SRI - NYSE

Good day and welcome to the Stoneridge, Inc., Third Quarter 2024 Results Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions]. Please note that the event is being recorded. I would now like to turn the conference over to Kelly Harvey, Director of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us to discuss our third quarter 2024 results. The release and accompanying presentation was filed with the SEC and is posted on our website at stoneridge.com in the Investor section under Presentations and Events. Joining me on today’s call are James

Thank you, Kelly, and good morning, everyone. Beginning on Page 4, during the third quarter we continued driving improvements in the fundamentals of our business. Our focus on operational efficiency resulted in reduced quality related costs, while reductions to operating expenses helped to offset some of the significant market related challenges we faced. We continued to focus on our key initiatives to drive cash performance as well. As a result, during the first nine months of the year, we generated $13.3 million in cash, an improvement of $31.3 million versus the same period in 2023, primarily driven by improved working capital, including an $11.3 million reduction in inventory. Matt will provide additional detail regarding our quarterly financial performance and expectations for the remainder of the year later in the call. We remain focused on our key growth initiatives, including new business awards and the flawless execution of the program launches that will drive strong growth going forward. We continue to bring strong momentum with MirrorEye in both our OEM and fleet channels as the system continues to roll out in Europe and North America. Earlier this week, we announced that our next MirrorEye OEM program will be launching with Daimler Truck North America on their new fifth generation Freightliner Cascadia truck, which begins series production in mid-2025. DTNA has always been supportive of MirrorEye offering the first pre wire option for the trucks in production. Now they continue to build on that momentum by offering an independent wing design to their customers, including advanced technology features so they can fully take advantage of the driver visibility and vehicle efficiency benefits of the system. Another launch is coming. As expected, one of our global OEM customers has announced they will be launching MirrorEye on yet another European brand. This launch signifies another milestone in their global MirrorEye program and will now be offered as standard equipment on several of their truck platforms as well as an option on several others beginning in fourth quarter of this year. Similarly, our existing European OEM customers, DAF and Volvo, have now made their respective camera monitor systems standard on several heavy-duty truck platforms. MirrorEye becoming standard on several customer models underscores the overwhelmingly positive response from the market, resulting in significant customer demand and an opportunity to outperform the volumes assumed at program award. Similarly, we also continue to expand our retrofit applications with new partnerships with DB Schenker North America and VDL Bus & Coach in Europe. Both of these partnerships demonstrate our ability to continue to drive broader market acceptance of the MirrorEye technology. Our investments in the MirrorEye platform continues to drive year-over-year growth, strong take rate expectations and continued momentum across all of our end markets and applications. Finally, during the quarter, Control Devices was awarded our first ever leak detection module program for an all-new hybrid vehicle from a Chinese OEM customer. This strategic technology is situated for growth amid the global hybrid vehicle expansion, but it's applicable to traditional powertrain vehicles as well. I will discuss our MirrorEye progress across all of our end markets as well as this award in more detail later in the call. Page 5 summarizes our key financial metrics for the third quarter compared to the second quarter of the year. Third quarter sales of $213.8 million decreased by 9.8% compared to the second quarter due in part to typical seasonality in production, but more significantly by the continued macroeconomic pressures in each of our primary end markets and geographies. The global auto industry remains under pressure as automakers continue to balance regional demand dynamics and inventory conditions. In addition, commercial vehicle manufacturers continue to face macroeconomic pressures in both North America and Europe. Margins declined in the third quarter compared to the second quarter, primarily due to reduced fixed cost leverage on lower sales and unfavorable sales mix. This was partially offset by an improvement in variable overhead of 60 basis points versus the second quarter as a result of reduced quality related costs and our continued focus on broad operational excellence. Adjusted operating profit of $700,000 resulted in adjusted operating margin of 0.3%, which was a decline of 200 basis points over the second quarter. This decline was primarily due to lower gross margin, partially offset by a $4.5 million total reduction to operating expenses quarter to quarter to align with current market conditions. Finally, third quarter adjusted EBITDA of $9.2 million drove an adjusted EBITDA margin of 4.3%, a decline of 250 basis points versus the second quarter. In addition to the operating drivers I just discussed, this decline was driven by the unfavorable quarter-to-quarter impact of net non-operating expenses related to equity losses and FX of $2.6 million or approximately 110 basis points. Matt will provide further detail on our third quarter performance relative to our prior expectations later in the call. Turning to Slide 6, we continue to develop innovative technologies that address current market needs and expand our customer base to better diversify our end market and geographic exposure. This morning, we are excited to announce a new award with a new technology in control devices, primarily focused on the globally growing hybrid vehicle segment, which is applicable to traditional powertrains as well. We have been awarded our first ever program for our new leak detection module or LVM on an all-new hybrid vehicle platform with a Chinese vehicle manufacturer with an anticipated start of production in the fourth quarter of 2025. This is one of several technologies being developed in control devices as we continue to expand the business utilizing our drivetrain agnostic approach. Driven by the advent of more hybrid vehicles in the market and the need to address greater evaporative emissions challenges on traditional powertrain vehicles, the LVM is a new technology designed to enable leak checks on emission systems through the implementation of a vacuum pump. This unique systems-based solution combines our emission systems design expertise with our canister vent solenoid technology to provide an integrated solution focused on improving evaporative emission system performance. Although this first award has a relatively small peak annual volume with a single platform and customer, there is a significant growing demand for this technology and it positions us for growth amid the global hybrid vehicle expansion. As such, it is expected to bring incremental opportunities for us as a global supplier with new OEMs and new vehicle platforms across multiple geographies. Control Devices continues to focus on bringing system-based solutions and improved technologies to each of our end markets and customer applications and we remain focused on drivetrain agnostic technologies to drive new business awards as the market continues to evolve. As the global hybrid vehicle market continues to expand, we are well positioned to take advantage of these opportunities. Turning to Slide 7, MirrorEye continues to gain momentum in both the OEM market with new program launches and improved take rate expectations and in the aftermarket with fleet expansions and new bus applications. Earlier this week, we announced our next MirrorEye program with Daimler Truck North America on their new fifth generation Freightliner Cascadia truck, which begins series production in the middle of next year. This marks Stoneridge's third North American OEM program featuring a factory installed camera monitor system. We are extremely proud to collaborate with DTNA to introduce this cutting-edge system that drives significant advancements in driver visibility and vehicle efficiency on one of the top performing and top selling Class 8 trucks in North America. The DTNA system features an independent camera wing design with a high mounting position that provides an extended field of view displaying front and side views through three high-resolution in cab displays. As such, this system falls under Stoneridge's FMCSA exemption, allowing owners to remove conventional rearview mirrors and operate using only the factory installed camera monitor system. This allows the end customer to fully recognize the benefits of the aerodynamic wing design that reduces drag by eliminating the traditional side mirrors contributing to improved fuel efficiency. The DTNA system also highlights our ability to integrate advanced features and ADAS functionality through its side view cameras that automatically adjust based on trailer position, identifies trailer length and displays alerts, which notify the driver when objects or pedestrians are detected and based on initial feedback from the customer, we expect take rates will exceed original expectations by the time it reaches peak production in 2026. Additionally, MirrorEye will be launching on a European brand of a previously launched global OEM with production beginning in the fourth quarter of this year. Starting with the 2025 model year, we are happy to announce the vision system will be standard equipment on certain models while remaining optional on others. The system helps support the brand's efforts to provide their customers with increased productivity while reducing their carbon footprint, including fuel savings of up to 3% compared to the previous models. As I mentioned earlier on the call, many of our existing customers have begun to equip their trucks with the camera monitor system as standard equipment. Recently, DAF announced its vision system is now standard equipment on certain long-haul trucks. In addition, the Vision system continues to be optional on most of their other Class 8 trucks. Our DAF program continues to have strong stable take rates as our most mature OEM program. Given the change to standard equipment as well as the continued positive feedback from DAF and their end customers, we are expecting higher take rates for the system beginning in mid-2025. Similarly, Volvo's FH Aero truck in Europe will also include the camera monitor system as standard equipment. Volvo continues to heavily market the system focusing on the driver ergonomics and safety benefits as well as the positive environmental impact of the system through reduced emissions. Given the strength of customer feedback and the standardizing of the system on the FH Aero truck, we expect customer take rates to continue to improve. We also look forward to launching the technology on their North American platform, the all new VNL in the first half of next year. With so many models now offering MirrorEye as standard equipment, we are confident market adoption of this industry changing technology will continue to accelerate. We are extremely proud to be the market leader in commercial vehicle camera monitor systems throughout the world and expect continued market adoption of this new technology over time. Now turning to Slide 8. In addition to the continued momentum with our MirrorEye OEM programs, we continue to expand with our fleet and bus customers in both Europe and North America. Earlier this month, we announced our fleet partnership with DB Schenker, a global leader in supply chain management and logistics. DB Schenker is currently piloting 75 MirrorEye systems on its North American fleet. Assuming a successful pilot program, DB Schenker intends to expand the implementation of MirrorEye across its entire North American fleet. DB Schenker's investment in MirrorEye reflects their ongoing commitment to safety and sustainability in their fleet operations. Through improved aerodynamics and fuel savings, when traditional mirrors are removed from the vehicle, MirrorEye supports the company's comprehensive emissions reductions effort for CO2 savings across its land transportation business. We are excited to collaborate with DB Schenker on this program and support their commitment to improving driver safety and reducing emissions. In the bus market, VDL Bus & Coach recently announced a large order from a key customer of over 150 new generation electric buses equipped with MirrorEye to be delivered in the first half of 2025. Arriva, a leading European passenger transport partner focused on contributing to a more sustainable future, ordered the buses to be used in West Brabant, Netherlands, where bus transportation is the main form of public transport. These MirrorEye equipped electric buses will be fully emissions free aligned with Arriva's zero emission ambitions will also provide significant safety benefits. Our fleet and bus partnerships continue to drive broader market acceptance of the MirrorEye technology, supporting our partners' safety, efficiency and sustainability goals. That said, while we continue to expand our relationships with fleet and bus customers, recognize that many of these fleets are evaluating the technology at lower volumes prior to the availability as a factory installation. We expect this will increase the OEM volumes as evidenced by several of our OEM customers making the system standard equipment. However, it naturally reduces demand for the retrofit application. Our investment in the MirrorEye platform continues to drive year over year growth, strong take rate expectations and continued momentum across our end markets and applications. We will continue to invest in the technologies and the adjacent product opportunities to optimize our position in this market and drive technology innovation, improve safety, efficiency and driver retention for our customers. With that, I will turn it over to Matt for a more detailed update on our quarterly financial performance and our forward expectations. Matt?

Thanks, Jim. Turning to Page 10, sales in the third quarter were $213.8 million. Revenue was significantly impacted by continued pressure across all of our major end markets resulting in reduced customer production as well as lower revenue in our off-highway end market and despite continued expansion with several fleets, reduced volumes related to MirrorEye aftermarket products, as Jim discussed previously. We continued to drive improved performance throughout the business and as a result, variable overhead declined by 60 basis points in the third quarter relative to the second, driven primarily by reduced quality related costs. We are focused on continuing to make progress on the variables that we can control while acting efficiently and effectively to mitigate the external headwinds we continue to face. Third quarter adjusted gross profit was $44.6 million or 20.9% of sales. Adjusted EBITDA was $9.2 million or 4.3% of sales. Operating performance was driven by the unfavorable impact of lower sales, partially offset by continued cost control, particularly related to reduced operating expenses. As Jim outlined previously, operating expenses declined by $4.5 million quarter to quarter as a result of continued focus on discretionary spend control as well as reduced incentive compensation to align with current market conditions. Third quarter EBITDA was also impacted by net non-operating expenses of approximately $400,000 primarily related to a non cash reduction in the fair value of our investment in Auto Tech Ventures. Finally, we remain focused on inventory management to improve cash performance, which has resulted in an $11.3 million reduction to inventory in the 1st 9 months of 2024. Despite lower-than-expected volumes, we continue to make good progress in inventory reduction. As a result, overall cash performance has continued to improve significantly as we have generated $31.3 million more cash year-to-date than the same period last year. I will provide a more detailed update on our capital structure and cash performance later in the call. Turning to page 11, our third quarter results were significantly impacted by similar macroeconomic factors as those impacting our peers across the transportation industry. As we discussed on our second quarter earnings call, we expected reduced revenue in the third quarter relative to the second quarter due to normal seasonality in production. However, third quarter revenue was significantly impacted by reduced customer production across all of our primary end markets, reductions in our off-highway end market and reduced MirrorEye aftermarket volume relative to our prior expectations. Our off highway and MirrorEye aftermarket products are generally higher margin, and as a result, the EBITDA impact from reduced revenue in the quarter approximated the high end of our historical contribution margin range of 25% to 30%. Based thereon, reduced sales created an approximately $5 million EBITDA headwind during the quarter versus our prior expectations. Third quarter operating performance was also impacted by the unfavorable change in foreign currency rates and the non-cash, non-operating impact of the reduced fair value of our investment in Auto Tech Ventures. Combined, this resulted in an unfavorable impact to EBITDA in the quarter of approximately $2.6 million versus previous expectations. We continue to focus on improving the fundamental performance of the business. We are confident that these actions will drive earnings expansion as we continue to launch new programs and expand on our existing products and technologies. Page 12 summarizes our key financial metrics specific to Control Devices. Control Devices third quarter sales of $74.3 million decreased by 8.1% versus the second quarter of this year, primarily driven by continued pressure and reduced demand in the North American passenger car market as well as lower sales in the commercial vehicle end market in China. Partially offsetting these declines were stronger sales in the China passenger vehicle end market. Third quarter operating margin of 3.1% decreased by 150 basis points compared to the second quarter of 2024, despite a 20-basis point reduction in material costs, primarily due to reduced cost leverage on decremental sales. As discussed on previous earnings calls, we remain focused on drivetrain agnostic technologies to drive new business awards as the market continues to evolve. This is highlighted by our recent new business award for the leak detection module, which provides global opportunities primarily for hybrid vehicle applications, a market that continues to grow, as well as traditional powertrains. We continue to focus on operational excellence and enterprise-wide cost reduction, including material cost reduction plans that continue to drive margin improvement going forward. Page 13 summarizes our key financial metrics specific to Electronics. Electronics third quarter sales were $135.7 million a decrease of approximately 12% versus the second quarter of the year. This was primarily driven by continued macroeconomic pressures driving lower sales volumes in the commercial vehicle end market in both Europe and North America, as well as the off-highway market. Revenue was also impacted, as expected, by the typical seasonality of summer shutdowns in Europe. Third quarter adjusted operating margin of 2.8% declined by approximately 480 basis points compared to the second quarter, primarily due to unfavorable sales mix and reduced fixed cost leverage as a result of lower sales. We will continue to focus on discretionary cost control and improved operating efficiency, including reduced quality related costs to drive margin performance as we continue to grow. Again, we continue to focus on the factors that we can control to offset the macroeconomic conditions impacting our industry. During the quarter, we continued to make progress on our initiatives to improve our overall operating performance. Electronics remains well positioned to take advantage of significant future growth and margin expansion as a result of a strong product portfolio, a substantial backlog of awarded programs, continued improvement in material and quality related costs, and organizational optimization. Page 14 summarizes our key financial metrics specific to Stoneridge Brazil. Stoneridge Brazil's third quarter sales improved by approximately 15% versus the second quarter. This was primarily due to an increase in sales to local OEM customers as well as higher aftermarket sales. Foreign currency unfavorably impacted quarterly revenue by approximately $700,000. Third quarter operating profit increased from breakeven performance in the second quarter to approximately $700,000. Foreign currency unfavorably impacted operating profit in the quarter by approximately $400,000 or approximately 240 basis points. We continue to shift our portfolio in Brazil to more closely align with our global growth initiatives and further expand our local OEM programs to support our global customers. Brazil has become a critical engineering center as we continue to align our global engineering capabilities and footprint. We will continue to utilize our global footprint to cost effectively support our global business. Turning to slide 15, we are updating our full year 2024 guidance to reflect current market conditions. As discussed on our second quarter earnings call, our previously provided revenue guidance range considered potential volatility in our non-OE and customer demand-based products, including our off highway and aftermarket products. Our current expectations assume that these products will be at the low end of our previously provided range or approximately $940 million prior to adjustments based on current market conditions. Our updated revenue guidance is primarily driven by the continued production headwinds in our primary end markets. Similar to our peers, we continue to face production volume headwinds across all of our primary end markets. Overall, our weighted average end markets are expected to decline 3.6% for the full year relative to the expectations as of our previously provided guidance. This translates to an approximately $34 million reduction relative to our previously provided expectations. Additionally, there is a potential for incremental reductions in our off-highway end market for the remainder of the year as the headwinds we experienced in the third quarter could persist into the fourth quarter. Similarly, although we continue to expand our relationships with our fleet and bus customers in both Europe and North America, the volume ramp up continues to be slower than expected. As Jim outlined earlier, several of our fleet customers continue to evaluate the technology in anticipation of OEM availability, shifting our expectations from aftermarket retrofit products to OEM applications. Overall, this year we are expecting approximately $65 million to $70 million in MirrorEye revenue, which represents a 25% increase over 2023. Although overall MirrorEye revenue is less than we expected at the beginning of the year, MirrorEye continues to expand and gain momentum forward with multiple new launches in the next 12 months and the announcements that several of our key customers have now included MirrorEye as standard equipment on many of their key platforms. We are also working with several large North American fleets to expand MirrorEye applications and evaluations. We continue to expect significant MirrorEye growth in 2025. As a result, we are expecting midpoint revenue of approximately $900 million for the full year. As it relates to our updated EBITDA expectations, the reduction in MirrorEye aftermarket applications and off-highway products overall will create an unfavorable mix impact for the full year. As such, we are expecting decremental contribution margins on our adjustment to revenue guidance to be at the high end of our historical range or approximately 30%, similar to the impact in the third quarter. Additionally, we are updating our EBITDA guidance to reflect the unfavorable third quarter impact of operating FX and non-operating expenses that was not considered in our previous guidance. We will continue to improve the fundamental performance of the business and are still expecting to be able to offset portion of the overall revenue decline with improved operational performance. Most importantly, we are continuing to build a foundation for strong incremental earnings and continued improvement in cash performance as we grow next year and beyond. We will continue to drive strong financial performance to finish the year and provide a good runway heading into 2025. Turning to slide 16. During the first nine months of the year, we generated $13.3 million in cash, driven by our continued focus on reducing net working capital, including an $11.3 million reduction in inventory. Compared to the same period in the prior year, overall cash performance improved by $31.3 million. As mentioned earlier on the call, we will remain focused on inventory management to improve cash performance and reduce overall interest expense. As permissible under the terms and conditions of our existing credit facility, we have elected to update our compliance calculation to add back certain accrual-based expenses and apply the cash payments when they occur as expenses for compliance purposes. The chart on Slide 16 represents the compliance leverage ratio considering a similar change historically for comparison purposes. As a result, net debt to trailing 12-month EBITDA as calculated for compliance purposes was approximately 2.8 times. Similarly, despite reduced expectations for the remainder of the year, we expect to remain compliant with all of our credit facility covenants. We will remain focused on maximizing cash performance to reduce interest expense, de-lever the business and drive value to shareholders. With that, I will turn it over to Jim for some closing remarks.

Thank you, Matt. Turning to Page 17. In summary, we continue to focus on improving the fundamentals of our business despite the current macroeconomic conditions. As a company, we remain focused on the right things, including flawless execution of our program launches, material cost improvement, continued cost control and improved cash performance. Our efforts were highlighted by our year-to-date cash performance improvement of $31.3 million compared to the same period in 2023. While we expect continued challenges across our end markets for the remainder of the year and into 2025, we continue to focus on things we can control and respond efficiently and effectively to macroeconomic headwinds that are prevalent across our industry. We are confident that our effort to fundamentally improve business performance and focus on key growth initiatives will drive long-term profitable growth for our shareholders. During the quarter, we made great strides in continuing the trajectory of our long-term growth profile. We are excited about our new award for the leak detection module in our control devices segment. This new technology aligns primarily with the globally growing hybrid vehicle segment and is applicable to traditional powertrains as well and is one of several technologies being developed in control devices as we continue to expand the business utilizing our drivetrain agnostic approach. Similarly, we continue to build momentum with MirrorEye in both our OEM and fleet channels. Our program with Daimler Truck North America on their new fifth generation Freightliner Cascadia truck solidifies a strong customer demand for the system as DTNA transitions from the pre wire option on their existing trucks to a factory installed camera monitor system with advanced technology features, including object detection. We also announced that MirrorEye will be launching on a European brand of an existing global OEM with the system offered as standard equipment on several models. Similarly, our other European OEM customers, DAF and Volvo have now made their respective camera monitor systems standard on several key truck platforms. As the global leader in commercial vehicle camera vision systems, we expect strong take rates as our global programs continue to launch and ramp up over the next several years. Finally, we continue to expand our retrofit applications with new partnerships with DB Schenker in North America and VDL Bus & Coach in Europe. Our fleet and bus partnerships continue to drive broader market acceptance of the MirrorEye technology supporting our partner's safety, efficiency and sustainability goals. Our investments in MirrorEye platform continues to drive year-over-year growth, strong take rate expectations and continued momentum across our end markets and applications. We will continue to invest in the technologies and adjacent product opportunities to optimize our position in this market and drive technology innovation, improve safety, efficiency and driver retention for our customers. Stoneridge remains well positioned to outpace our underlying end markets and drive significant earnings expansion going forward. As always, driving shareholder value is at the forefront of all of Stoneridge's strategic initiatives. With that, I'll open the call for questions. We will now begin the question-and-answer session.

Thank you. [Operator Instructions]. First question comes from Daniel Imbro with Stephens. Please go ahead.

Hey, good morning, guys. Thanks for taking our questions. I want to start maybe just on the macro here. So the end market is weak and it does seem like a true demand issue kind of given the financials that Matt walked through, but Jim, I guess I'd love to hear more details on is what you guys could do to either influence or drive revenue growth in the medium term into 2025 if this tougher macro persists. Just trying to think about how you guys can maybe change your growth outlook in the middle of a challenging macro here. What's in your control?

Yes. So thanks for the question, Daniel. I think as you know, our business is made up of both OEM based business as well as aftermarket and sort of non-OEM type orders and we can take a better focus in that second space, right, where we could work more effectively in aftermarket. We can drive product offerings that are typically not associated with the regular production run of a passenger car or of a commercial vehicle. So from that perspective, if there are persisting weakened market conditions, our focus would of course increase in those spaces and we could drive additional revenue by making that focus a primary priority for us.

Yes, Daniel, I would add to that. With all of the MirrorEye launches that we have and as you heard obviously the excitement around several vehicles making it standard equipment, we would expect to continue that significant growth in that space going forward, which is obviously not necessarily macro driven. Obviously, one more truck equals one more opportunity to sell the system, but that's a pretty significant jump from the awarded expectations for some of those vehicles. So not only can we maybe unusually in our space, we are we have a lot more opportunity in the aftermarket in non-OE products, as well as some of the new launches and take rates related to MirrorEye that can drive that can also drive some significant growth there.

Well, related to that, just curious on the OEM side, Jim. What are your OEM customers telling you around when they expect to ramp from this production back up as we move forward to 2025?

Well, I mean, obviously, 2025 is still looking not very strong, but the expectation is that in the second half of the year that we start to see some recovery, maybe especially in the commercial vehicle side. This is a cycle like every other automotive and commercial vehicle cycle, and we expect to be on the ramping upside of the cycle here soon. So this I think even gets better as we get into 2026 especially in the commercial vehicle space as several truck manufacturers are now telling us that because of the emissions regulations that are coming into play the following year, they expect a lot of pre buy. So they expect a recovery, but also on top of that, some pre-buying prior to the 2027 regulation coming into play.

Yes, Daniel, I think if you look at the kind of IHS forecast, you'll see that passenger car is expected to be relatively flat next year at this point, but there is some significant uptick on the commercial vehicle side like Jim said, particularly as we go into the second half of the year. So we see some of the macro trends turning and some of the particularly on the CD side, some of the market headwinds turning into tailwinds by the back half of the year. So when you combine that with some of the non OE and MirrorEye launch activity that we talk about, there's clearly a ramp up here coming both on the self-help side as well as the macro side, particularly on the CD space.

Very helpful. And then maybe last one for us, just a follow-up on what you said a minute ago, Matt, you recently won another MirrorEye program with Daimler. Can you talk about just expected timing and take rate assumptions of this program? And then any color on the overall size or expected peak revenue this could be?

Yes. So it was not an additional award, Daniel. Just to be clear, it was a clarification and announcement of who that previous award was with. So if you look back, we've been talking about several awards launching here in North America and Europe over a period of time. This is just the announcement that that is in fact Daimler Truck North America. So they're beginning serious production on that launch and ramp up in mid-2025. We have talked about that in North America being relatively low take rates as it ramps up, but like Jim said in the prepared remarks, we do think that based on the customer feedback that we will exceed those expectations. We're getting very favorable customer feedback and that's even to go further, we talked about Daimler Truck North America being one of the first prewire customers. So they have a pretty good sense of the demand that they're seeing from some of their fleets, obviously a very popular vehicle in North America. So we are very optimistic that as that program launches and ramps up in mid-2025 that we'll be able to outperform that.

Great. Appreciate it.

And that I would say some of the big news relative to MirrorEye and take rates is that, again, several of our customers have decided to make the product as standard equipment on several of their truck models. That is news, right? And that will, in fact, offer a greater effective take rate with those customers going forward.

Great. Thanks.

The next question comes from Gary Prestopino with Barrington Research. Please go ahead.

Hi, good morning, all. Jim, I'm curious about this leak detection module and realizing I have a simple mind here. Could you just very basically explain what this does, why it needs to be on a hybrid car? And is this really a must have product for hybrids as we go forward?

Yes. Well, I'll try not to be too technical here, Gary, for anyone listening, to be honest, but the hybrid application -- any hybrid vehicle has a greater challenge with regard to what is called evaporative emissions. Evaporative emissions is the evaporation of gasoline onboard the vehicle that goes into the atmosphere. There's sophisticated systems today that capture those vapors and put those vapors back to the engine to be consumed in combustion so they don't become hydrocarbon emissions. In a hydro vehicle, because you can drive it a lot on the electric motor only, you have a gas tank that's sloshing around creating vapor, but none of that vapor has an opportunity to be used because it's being driven essentially on the electric motor only for 20, 30, 40, 50 miles and so therefore, that evaporative emissions challenge becomes bigger because you don't have a continuous consumption of that vapor. So hybrids always have had greater challenges from an evaporative emissions perspective. There's a lot of extra sophistication in the systems today. This system actually simplifies that solution and is much more effective at addressing the consumption and the I'll say the retention of those vapers before consumption onboard the vehicle. So is it a must have? I think going forward as standards become more strict, it's a must have. It makes the -- it's a big pain point for current OEMs with our hybrids, and this is addressing a key pain point with a very effective, highly integrated solution.

Yes, I mean that makes a lot of sense. I mean are you the 1st in the market with a product like this or are there others out there that are on like domestic OEMs?

There are a few others that have similar products but nothing as integrated and as elegant as a solution we're bringing forward. This is a very high value proposition product for us and for the industry.

Okay. All right. And then, Matt, I'm just going through some numbers here and trying to get a handle on it. It looks like we started the year at $1 billion midpoint for revenues and $67 million midpoint of EBITDA. We're now at $900 million and $43 million and you said that the MirrorEye revenue this year is going to be $65 million to $75 million and you started the year with about $100 million. So is it safe to say that obviously Control Devices has slipped between $65 million and $75 million. But I'm trying to get an idea of when you put your projections together, what were the IHS numbers you were using that would basically drive your initial estimates for what the revenues would be in Control Devices and where are they now? Where are the IHS numbers now?

So Gary, what I would say is remember this is not just Control Devices. In fact, we've seen the recovery in CD has not come as soon as we had expected. So this is really both segments. So obviously there has been a reduction in Control Devices. I think when we started the year, SAR was somewhere close to $16 million a little bit south of $16 million. Right now, what we're seeing is more like $15.5 million right. So North American passenger car certainly has been a headwind but it's not all the headwind right. Commercial vehicle has also declined. So yes, you're right there's is $30 million or so on the MirrorEye side like we talked about. Some of that is the slower than expected ramp up in North America and the very initial ramp up here with Volvo, which we said we expect to turn around here going forward, we've seen some increase in orders there. The other side that is a little bit of a shift in buckets is, like Jim mentioned, the fleet to OE aspect, right? I think we had expected that more of the fleets would adopt after the evaluation periods and what we're seeing is because the OEM programs are launching and being marketed frankly pretty heavily and looking to be very successful, more of the fleets are using those as evaluation units in anticipation of those OE launches. So it's just really shifting from an aftermarket to probably a more OE focused buy going forward, particularly for some of those very, very large fleets, even some of them we haven't talked about yet. So I would say there is a portion of that that's MirrorEye. Some of that is timing. The remainder is certainly some downturn in Control Devices, but then a delayed recovery on the commercial vehicle side and that cycle has definitely been worse than I think people expected at the beginning of the year.

Okay. And then you said I don't know if this was globally or on a North American basis, car production is expected to be flat. Is that a global or a North American number for 2025?

For 2025, that's North America. Our primary exposure is on the passenger car side of North America and China. China is expected to return to some moderate level of kind of low to mid-single digit growth in 2025 and North America is looking roughly flat right now from based on what IHS is suggesting.

Okay. All right. Thank you.

Thanks, Gary.

This concludes our question-and-answer session. I would like to turn the conference back over to James

Well, thank you, everyone, for joining us for the call. Look, I know your time is really quite important, and we do truly appreciate your willingness to engage us once again today for our earnings call. In the third quarter, we continued to drive improvements in the fundamentals of our business. Our focus on operational efficiency resulted in reduced quality related costs, while reductions to operating expenses helped to offset some of the significant market related challenges that we did face. As discussed earlier on the call, MirrorEye continues to gain momentum in both the OEM market with new program launches and improved take rate expectations and in the aftermarket with fleet expansions and new bus applications as well. We will continue to deliver on our commitments by focusing on long-term strategy, broad operational improvements and excellence in execution. We expect that our performance, along with our unique mix of industry changing product platforms, will continue to drive strong shareholder value. So once again, thanks everyone.