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Good day, and thank you for standing by. Welcome to the Stoneridge First Quarter 2023 Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that this call is being recorded. And I would now like to hand the conference over to our speaker today, Kelly Harvey, Director of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us to discuss our first quarter results. The release and accompanying presentation was filed with the SEC yesterday evening and is posted on our website at stoneridge.com in the Investors section under Webcast and Presentation. Joining me on today's call are Jim

Thanks, Kelly, and good morning, everyone. Let me begin on Page 3. Our first quarter financial performance exceeded the expectations that we outlined on the fourth quarter call for both revenue and adjusted earnings per share. First quarter adjusted sales of $232.2 million resulted in an adjusted gross margin of 18.5%, translating to an adjusted operating margin of negative 1.5%. Adjusted EPS for the quarter was negative $0.25. We recognized adjusted revenue growth of approximately 18% compared to the first quarter of the prior year and approximately 3% versus the fourth quarter of 2022. Strong revenue performance in February and March, particularly in our commercial vehicle end markets, offset the challenges we outlined on our fourth quarter call for January related to reductions in China and supply chain constraints in our off-highway business, which limited production. With those headwinds behind us and stronger top line performance to exit the quarter, we are expecting strong continued revenue growth throughout 2023. As expected, gross margin during the first quarter was reduced by continued broad inflationary pressures, including higher labor costs and continued elevated material costs that were not yet offset with price increases due to the timing of the negotiations with our customers. Although we reached agreements on price increases with some customers during the first quarter, the negotiations are ongoing and we expect to reach agreement with most of our customers, including some of our largest, by the end of the second quarter. Based on current negotiations, we expect the final agreements to provide relief forward as well as favorable benefit retroactive to January 1 of this year. This morning, we are reaffirming our previously provided full year 2023 guidance with some relatively minor and offsetting adjustments to tax and interest expectations, as Matt will discuss later in the call. We expect continued strong growth in 2023 and operating margin expansion as the year progresses, and as such, we are reaffirming our adjusted sales midpoint of $975 million and our adjusted EPS midpoint guidance of breakeven performance for 2023. While we continue to work to efficiently execute and respond to market externalities, we are also focused on the growth initiatives that will drive long-term profitable growth in 2023 and beyond. During the quarter, we launched critical programs in both controlled devices and electronics. Our first drive unit clutch actuator program, which we often refer to as the e-axle disconnect actuator, launched on the Corvette E-Ray, representing another step in our powertrain electrification and actuation growth. This product is aligned with our platform-based approach to operate as a drivetrain agnostic supplier. Similarly, we continued to make progress with our MirrorEye platform, focusing on our first OEM program in North America that launched in mid-April. OEM take rates for our first OEM program in Europe continue to be strong at approximately 40%. And I will provide additional detail on this program launches later in the call. Finally, earlier this month, we announced Laurent Borne, Chief Strategy Officer and Chief Technology Officer, decided to leave Stoneridge to pursue other opportunities. Laurent made valuable contributions to our company's technology strategy and advanced development. And I want to thank him for his time at Stoneridge. As with other leadership changes, we have a clear transition and succession plan in place. And this morning, I am pleased to announce that Troy Cooprider has been elevated to our Vice President, Global Technology, to succeed Laurent and report directly to me. Now turning on to Page 4. Troy was most recently our Vice President, Advanced Engineering and Engineering Excellence, where he was responsible for developing and executing the next generation of products, including the next generation of MirrorEye Systems and vision platforms and the wired rearview trailer camera. To emphasize Troy's accomplishments, we are proud to report that Stoneridge has filed over 25 patent applications that include Troy as an inventor. Troy has more than 30 years of automotive electronic experience. Prior to Stoneridge, Troy was Executive Director of Engineering for Aptiv, leading global, cross-functional teams focused on safety electronics and electronic control products, including automated driving, active safety, power electronics and data engineering. Prior to that, he was Chief Engineer at Delphi, focused on infotainment and driver information systems, including V2V and V2X communication methodologies. In his new role as Vice President of Global Technology, Troy will report directly to me and will be responsible for coordinating with each division to drive technology and product strategies and subject matter expertise in the new technologies. In addition, Troy will lead the Global Engineering Process Development and Deployment as well as our technical customer interface for advanced development programs. On to Page 5, we summarize our key financial metrics relative to the first quarter of 2022. First quarter adjusted sales grew 18.1% relative to the first quarter of 2022, driven primarily by strong demand in our commercial vehicle end markets and reduced volatility in the North American market. This was offset by continued material constraints impacting sales in our European off-highway end market and reduced demand in China, particularly early in the quarter as they dealt with the aftermath of rapidly rising COVID-19 cases. Revenue growth progressed each month during the quarter with an exit run rate that supports a strong foundation for continued growth in the second quarter and beyond. Adjusted gross margin declined by 260 basis points relative to the first quarter of 2022 primarily due to higher material costs as a result of both inflation and the unfavorable impact of foreign currency, as well as increased labor costs. As expected, gross margin was significantly impacted in January, primarily due to labor inefficiencies and fixed cost leverage as a result of the volume reduction. In the shorter term, we expect margin expansion as we progress throughout the year as we finalize customer price agreements and recognize fixed cost leverage on revenue growth. It is also important to note that we have a large number of new program launches. And typically, new programs launch at lower gross margins until they mature and they reach normalized volumes. While we slightly outperformed our expectations in the first quarter, longer term to further strengthen our position, our focus is to improve our gross margin profile to continue to invest in the technologies and product platforms that will drive our growth, while at the same time improving our overall financial performance. While we will also improve rigor and discipline around product development and focus on platform-based designs, the result will be streamlined operations driven by common platforms, common processes, and common testing procedures. We expect to drive material cost improvement as common platforms create improved economies of scale. Similarly, we will more broadly implement product development processes aimed at designing products for more efficient manufacturing, resulting in reduced labor and quality costs. While the results of these actions take a little bit longer to improve financial performance across the organization, we expect these actions to result in sustainable improved profitability as we capitalize on our strong forward growth profile. Finally, we continue to focus on managing our SG&A and engineering costs and leveraging our existing cost structure to offset current gross margin headwinds and create a foundation for sustained margin improvement. We have continued to take actions to optimize our organizational structure, reduce discretionary spending, and improve operating leverage. We expect these actions will also drive improved operating margin as revenue continues to grow and gross margin continues to expand. Now turning on to Page 6. And while we continue to focus on actions that will drive margin expansion and improve operating performance, we also continue to launch exciting new programs and products. We are launching industry-leading technologies across our segments and our end markets, and they're helping customers to differentiate their products in the market. This morning, I want to highlight two critical program launches that are foundational for our growth forward. First, in Control Devices, we've been involved in the creation of the new and exciting Corvette E-Ray. Over the past 70 years and eight generations, the Corvette has benefited from many industry-first innovations. And now it's been electrified for the very first time with an electric all-wheel drive system that works in tandem with its V8 engine to produce an incredible 655 combined horsepower. We are excited to say that our drive unit clutch actuator product is one of the technologies that enables that function on this legendary nameplate. Our actuator allows the electric powertrain to deliver power to the front wheels, augmenting power delivered from the internal combustion engine to the rear wheels, allowing the Corvette E-Ray to achieve zero to 60 miles per hour at times in 2.5 seconds, making it the fastest production Corvette ever built. It also protects the electric drive motor at high vehicle speeds. This specialized technical competency bridges electronics and software with mechanical design capabilities. This actuator is a perfect example of how Control Devices has transformed to align our products and capabilities with the powertrain application and industry megatrends that drive future growth. Our actuator also exemplifies our ability to address an application such as this, utilizing our common product design strategy. Our driveline actuation business continues to grow as we extend our actuation capabilities to address electric vehicle axle and torque control applications. Finally, as we have outlined previously, we launched our second MirrorEye OEM program, which is the first program in North America in mid-April. Utilizing our existing platform, the system is unique in that it embeds the camera in a smaller production mirror to comply with the NHTSA requirements that production trucks must include a smaller mirror in addition to the camera mirror system. The aerodynamics of this system provides for fuel savings of up to 1.5% and dramatically improves the safety features, including blind spot elimination, night vision, and improved vision in inclement weather. Customer forecasted take rates for this program are approximately 10%. However, based on the excitement from our North American fleet customers as well as take rates for our OEM programs in Europe, we believe there is an upside to that take rate assumption. We expect to provide an update on that take rate assumption and forecasted volume for this program once the system is more readily available to the customers in the second half of the year. We continue to focus on strong execution of these critical program launches, which we expect will result in revenue growth that significantly outpaces our underlying end markets. We will continue to invest in the technologies and adjacent product opportunities to optimize our position in these markets and drive technology innovation, leading to improved safety and efficiency for our customers. Now turning to Page 7 and summary. We continue to make good progress in the first quarter as both our revenue and earnings performance exceeded our previously outlined expectations. That said, we must continue to focus on gross margin improvement and careful management of our operating expenses to drive improved financial performance. We will continue to focus on improving execution in our manufacturing facilities, managing our overhead costs, and offsetting inflationary material and labor pressure with appropriate and necessary price increases. We expect that these actions will drive margin expansion on the significant revenue growth that we expect in 2023 and beyond. Now with that, I will turn it over to Matt to discuss our financial results in more detail. Matt?

Thanks, Jim. Turning to Slide 9. Adjusted sales in the first quarter were approximately $232.2 million, an increase of 18.1% relative to the first quarter of 2022. Adjusted operating loss was $3.4 million or negative 1.5% of adjusted sales, which was in line with the first quarter of last year as well as the expectations we outlined on our fourth quarter call. As Jim discussed earlier in the call, we are reaffirming our full year 2023 guidance with some relatively minor and offsetting adjustments to expected tax and interest expense. We continue to expect strong top line growth driven primarily by continued strength in our commercial vehicle end markets, the ramp-up and the annualization of new and recently launched programs, and our content on high-demand passenger car and commercial vehicle platforms. Based on our current view of the geographical mix of our earnings for the remainder of the year, we expect our tax expense to be relatively lower for the full year than previously expected. We expect that this tax benefit will be partially offset by higher interest expense driven by rising interest rates and a higher net debt balance in the short term, primarily driven by incremental working capital requirements to fund our growth. As a result, we are reaffirming our previously provided breakeven midpoint adjusted EPS guidance. Based on current market conditions, our current run rate and customer production forecasts, we are expecting second quarter adjusted sales at the high end of the previously provided guided range for approximately $245 million. Furthermore, we continue to focus on cost recovery actions and improve manufacturing performance to drive margin expansion. It is important to note that January gross margin performance was significantly impacted by the revenue reductions we discussed previously. However, performance in February and March significantly improved as revenue normalized with a gross margin that was aligned with our full year expectations. During the second quarter, we expect substantial progress on price negotiations with our customers, including retroactive adjustments to the beginning of the year. In addition, we remain focused on maintaining a reduced operating expense run rate to offset current gross margin headwinds and improve overall profitability. During the fourth quarter call, we provided our expectation for second quarter adjusted EPS to be approximately negative $0.10. Due to our expectation of second quarter revenue towards the high end of our previously provided range and our expectation that we will successfully complete price negotiations with the majority of our customers in the second quarter, we expect second quarter adjusted earnings per share to be a few cents better than previously expected. Page 10 summarizes the key items that impacted performance during the quarter relative to the expectations we outlined on our fourth quarter call when we guided first quarter adjusted EPS to approximately negative $0.30 and adjusted sales to approximately $225 million. Overall, outperformance was driven by stronger than expected revenue growth, careful cost control, and slight improvements in material costs. This was partially offset by manufacturing performance in which we saw incremental quality related costs during the quarter more than offset strong base performance in our facilities and a couple of cents of non-operating related headwinds, including FX. More specifically, contribution on incremental revenue, excluding FX, drove a little bit of an outperformance in the quarter. Material costs improved relative to our prior expectations, primarily driven by lower spot buy related costs and price increases, including in our aftermarket channels. While our run rate in manufacturing performance was approximately $0.05 better than our previous expectations, incremental quality related costs, including warranty costs, more than offset the strong baseline performance, resulting in a net $0.02 headwind in the quarter relative to our prior expectations. These warranty-related costs were related to a couple of specific products and include our expectation of future expense to be incurred, and as such, are not expected to recur at this incremental rate going forward. Finally, reduced operating and other fixed costs drove $0.05 of improvement in the quarter versus our prior guidance as we continue to limit discretionary spend. Our positive operating performance was slightly offset by foreign currency headwinds, including our exposure to the Mexican peso, as well as unfavorable equity earnings related to a slight decline in the fair value of our investment in Autotech Ventures recognized during the quarter. Overall, we outperformed our prior revenue expectations by $7.2 million and our prior adjusted EPS expectations by $0.05. Page 11 summarizes our key financial metrics specific to Control Devices. Control Devices first quarter sales of $86.7 million, increased by 2% compared to the first quarter of 2022, primarily due to higher sales in our North America passenger vehicle end market, including incremental revenue from high demand powertrain actuation programs. These increases were partially offset by reduced production in our China end markets, particularly in the beginning of the quarter. Adjusted operating income was $1.4 million for the quarter, or 1.6% of sales. Adjusted operating income decreased versus the first quarter of 2022, driven by lower gross margin primarily due to higher material costs as a result of both inflation and unfavorable product mix, as well as unfavorablelabor economics and higher quality related manufacturing costs. Also impacting adjusted operating performance was relatively higher SG&A costs primarily due to a one-time favorable legal settlement recognized in the first quarter of last year. We expect control devices to continue to outpace our underlying weighted average end market growth for the full year, primarily due to our content on high demand vehicle platforms. We continue to focus on offsetting higher material and labor costs through improved manufacturing execution, supply chain and material cost improvement actions, and the finalization of customer price negotiations to drive margin improvement for the segment. Page 12 summarizes our key financial metrics specific to electronics. Electronics first quarter sales were approximately $141 million, an increase of approximately 30% versus the first quarter of 2022. This was primarily driven by higher sales in our commercial vehicle end markets, including incremental sales from our first OEM MirrorEye program and our digital instrument cluster programs, which are both significantly outperforming original volume expectations. This was partially offset by lower sales in our off-highway end market, primarily due to material constraints impacting production in the beginning of the quarter, as we discussed on our fourth quarter call. Adjusted operating income increased by approximately 370 basis points relative to the first quarter of last year, primarily due to contribution from incremental revenue and our continued focus on effectively managing our SG&A and D&D costs as the segment grows. These benefits were partially offset by higher material and labor costs without the benefit of price agreements, which are in process to offset these incremental costs. We expect to complete these negotiations in the second quarter and continue to expand margin on strong growth for the remainder of the year. Page 13 summarizes our key financial metrics specific to Stoneridge Brazil. Stoneridge Brazil's first quarter sales totaled $14.3 million, an increase of $2.3 million, or approximately 18.4% relative to the first quarter of last year. This was primarily driven by higher local OEM sales. During the quarter, adjusted operating income increased by $800,000 relative to the first quarter of the prior year, primarily due to leverage on overhead and operating costs from higher sales, partially offset by continued higher direct material costs. Despite continued macroeconomic challenges in Brazil, we expect revenue and operating margin to remain approximately stable in 2023, driven primarily by the continued ramp-up of local OEM business to support our local customers. Moving to Slide 14. In closing, we are executing against our long-term strategy, which we expect to generate revenue growth that significantly outperforms our underlying end markets. While we are pleased with our performance during the first quarter, we must remain focused on improving our margin profile to position the Company to generate strong earnings on the growth we expect. While we continue to go negotiate price increases, focus on manufacturing performance, and carefully control our costs to offset current gross margin challenges, we are also implementing broader cost improvement actions to drive sustainable, improved profitability. Stoneridge is committed to driving shareholder value, and that focus remains at the forefront of all of our strategic initiatives. With that, I will open up the call to questions.

Thank you. At this time, we will conduct the question-and-answer session. [Operator Instructions] We have a question from the line of Justin Long with Stephens.

I wanted to start with a question on pricing, just given some of the commentary there. I know you said you'd be finished with the negotiations by the end of the second quarter, but could you talk about your level of visibility around the magnitude of that pricing tailwind? And is there any color you can provide on that collective tailwind? And how much that could impact revenue for the full year?

Yes, so great question, Justin. We are obviously in active negotiations with the majority of our customers around pricing. We're obviously seeing significant inflation related to input costs, not just material, but also labor, energy, things like that. So we are incorporating all of that in those discussions. And obviously, that is, -- there's a lot of ins and outs, so it can be very complex, which is why it takes a little bit longer to solidify those conclusions. We are -- as you can imagine, those are multiple iterations of discussions. So we have some good visibility to our expectations of the result of those negotiations. But obviously, nothing is concluded until we reach a conclusion. So we do have good visibility to kind of the order of magnitude that we expect. It's been included in our guidance for the remainder of the year. And I would expect, an order of magnitude larger in the second quarter and than obviously in the first quarter. So while I wouldn't want to specifically talk quantitatively about the order of magnitude, I think it's fair to say that we've got pretty good visibility. There's some variability in timing, like we talked about for several quarters now, but I think we feel pretty comfortable that what we expect has been included in the guidance, and at this point, we see it being achievable.

And maybe this is just a bigger picture question to Jim on this same topic. I mean, if you think about the margin performance of this business over the last two, three years, given the inflationary pressures that we've seen, and now having to go back to customers and try to play catch-up on price and price cost. Has this changed the way you think about pricing your business from a structural perspective? And could we see any changes going forward in terms of how you go to market and price?

Well, again, I think we're in an unusual timeframe still here where we have inflation coming from our suppliers. Typically, especially in the electronics space, we would see a deflationary kind of activity over time. And even for the most part, in all commodities, but perhaps less so outside of electronics. And until such a time where that gets back to some kind of normal historical kind of behavior, then yes, in fact, it will impact how we go to market and how we will price with customers, because the price downs that were often included in contracts need to be carefully considered now, given still for most commodities, the inflationary nature of what we're seeing. So yes, we are looking at that quite differently. And in addition, Justin, we are, I'll say, redoubling our efforts around our material cost improvement, right? This -- when you have this situation where you're in an inflationary period on the supply components, the work that you're doing for material cost improvement is actually quite a bit more important. And we're redoubling our efforts there to make sure that we have the right programs in place to drive from a design perspective even a cost -- reduction in cost in materials going forward.

And maybe this one is for Matt, but I think at the beginning of the year, you provided guidance for MirrorEye revenue of roughly $60 million this year. I'm curious if that's still what you're expecting, and also if you could comment on any MirrorEye revenue that was recognized in the first quarter?

Yes, so Justin, the majority of the MirrorEye revenue that would have been recognized in the first quarter was related to the first OEM program that we launched in Europe, and the continued ramp up there where take rates are remaining really strong. We would have recognized some nominal level of kind of retrofit revenue, but the expectation is that continues to ramp up over the year. Our first program in North America has a slow ramp up here in the first half, which we expect to accelerate in the second half of the year. And as such, that's not significantly different than what we would have outlined in the original guidance and is considered in our current guidance expectations. So progressing as planned there, and I would expect more commentary around that, both on the OEM side in North America, as well as the retrofit side as we get into the second half of the year.

Yes. And last question for me is on the balance sheet and related to interest expense. I know the tax rate or tax expense is coming down. You said interest expense was going up to offset that. I was just wondering if you could give us any color on what your revised expectation is for interest expense? And then just more broadly, free cash flow is negative here in the first quarter. Do you think it's possible to be free cash flow positive for the full year?

Yes, so great question, Justin. So we're seeing a little bit of incremental. So if you look at the tax adjustment, it was about a $1.5 million down to the midpoint. And we're expecting incremental interest expense to roughly offset that. Part of the challenge on the interest side has been incremental working capital investment required here early in the year to facilitate the growth that we expect, really strong top-line growth for the remainder of the year. That is not abnormal historically, where we have first quarter cash use. It was probably a little bit stronger, relatively speaking, this year, or a little bit more used this year because of that working capital investment early in the year. I do expect that we will be able to, as we have historically, from a seasonality perspective, improve that cash flow profile forward. And obviously, we don't give full-year cash flow guidance, but if you look at what we're expecting from a net debt perspective, and what we talked about by the end of the year in both long-term, we would expect that to normalize here for the remainder of the year. So I would expect relatively neutral overall cash performance for the year with an improvement here forward, both through the seasonality, which is normal, as well as some actions we're taking around inventory to improve working capital.

I would now like to turn it back to Jim

Thanks, Britney. And thank you, everyone, for joining us for the call. I know your time is very important, and we do truly appreciate your willingness to engage with us today. And we couldn't be more excited about our industry-changing product platforms and the growth it brings to our company. Our focus is now on rigorous and disciplined execution, which will bring the performance we outlined today. So thanks again, everyone.