STONERIDGE INC Q2 FY2024 earnings call

• Continued focus on improving business fundamentals led to significant margin improvements in the second quarter, with gross margin up 250 basis points, adjusted operating margin up 210 basis points, and adjusted EBITDA margin up 410 basis points from the first quarter.
• Launched MirrorEye OEM systems: began shipping first MirrorEye OEM systems to Volvo for the FH Aero model in Europe and launched the program with Peterbilt North America on Models 579 and 567 in July.
• Partnership with Volvo Bus: Stoneridge’s data and artificial intelligence fuel advice solution will be in a pilot program with Volvo Bus starting this year, using AI to provide predictive insights to fleets.
• Advanced development in software and AI: Continued work on features like automated reverse panning in MirrorEye, object detection in MirrorEye platform, and advancements in connected trailers with predictive paths and safety systems.

Control Devices: Second quarter sales of $80.9 million increased by approximately $2.9 million or 3.7% compared to the first quarter, primarily driven by higher sales in the North American passenger vehicle and China commercial vehicle markets. The second quarter operating margin was 4.6%, which is a 180-basis-point improvement over the first quarter. Electronics: Excluding the unfavorable impact of foreign currency, second quarter sales of just under $156 million were approximately in line with the first quarter of the year. The second quarter adjusted operating margin expanded by approximately 310 basis points compared to the first quarter, primarily due to material cost improvements, lower quality-related costs, and lower engineering expenses. Stoneridge Brazil: Excluding the unfavorable impact of foreign currency of approximately $600,000, second quarter sales improved by 2% versus the first quarter. Excluding the unfavorable impact of foreign currency of approximately $200,000 on operating income, second quarter operating profit was in line with the first quarter of the year.

• Full-year 2024 revenue guidance midpoint is approximately $955 million, with a range of $940 million to $970 million, reflecting updated foreign currency rates, OEM production volumes, and non-OEM/customer demand-based products.
• Increased gross margin midpoint guidance by 50 basis points due to continued improvements in material costs and manufacturing performance.
• Reduced adjusted operating margin and adjusted EBITDA margin expectations to reflect reduced leverage on lower sales.
• Reduced midpoint adjusted EPS guidance for the full year by $0.12 to a midpoint of $0.23, reflecting reduced fixed cost leverage on reduced sales and updated tax expense expectations.

• Macroeconomic pressures leading to reduced OEM production volumes in both Europe and North America commercial vehicle programs and North America passenger vehicle programs.
• Volatility in non-OEM and customer demand-based products, including timing delays in MirrorEye retrofit applications, market adoption of the SMART2 tachograph, and headwinds in off-highway end markets.
• Currency volatility impacting the guidance, with unfavorable foreign currency expected to impact by approximately $12 million.

Q: About cost improvements and progression through the second half and remaining cost opportunity A: Matt Horvath stated that significant progress has been made on material costs and operational excellence, with continued opportunities to improve material costs and control operating costs going into the second half.

Q: About MirrorEye take rates A: Jim Zizelman expressed excitement about MirrorEye take rates, noting early positive feedback and expectation to hit or exceed target rates, especially with upcoming launches.

Q: About Volvo Bus pilot for AI-based fuel advice system A: Troy Cooprider explained the AI-based fuel advice system uses driver behavior, road slope, bus weight, and average speed to provide predictive insights to fleets, with early results showing impressive fuel economy improvements, and the revenue model involves SaaS software.