Stoneridge, Inc. (SRI) Earnings

Management highlights

- Top Line Market Outperformance * Q2 2026 core organic revenue grew nearly 8% year-over-year, the fastest organic growth rate in over two years, outperforming the company's weighted average OEM end market which declined ~2% for the quarter, a 10 percentage point outperformance gap. * Stabilization and modest improvement are seen in European and North American commercial vehicle markets, with positive signals including strengthening OEM order books and planned sustained production in H2 2026. North American demand has bottomed after a 2025 cyclical downturn, while Europe is seeing demand normalization ahead of 2026 modest growth. * MirrorEye (Miro Rai / Mirai) set another quarterly sales record, with 39% year-over-year growth driven by strong European penetration and ongoing ramp-up of recently launched North American OEM programs; the technology is now deployed across more than 20 bus and coach programs, with expansion into off-highway and agriculture markets. * The company secured its largest ever MirrorEye bus and coach OEM program award, with an estimated $42 million in lifetime revenue and full commercialization planned for 2027. This award followed the successful launch of the MirrorEye MP2 system purpose-built for the bus and coach segment. * StoneRidge Brazil delivered strong performance, with results partially supported by a temporary competitive supply dislocation, reflecting long-term progress from product lineup realignment and expanded customer engagement in this attractive growth market. - Operational Efficiency and Profitability Improvement * Cost reduction and productivity initiatives are on track to deliver $5 million in operating cost reductions for full year 2026. SG&A expense rose less than $400,000 year-over-year despite a $24 million increase in quarterly sales, resulting in an 182 basis point improvement in SG&A as a share of sales. * Gross margin declined 277 basis points to 20.3% due to transitory factors: higher material and currency translation costs, discrete inventory costs from the shift from MirrorEye retrofits to factory-built OEM products in North America, and lower Smart II tachograph sales after the 2025 European regulatory retrofit campaign. Management expects these impacts to subside in H2 2026. * The company has intensified end-to-end quality management across the full product lifecycle, with directional improvement seen in cost of quality metrics. - Balance Sheet and Cash Flow * Operating cash flow totaled just over $12 million, a 38% improvement year-over-year, driven by working capital discipline. Total inventory was reduced by $5 million year-over-year, and electronics segment days of inventory declined 15 days year-over-year. * Net debt was reduced by $39 million over the past 12 months to $79 million as of quarter-end, driven by control devices sale proceeds and working capital improvements, leaving $72 million in cash on hand and $151 million in total debt outstanding. Capital expenditures totaled $4.6 million for the quarter. * The company is on track to complete refinancing of its existing credit facility (maturing July 2027) by the end of November 2026, with constructive ongoing discussions with banking partners, and expects to remain in compliance with all existing covenants.

Guidance

- Management reaffirmed the full year 2026 guidance originally issued in May 2026, maintaining a revenue outlook of $645 million to $670 million and an adjusted EBITDA outlook of $20 million to $25 million. - The implied H2 2026 guidance reflects expected year-over-year improvement in both revenue and adjusted EBITDA, supported by stronger commercial vehicle production, growing MirrorEye adoption, and continued momentum in the Brazil business. Both Q3 and Q4 2026 revenue are expected to be modestly lower than Q2 2026 levels. - Third-party forecasts from IHS now project 5.5% year-over-year growth in the company's weighted average OEM end markets for 2026, up from the 1.8% growth projected at the time of the Q1 2026 earnings call. IHS projects 5.4% year-over-year end market growth for 2027, down from the prior 10% projection, though absolute 2027 volume forecasts remain largely unchanged, as the revision primarily reflects order timing shifts that pulled demand forward into 2026.

Segment performance

Following the January 2026 sale of the control devices business, the segment is accounted for as a discontinued operation, with two continuing operating segments: 1) Electronics: Q2 2026 revenue of $160.9 million, a 13% year-over-year increase. Core revenue (excluding favorable currency translation and the Mexico manufacturing agreement related to the discontinued control devices business) grew 6% year-over-year. The segment's MirrorEye product hit a quarterly sales record of $37 million, a 39% year-over-year increase. Segment-level adjusted operating margin improved 12 basis points year-over-year, as higher sales and cost efficiencies offset headwinds from unfavorable product mix, currency impacts, higher material costs, and transitory inventory expenses. 2) StoneRidge Brazil: Q2 2026 revenue reached a record $20.5 million, up 38% year-over-year. Core revenue (excluding $2 million in currency translation benefit) grew nearly 26% year-over-year. Adjusted operating income was approximately $2.3 million, with an 11.2% adjusted operating margin, a 464 basis point year-over-year improvement driven by higher sales volume and fixed cost leverage. Total continuing operations Q2 2026 revenue was $181 million, a 15% year-over-year increase, with 8% core organic growth after adjusting for currency and the discontinued segment-related contract revenue. Adjusted EBITDA for continuing operations was $5.5 million, equal to a 3% margin, a 251 basis point year-over-year expansion. Adjusted operating income margin improved 100 basis points year-over-year, while SG&A as a percentage of sales declined 182 basis points to 14.3%.

Risks & headwinds

- Persistent macroeconomic and geopolitical uncertainty across the company's key core markets remains a headwind, even as demand shows signs of improvement. * Gross margin in Q2 was negatively impacted by transitory but impactful headwinds including currency-related material cost increases, inventory conversion costs, and lower sales of high-margin legacy products, which could create ongoing pressure if not mitigated as expected in H2. * The company must complete refinancing of its existing credit facility by the end of November 2026, with market conditions potentially impacting terms and availability of refinancing. * Demand growth for new technology such as MirrorEye depends on customer adoption timelines and take rates, which evolve gradually and can differ from expectations.

Analyst Q&A

• Q: What is the total addressable market of major OEMs for MirrorEye in key truck segments, and is future growth driven primarily by product take rates at existing OEM customers? /

  A: There are four major Class 8 truck OEMs in North America and four to five major OEMs in Europe, with many smaller additional OEMs also targeted. Growth will primarily depend on increasing take rates: in Europe, current take rates are 35-50% depending on vehicle model, while North American initial take rates are 5-15%. Management expects take rates to grow over time as the technology matures in the market.

• Q: Beyond the agriculture segment, what other new off-highway/non-truck verticals is the company targeting for MirrorEye expansion? /

  A: MirrorEye's modular technology is applicable to multiple vehicle segments beyond truck and bus. The company is also actively targeting heavy construction equipment, which is a natural fit for the technology's improved visibility and safety benefits. Dedicated segment-focused sales and customer engagement teams in both North America and Europe are actively promoting the product to OEMs in these new verticals.