Stoneridge, Inc 2026 Q2 Earnings Call

Please go ahead. Good morning, everyone.

Thank you for joining us to discuss our second quarter 2026 results for the period ending June 30th 2026. The release and accompanying presentation were filed with the SEC and are posted on our website at stoneridge.com in the Investors 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 would begin, I would like to inform you that as a result of the sale of the Control Devices business segment on January 30th 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 5th 2026. During today's call, we will be referring to certain non-GAAP financial measures. Please see slide two of the presentation for a more detailed description of these non-GAAP measures. The appendix for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures.

Although we believe that such statements are based upon reasonable assumptions, you should understand that these statements are subject to risks and uncertainties. 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 we 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. With that, I will hand the call over to Natalia.

Thank you, Mike. Good morning, everyone. We are encouraged by our progress in the second quarter. 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 sprint, I am proud of what we accomplished during the quarter. I want to personally thank the entire Stoneridge 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. Our portfolio of products continues to gain traction with customers.

MirrorEye hit another sales record in the second quarter. 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. EBITDA increased more than sixfold, 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. Our year-to-date performance through June is encouraging. Growing OEM adoption of our MirrorEye CMS 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. 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 ramp 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 trucking 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 forecasts now suggest that our weighted average OEM end 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, although macroeconomic and geopolitical headwinds continue to persist, we 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 the broader transformation underway as OEMs accelerate the shift towards digitalization and next generation technologies in several market segments. Transit operators are looking for safer, smarter, and more efficient solutions, 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 MP II system, the latest evolution of Stoneridge's MirrorEye technology platform, specifically engineered for buses and coaches. MirrorEye MP II 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 MirrorEye 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 off-highway markets. This underscores the applicability of our technology and the strength of our relationships with leading OEMs. As mentioned earlier, MirrorEye 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.