As a percentage of sales, SG&A expense declined by 182 basis points to 14.3%. To put a finer point on the progress we are making in resetting our cost structure, despite a $24 million year-over-year increase in sales during the quarter, SG&A expenses were up by less than $400,000. Adjusted Consolidated EBITDA came in at $5.5 million in the second quarter. On a continuing operations basis, this marks StoneRidge's highest quarterly adjusted EBITDA in two years. As a percentage of sales, adjusted EBITDA margin expanded 251 basis points year over year to 3%. This was largely attributable to the strong quarterly revenue performance and realized cost efficiencies described previously. In summary, the improved top and bottom line results during the second quarter give us increased confidence that the strategy Natalia has outlined and the actions taken to date should ultimately lead to a stronger and more profitable foundation for growth in the years ahead. Turning to slide 10. Second quarter sales in our electronics business came in at $160.9 million, a nearly 13% improvement versus the prior year. Excluding favorable currency translation and the impact of the aforementioned Mexico manufacturing agreement, core segment growth was 6% year over year. MirrorEye was a highlight, generating a quarterly record $37 million in revenue, or a 39% increase versus the prior year. Segment-level adjusted operating margin improved 12 basis points versus the year-ago period. The increase in sales combined with cost mitigation efforts and operational efficiencies neutralized the impacts of unfavorable mix, the currency influence increase in materials expense, and the inventory-related costs mentioned earlier. We remain committed to improving our cost structure through a variety of ongoing initiatives Such as the optimization of material and structural costs, recovery of inflationary cost increases, and reduction of quality-related expenses. Stone Ridge, Brazil delivered an outstanding quarter as depicted on slide 11. Second quarter sales reached a record $20.5 million, up 38% versus the prior year. Excluding a roughly $2 million benefit from currency translation, revenue was up nearly 26%. While the second quarter benefited from a temporary competitive supply dislocation in that market, these results speak to the broader traction our Brazilian business has witnessed due to our strategic actions to realign our product lineup and expand the opportunity set with new and existing OEM customers. Brazil remains an attractive long-term growth market for Stone Ridge. Second quarter adjusted operating income was approximately $2.3 million. As a percentage of sales, adjusted operating income reached 11.2%. The 464 basis point year-over-year improvement was driven by record gross profit and improved fixed cost leverage across a higher sales base. I will next discuss the balance sheet and liquidity profile as detailed on slide 12. As of June 30, 2026, we had approximately $72 million in cash on hand and total debt outstanding of $151 million. This compares the total cash of approximately $46 million and total indebtedness of $164 million as of June 30, 2025. The $39 million reduction in net debt reflects the deployment of proceeds from the sale of the control devices business in January and tighter control of working capital during the first half of the year. At the end of the second quarter, we reduced inventory on hand by approximately $5 million and lowered the electronic segment days in inventory by 15 days year over year. Capital expenditures amounted to $4.6 million in the quarter. Based on our current guidance and most recent amendments to our existing credit facility, we expect to remain in compliance with our covenant ratios and have sufficient liquidity to meet ongoing operational and capital investment needs. As previously disclosed, in April we initiated a refinancing process to replace our existing credit facility, which matures in July 2027. Our top priority is maintaining a prudent capital structure that supports our near and longer-term growth objectives. While we do not have updates today, we have had constructive conversations with our banking partners and are on schedule to complete the refinancing process by the end of November. Now turning to 2026 guidance on slide 13. As Natalia discussed earlier on the call, Based on our second quarter and first half financial results and given current visibility into the balance of the year, we are reaffirming our full year 2026 outlook. Specifically, we continue to expect revenue in a range of $645 to $670 million and adjusted EBITDA in the range of $20 to $25 million. Our implied second half 2026 guidance continues to reflect year-over-year improvement in both revenue and EBITDA. Growth over the balance of 2026 is expected to be supported by stronger commercial vehicle production volume, increased adoption of our Mirai technology, and continued momentum in Brazil. Both third and fourth quarter revenue is expected to be modestly lower than second quarter levels Thank you for joining us today. Thank you, Scott.

Now let's turn to slide 14. To summarize, our unwavering focus on serving commercial partners with the highest quality innovative technical solutions is as strong as ever. We remain committed to enhancing shareholder values through the combination of continued market outperformance, improved profitability, and sustainable cash flow generation. Our tangible progress on each of these fronts during the second quarter is a testament to the meaningful steps we are taking to improve execution while cultivating a culture of operational excellence, co-discipline, and cross-functional collaboration across the organization. First, our focus on advanced technology solutions and a strong customer service mindset continues to drive market outperformance. During the second quarter, organic revenue growth exceeded our weighted average OEM end markets by nearly 10 percentage points, driven by execution in our core programs, including Mirai, and continued momentum in the Brazil OEM business. The strong relationships and deep integration that we have developed with our key customers over decades has yielded new business opportunities like discussed earlier on the call. Thank you very much. We have also intensified our focus on end-to-end quality management across the entire product lifecycle, from design and launch through sourcing, manufacturing, and field performance. This should not only result in improved margins, but also provide a robust framework for sustainable long-term performance. While second-quarter gross margins were impaired by several transitory items, We're seeing directional improvement in cost of quality metrics, and our structural cost initiatives helped drive a roughly 250 basis point improvement in adjusted EBITDA versus last year. Finally, we continue to prioritize sustainable cash generation and a strong balance sheet. Our efforts to improve cash flow conversion through operational excellence and working capital discipline are already bringing positive results. We reduced inventory on hand by $5 million year over year and decreased net debt by nearly $40 million over the past 12 months. These accomplishments have significantly improved the capital structure and positioned the company to pursue incremental growth opportunities as they arise. Through consistent execution and by fostering a culture of accountability, creativity, collaboration, and continuous improvement, We are positioning ourselves to achieve near and medium-term financial objectives and putting the company on a path to more sustainable performance for years to come. And with that, operator, you can open the line for questions.

Yes, thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If any time your question has been addressed and you would like to withdraw it, please press star then 2. At this time, we will pause momentarily to assemble the roster. And the first question comes from Gary Prestapino with Barrington Research.

Hi, good morning Natalie and Scott. Looks like good progress here on your objectives. A number of questions. First of all, In terms of MiraEye, you've got six OEM truck programs. I'm not really sure how many more OEMs there are out there, but could you maybe just talk about how many more are out there that you're targeting for future uptake of the product?

Yeah. Hi, Gary. Good morning. Thank you for your question. Yes, so, you know, I mean, in North America, obviously, there are four key OEM for truck class 8 production. There are obviously more smaller, but those are the key ones. And then in Europe would be four to five, okay? So, obviously, you know, our activities are and many more. Thank you.

It really becomes a question of take rates on the product going forward that's going to drive growth. Is that a fair assumption?

Absolutely right. In Europe, the maturity is higher. and we've been also publicly talking about the take rates around 35-50% depending on obviously the model of the vehicle and in North America we assume that around 5-15% depending on the customer and obviously this will grow for sure, this will grow for sure As always, the technology takes time to mature, but this is going to grow.

Okay, that's fine. I just want to clear that up. And then in terms of your expansion of highway applications, you mentioned ag. What other markets are you looking at? It just seemed to me that with heavy construction, this would also be very applicable for sight lines on the equipment.

Yeah, thank you, Gary. Absolutely right. Absolutely right. So this is also the beauty of this technology that is applicable to different segments. We do focus on our off-highway agriculture, heavy equipment segments with MirrorEye, but also with other of our vision products, getting also good traction here. So absolutely, this is one of the of the key focus of our teams.

Okay, so your teams are out there actively marketing to these new verticals.

Absolutely right. We have dedicated teams for different customer segments, both in North America and in Europe, very close to the customers, promoting, building strong relationships with all those customers.

Okay, I'll let somebody else go then. I've got further questions.

I'll get back in the queue.

Thank you. Once again, please press star and then zero if you would have additional questions.

This concludes our question and answer session. I would like to return the conference to Natalia Noblet for any closing comments.

Thank you everyone for joining the call. I know your time is very important, and as always, we truly appreciate your willingness to engage us today. Thank you again, and we look forward to updating you on our progress next quarter.

Thank you. The conference is now concluded. Thank you for attending today's presentation. And I'll just connect your lines.

Maybe next quarter we need to tell Gary he's the only one in Q&A. He can go as long as he wants.

He has 20 questions if you'd like.

Yeah.