Release Date: February 27, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Stoneridge Inc (NYSE:SRI) outperformed its weighted average end markets by 490 basis points in 2024.
• The company achieved a 7% improvement in direct labor costs year over year.
• Positive free cash flow of approximately $24 million was generated, marking an increase of $56 million compared to the previous year.
• Mirra revenue increased by 22% year over year, driven by successful program launches with Volvo and Daimler Truck.
• Stoneridge Inc (NYSE:SRI) reduced overall material costs by 120 basis points, contributing to improved operational performance.

Negative Points

• Full year adjusted EBITDA margin declined by approximately 80 basis points compared to the prior year.
• Elevated warranty and quality-related costs significantly impacted the fourth quarter results.
• Control devices sales declined by approximately 14% due to lower production volumes for major North American customers.
• Full year adjusted operating income for control devices declined by 170 basis points.
• Stoneridge Inc (NYSE:SRI) faced significant challenges in its end markets, including a 24% decline in European commercial vehicle production.

Q & A Highlights

• Warning! GuruFocus has detected 8 Warning Signs with SRI.

Q: Can you explain the unexpected engineering and quality costs in the fourth quarter and how confident are you that these won't recur in 2025? A: Matt Forvath, CFO: The engineering costs were due to timing of customer reimbursements tied to program development milestones. We expect these to be resolved in 2025. On the quality side, we are focused on improving processes to prevent future issues and addressing existing ones quickly. We have good visibility on these improvements and are confident in our 2025 guidance.

Q: What is the growth expectation for the Smart 2 tachograph in 2025? A: Matt Forvath, CFO: The Smart 2 tachograph has two components: aftermarket and OEM. The aftermarket segment will continue to grow as regulations expand, while the OEM segment remains stable. We expect overall stable revenue contribution from Smart 2 in 2025.

Q: How do you plan to manage inventory and working capital in 2026 given the expected revenue growth? A: Matt Forvath, CFO: We still see room for improvement in inventory management. While growth might typically require inventory build-up, we aim to reduce inventory levels further. We expect to maintain a stable working capital profile as we grow into 2026.

Q: What are the main drivers for revenue growth in 2025? A: Jim Zielman, CEO: The primary driver is the Mirra product line, which is expected to grow significantly. We anticipate Mirra sales to increase by approximately $54 million, reaching $120 million in 2025, driven by new OEM program launches and increased adoption rates.

Q: How confident are you in achieving the 2025 guidance given the recent cost surprises? A: Matt Forvath, CFO: We have made foundational improvements in material costs and labor efficiency. We are also conservative in our revenue outlook compared to IHS forecasts, providing potential upside. Overall, we are confident in our ability to meet the 2025 guidance.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.