STONERIDGE INC Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Growth Drivers: 2024 saw Stoneridge outperform weighted average end markets by 490 basis points driven by key growth products like MirrorEye and Smart 2 Tachograph. Focus on material cost reduction (120 basis points year over year) and direct labor improvement (30 basis points, 7% reduction y/y).
• Quality and Costs: Recognized opportunity for quality improvement; recent actions to delayer corporate functions reduced costs and improved efficiency. Initiated a project in Juarez, Mexico manufacturing facility to streamline operations, reduce costs, and improve material flow, with expected annualized savings in 2025.
• MirrorEye Performance: 2024 MirrorEye revenue $66 million, up 22% y/y. 2025 expected significant growth, with full year revenue expected to grow by at least $54 million to $120 million, including $100 million from OEM programs. Launching new programs with Volvo and Daimler Truck in North America, and partnering for retrofit applications.
• Smart 2 Tachograph: 2024 revenue ~$60 million, almost double 2023. 2025 expected continued success as European regulations drive adoption, with stable revenue contribution from both OEM and aftermarket.

Segment Performance

• Control Devices: Full year 2024 sales were $296.3 million, declining approximately 14% year over year primarily due to lower production volumes for the largest North American passenger vehicle customer. Full year adjusted operating income was $6.6 million (2.2% of sales), a 170 basis point decline from the prior year. In 2025, expected production volumes to continue moderately declining in North America, with certain programs ending adding pressure to top-line, but focus on material costs and manufacturing performance to maintain stable margin.
• Electronics: Full year 2024 sales were $594.7 million, approximately in line with the prior year. Stable revenue was driven by Stoneridge-specific growth factors (MirrorEye and Smart 2 Tachograph) but offset by declines in commercial vehicle end markets. Gross margin remained flat, with material cost improvements and reduced direct labor partially offset by increased quality-related costs and one-time distressed supplier costs. In 2025, expected a relatively flat commercial vehicle end market, but revenue growth from MirrorEye OEM programs and Smart 2 Tachograph.
• Stoneridge Brazil: Full year 2024 sales were approximately $50.1 million, declining year over year due to macroeconomic challenges in South America. Full year adjusted operating margin declined approximately 500 basis points, primarily from reduced fixed cost leverage on lower sales, partially offset by lower SG&A costs. 2025 expected revenue growth and margin expansion as portfolio shifts align with global growth initiatives and local OEM program expansion.

Guidance

• 2025 Sales: Expect sales of $860 million to $890 million.
• Gross Margin: Midpoint of approximately 22.25%, a 135 basis point improvement from 2024.
• Operating Income: Midpoint of 1%, improved by 70 basis points from 2024.
• EBITDA: Midpoint of $40 million, EBITDA margin of approximately 4.6%.
• Free Cash Flow: Expected to be $25 million to $30 million, driven by inventory and working capital improvement.
• Long-Term: 2026 target revenue of at least $975 million, and long-term revenue projection to $1.3 to $1.45 billion by 2029 with EBITDA target of $160 million to $200 million.

Risks

• Macroeconomic Conditions: Continued challenging macroeconomic environment could impact end markets.
• Tariffs: Potential impacts of tariffs, particularly related to Mexico, which could affect costs.
• Quality Issues: Ongoing focus needed to reduce quality-related costs and improve processes to avoid future lumpiness in costs.

Question and Answer

Q: Daniel Imbro asked about fourth quarter cost surprises related to engineering and quality costs, seeking visibility on recurrence and comfort with 2025 guidance.

A: Matt Horvath responded that engineering costs had variability due to customer reimbursement timing related to program hurdles, and quality costs were a result of continuous improvement efforts to address past issues, with good visibility to improvement. Jim Zizelman added on quality that processes to build in quality were strong, and they were addressing existing quality issues quickly to minimize impact.

Q: Daniel Imbro inquired about Smart 2 Tachograph growth expectations.

A: Matt Horvath explained Smart 2 Tachograph has aftermarket rolling requirements and stable OEM opportunity, with 2025 expected to have fairly stable revenue contribution.

Q: Daniel Imbro asked about inventory and working capital in 2026.

A: Matt Horvath stated there was still opportunity to improve inventory, and with growth, while there might be some moderation in inventory improvement, the focus on cash performance and working capital would continue to support future growth.