Stoneridge Q3 2023 Earnings Call Transcript

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November 2, 2023

There are 5 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the conference call of Stoneridge. At this time, all participants are in a listen mode only. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference call is being recorded.

Operator

I would now like to hand the conference over to your first speaker today, Kelly Harvey, Director of Investor Relations.

Speaker 1

Good morning, everyone, and thank you for joining us to discuss our Q3 results. The release and accompanying presentation was filed with the SEC yesterday evening and is posted to our website at stoneridge.com in the Investors section under Webcasts and Presentations. Joining me on today's call are Jim Ziselman, our President and Chief Executive Officer and Matt Horvath, our Chief Financial

Speaker 2

Officer.

Speaker 1

Before we begin, I need to inform you that certain statements today may be forward looking statements. Forward looking statements include statements that are not historical in nature and include information concerning our future results or plans. Although we believe that such statements are based upon reasonable assumptions, you should understand that these statements are subject to risks and uncertainties and actual results may differ materially. Additional information about such factors and uncertainties that could cause actual results to differ may be found in our 10 Q, which was filed with the Securities and Exchange Commission under the heading Forward Looking Statements. During today's call, we will also be referring to certain non GAAP financial measures.

Speaker 1

Please see the index for a reconciliation of these non GAAP financial measures to the most directly comparable GAAP measures. After Jim and Matt have finished their formal remarks, we will open up the call to questions. With that, I will turn it over

Speaker 2

to Jim. Thanks, Kelly, and good morning, everyone. Let me begin on Page 3. During the Q3, we continued to build on our 2nd quarter progression to drive significant sequential margin and earnings improvement. 3rd quarter adjusted EPS of $0.10 is an increase of $0.15 versus the 2nd quarter, while EBITDA margin improved by 2 60 basis points or approximately $5,000,000 We continue to focus on gross margin improvements through production efficiency, material cost reduction and excellence in execution.

Speaker 2

Despite volatility in our end markets, we continue to deliver on our commitments driven by an unwavering focus to both execute on our long term strategy and drive continuous operational excellence. Our 3rd quarter performance, which builds on improved results last quarter, Continues to establish a good foundation to drive operating performance as we continue to grow the company. Given the strength of the foundation, even in the face of market based revenue headwinds, our full year 2023 performance, Exclusive of the impact of the UAW strike is expected to be directly in line with our original guidance. We are refining our guidance, still keeping it within our original range, but reducing the adjusted EPS midpoint by $0.05 which is equal to the estimated impact of the UAW strike. Our updated full year midpoint guidance implies 4th quarter revenue of approximately $238,000,000 and adjusted EPS of $0.15 or a $0.05 improvement relative to the Q3.

Speaker 2

We will continue to build on the foundation of the last couple of quarters to drive strong performance to finish the year and provide a good runway heading into 2024. This morning, we are providing a preliminary revenue Expectation of over 5% growth in 2024. This significantly outpaces our underlying end markets, which are expected to contract by 1.5%. Matt will provide additional detail on our full year guidance and our expectations for 2024 later in the call. As we continue to drive margin performance, we are also focused on executing on the program launches that will continue to drive growth for the company.

Speaker 2

During the Q3, we launched the Smart 2 Tackograph program in the European commercial vehicle market. This next generation Smart Tacker Graph was designed to meet the EU Mobility Package Standards and provides us with significant revenue opportunities in both the OEM and the aftermarket applications over the next several years. I will discuss this program launch and our expectations for final contributions and more detail later in the call. Finally, today, we are also announcing our participation in the Department of Energy's Super Truck 2 innovation program with the largest North American commercial OEMs, including Navistar, Daimler Truck North America, Peterbilt and Volvo Trucks. We are thrilled to partner with these OEMs on this program as the camera mirror system supplier to not only increase fuel efficiency and meet the Super Truck program goals, but also provide significant safety benefit to the drivers.

Speaker 2

I'll provide additional details on our involvement in this program as well later in the call. Now moving to Page 4. Page 4 summarizes our key financial metrics for the Q3 relative to the prior quarter in more detail. For comparison purposes, we have excluded the favorable impact of the $3,300,000 of non recurring retroactive pricing that was recognized in the Q2 that was applicable to prior periods. 3rd quarter adjusted sales of $237,200,000 declined by 8% relative to the Q2 of 2023 due in part to variation in seasonal production and an unfavorable foreign currency translation impact of $1,300,000 Additionally, we are seeing slower than expected ramp ups in certain by vehicle platforms as well as reduced demand in our on and off highway commercial vehicle end markets.

Speaker 2

3rd quarter adjusted gross margin of 22.1 percent was approximately in line with the Q2 of 2023, primarily due to material cost improvements and improved freight costs, offset by reduced fixed cost leverage on decremental revenue versus the 2nd quarter. Adjusted operating margin improved by 200 basis points to $7,300,000 primarily due to a significant step down in engineering costs. As we outlined last quarter, we expected this reduction to continue through the end of the year as program launch costs decline and due to the timing of customer engineering reimbursements as we close the year. We continue to deliver on our commitments driven by our focus to both execute on our long term strategy and drive continuous operational excellence. Throughout 2023, we continued to take actions to optimize our organizational structure, reduce discretionary spending and improve operating leverage.

Speaker 2

As a result, We expect continued operating margin expansion as revenue continues to grow. And finally, adjusted EBITDA margin of 7.2% improved by approximately 3.80 basis points over the prior quarter. And going forward, we will significantly outperform our underlying end markets as we continue to launch new programs and recognize the benefit of ramp up of recently launched programs. Additionally, we expect to further build on our margin momentum and drive significant earnings growth. Now turning to Page 5.

Speaker 2

The UAW strike began on September 15 with incremental strike targets announced through mid October. Over the last week, the UAW announced tentative agreements with Ford, Stellantis and GM, which will bring the strikes to an end once the agreements are ratified by the union members. The UAW began to strike targeted 4 GMS plants in the middle of September. And in September, given the specific plants on strike and the lag in production downtime we saw between the strike and order reduction from the OEs, the final impact on the Q3 was relatively small. That said, the impact of the Q4 will be more substantial as additional strikes continued into October.

Speaker 2

In October, the UAW strikes reduced revenue by approximately $3,500,000 and operating income by approximately $1,000,000 or $0.03 for the month. We expect there to be some residual impact of the strikes as we as impacted facilities return to work and ramp up production to normalized output. We expect this residual impact to reduce revenue by an incremental $3,000,000 and approximately $800,000 in operating income or an additional $0.02 in November before normalizing in December. In total, we expect that the UAW Strikes will reduce revenue $7,000,000 reduce operating income by $2,000,000 and reduce adjusted EPS by approximately $0.05 We have refined our guidance midpoint to reflect this $0.05 impact. As a company, we are committed to working to offset this and other externalities to ensure continued strong financial performance without sacrificing future growth or deviating from our long term strategy.

Speaker 2

We remain focused on responding to strike impacts as appropriate with consideration for an efficient ramp up as strikes ended. We can continue to move forward with stable production now and efficiency in our supply chains, our customer orders and in the business operations. Now turning to Page 6. This morning, I want to highlight yet another recent program launch. The launch of our next generation TackerGraph, the Smart2 in Europe.

Speaker 2

The program aligns with our overall strategy and continued focus on vehicle intelligence and connectivity as we expand our content per vehicle aligned with industry megatrends and in this case also aligned with regulatory requirements. The Smart2 TackerGraft is the next generation of our existing TackerGraft product, providing incremental capabilities to conform with the EU Mobility Package Standards. Our platform makes dry time analysis more flexible and consistent and provides for the opportunity to add features and functionality to the platform going forward to ensure continued compliance with the latest regulatory requirements. The current market is primarily served by Stoneridge and one other competitor and regulatory barriers exist for entry for other competitors. Beginning in August of 2023, the next generation smart tachograph is required to be on all newly registered vehicles, commercial vehicles over 3.5 tons that are involved with international transport.

Speaker 2

The new European standard also has incremental regulations requiring adoption on various vehicle types over the next several years, including the requirements for existing vehicles on the road. And as a result, we expect this program to drive significant growth opportunities with both European OEMs and in the aftermarket. The product launched in the Q3 and will ramp up next year, continuing to grow as new vehicles fall under the updated requirements. We are estimating Smart2 Tackograph revenue to be approximately $20,000,000 in 2023 and more than $60,000,000 in 2024 for both OEM and aftermarket opportunities. But this is the latest in a long line of program and product launches over the several years, including our digital driver information systems, our park by wire actuators, our axle based actuators, our MirrorEye, and now our most innovative tachygraph yet.

Speaker 2

Stoneridge continues to build a strong portfolio of technologies and vehicle systems aligned with the global industry megatrends. Now turning to Page 7, I'm happy to announce and discuss our involvement with the Department of Energy's SuperTruck II innovation program with our MirrorEye platform. The Super Truck II program was launched by the Department of Energy in 2016 with the goal of achieving 120% increase in freight efficiency for the Super Truck 1 program that launched in 2,009. The Department of Energy has indicated that heavy duty trucks to 80% of goods in the United States and use about 28,000,000,000 gallons of fuel per year, accounting for approximately 22% of total transportation energy usage. This presents a significant opportunity for carbon emissions reduction and energy savings for a key segment of our nation's transportation sector.

Speaker 2

The DOE has funded 4 projects to develop and demonstrate to technologies that collectively will more than double the freight efficiency of Class 8 trucks, and as I mentioned with Navistar, with Daimler Truck North America, with Peterbilt and with Volvo trucks. MirrorEye was selected as a partner for all 4 SuperTruck II teams to help achieve significant increases in freight efficiency with the application of the MirrorEye and resulting in improved fuel economy. MirrorEye continues to gain momentum in North America. MirrorEye launched with Kenworth in North America in the Q2 of this year and is expected to launch on the Peterbilt nameplate soon. In addition, 2 additional North American OEMs are expected to launch in 2025.

Speaker 2

And in Europe, we are anticipating our largest OEM program to launch in the first half of twenty twenty four. As we continue to expand awareness of the system through our expanding fleet trials and retrofit applications, as well as through the highly visible programs like Super Truck 2, we expect take rates to continue to improve along with incremental program launches. Stoneridge remains well positioned as the industry continues to focus on both vehicle efficiency as well as vehicle safety. Now turning to Page 8 and in summary, we're so very pleased with our performance in the Q3 as we demonstrated our ability to execute yet another quarter over quarter improvement in financial performance. We continue to be laser focused on operating performance and as a result, we have to deliver on our commitments set at the beginning of the year.

Speaker 2

This is driven by an unwavering focus to both execute on our long term strategy and drive continuous operational excellence throughout all of the functions within the company. Our Q3 performance, which builds upon improved results last quarter, Continues to establish a strong foundation to drive operating performance as we continue to grow the company. Stoneridge remains well positioned with a strong backlog of awarded business and a robust portfolio of innovative technologies aligned with the key industry megatrends. We will remain focused on execution to ensure that we not only significantly outgrow our underlying end markets, but we optimize earnings as we do so. With that, I will turn it over to Matt and he'll discuss our financial results in more detail.

Speaker 2

Matt?

Speaker 3

Great. Thanks, Jim. Before I begin on Slide 10, Our Q3 financial performance as well as our expectations of continued growth and earnings expansion going forward enabled us to complete the refinancing of our credit facility this morning, which we announced with an 8 ks and press release shortly before our call. The refinance facility is a 3 year $275,000,000 revolving credit facility with $150,000,000 recording feature. The refinance facility has similar leverage and interest coverage ratio covenants as our current facility.

Speaker 3

Despite a more turbulent macroeconomic backdrop, we were able to achieve pricing that is only slightly higher than our current facility across the pricing grid. We were able to offset this slightly increased pricing with a slightly smaller overall facility and less fees associated with undrawn commitments. The complete credit facility details can be found in the 8 ks we issued this morning. This refinance facility extends our maturity date and provides the company with ample liquidity to continue to support our growth, while also limiting total interest expense. Turning to Slide 10, adjusted sales in the 3rd quarter were approximately $237,200,000 Adjusted operating income was $7,300,000 or 3.1 percent of adjusted sales, which was an increase of approximately 70 basis points from the prior quarter.

Speaker 3

Each of our segments performed well in the quarter with Control Devices expanding operating margin by approximately 40 basis points over the 2nd quarter and Electronics expanding operating margin by 80 basis points over the prior quarter. I will provide additional detail on segment level performance on the subsequent slides. As Jim discussed earlier in the call, We are updating our full year 2023 guidance ranges. Our implied 4th quarter guidance based on the midpoints of our updated full year ranges implies stable revenue performance quarter to quarter even after consideration of the impact of the UAW strike, which is expected to be approximately $6,500,000 in the 4th quarter. We expect gross margin performance relatively in line with the Q3 and continued expansion of our operating margin as increased Customer engineering reimbursements are expected to drive at least 80 basis points of operating margin improvement versus the Q3.

Speaker 3

Excluding the estimated impact of the UAW strike, The midpoint of our updated full year guidance is in line with our previously provided guidance. After adjusting for an expected $0.05 of UAW strike related impact, We have reduced our adjusted EPS midpoint by the same $0.05 which is in line with the low end of our previously provided range. As I will discuss later in the call, we expect significant growth next Our Q4 guidance provides a strong foundation for continued growth and earnings expansion in 2024. Page 11 summarizes the significant drivers of our Q3 adjusted earnings per share relative to the expectations we outlined on our Q2 call. In the Q3, we drove strong financial performance exceeding our previously provided expectations of above breakeven adjusted EPS performance by approximately $0.08 with adjusted EPS of $0.10 for the quarter.

Speaker 3

Although we expected revenue to be down versus the 2nd quarter due to normal seasonality, Production volumes were slightly lower than expected, driving approximately $0.02 of headwind in the quarter. This was due primarily to a slower ramp up in customer production related to certain electrified vehicle platforms and reduced demand in our commercial vehicle end markets. During the Q3, Gross margin outperformed our previous expectations due to reduced material costs, favorable sales mix and favorable operating performance. Most notably, we saw material cost improvement versus prior expectations as supply chains have continued to normalize and the impact of previously negotiated price increases and material cost mitigation actions continue to positively impact our overall material costs. During the quarter, We incurred approximately $0.02 of additional costs related to a specific distressed supplier.

Speaker 3

These incremental costs were required to provide additional support and prevent end customer disruption. Although we expect some additional cost to be incurred in the Q4, we believe this issue is contained, which would result in relatively less impact in the Q4. We are working to recover these incremental costs, but have not included the expectation of any recovery in our full year 2023 guidance. SG and A and engineering spend was approximately in line with prior expectations as relatively higher costs incurred in the 2nd quarter subsided to more normalized levels. This was due in part to reduced project launch related expenses as our Smart2 Tachygraph launched in August, as well as the continued optimization of our overall global engineering footprint and cost structure.

Speaker 3

3rd quarter performance was positively impacted by $0.05 due to the non operating impact of foreign currency on intercompany loans. Similarly, 3rd quarter performance was negatively impacted by approximately $0.04 due to incremental tax expense as a result of the change in jurisdictional mix of pre tax earnings. In summary, not only did we exceed our previously outlined expectations, we remain on track for continued earnings expansion in the 4th quarter as we remain focused on improvement in our supply chains and material costs, efficiency in our manufacturing facilities and optimization of our global cost structure. Page 12 summarizes our key financial metrics specific to Control Devices. Control Devices 3rd quarter sales of $90,100,000 decreased by 3.2% compared to the prior quarter due to lower sales in the North American passenger vehicle end market, primarily driven by reduced production for certain electrified vehicle platforms relative to the Q2, partially offset by higher sales in China.

Speaker 3

As Jim outlined previously, the UAW strikes at Ford, GM and Solentes had a minimal impact on our Q3 financial results, but are expected to have an impact on the Q4, even though negotiations are now complete customer production facilities are expected to ramp back up in November. Adjusted operating income was $5,600,000 for the quarter or 6.2% of sales, which improved by approximately 40 basis points versus the prior quarter. The continued expansion was driven by higher gross margin, partially offset by the impact of the distressed supplier related expenses I discussed previously, which were approximately $700,000 during the quarter. For the remainder of the year, we will continue to focus on driving manufacturing performance efficiency and cost control to mitigate production volatility, primarily resulting from the UAW strike. Looking forward, we are focused on strong margin performance in 2024, driven primarily by a continued focus on manufacturing performance and material cost improvement actions.

Speaker 3

We will continue to react to changes in our end markets as needed to drive sustained profitable growth. Page 13 summarizes our key financial metrics specific to Electronics. For comparison purposes, we have excluded the favorable impact of non recurring Retroactive pricing recognized in the 2nd quarter related to prior periods. Electronic's 3rd quarter sales were approximately $142,400,000 a decrease of 11.3% versus the prior quarter due in part to expected production seasonality as well as reduced demand in our commercial vehicle and off highway end markets. That said, we continue to expect significant growth in our Electronics segment next year as we capitalize on recently launched and to be launched products over the next 12 months.

Speaker 3

Adjusted operating margin increased by approximately 2 70 basis points relative to the 2nd quarter. This significant margin expansion was primarily due to a step down in D and D costs compared to the Q2 as elevated D and D spend for program launches declined as expected. We continue to focus on discretionary cost control driving reduced SG and A expenses as well. We are expecting revenue growth segment in the Q4 due to the ramp up of new and recently launched programs, including the SMART-two tachygraph program highlighted earlier on the call. Similarly, we are expecting continued margin expansion in the 4th quarter, primarily driven by the continued reduction of net engineering cost as a result of the timing of customer reimbursements and the continued focus on optimizing base engineering expense globally.

Speaker 3

Looking forward, in 2024, although our commercial vehicle end markets are expected to decline, We expect strong revenue growth. Our growth will be driven by the continued ramp up and expansion of recently launched programs, including MirrorEye in North America and the Smart 2 tachygraph as well as additional program launches, including our next OEM MirrorEye program in the first half of next year. We expect a strong top line growth, as well as our continued focus on material cost improvement actions and structural cost optimization will drive strong margin performance next year. Page 14 summarizes our key financial metrics specific to Stoneridge Brazil. Stoneridge Brazil's 3rd quarter sales declined by $700,000 relative to the quarter.

Speaker 3

Revenue was primarily impacted by lower OEM sales, offset by higher sales in our aftermarket products. Despite continued macroeconomic challenges in Brazil, We expect revenue and operating margin to remain relatively stable for the remainder of this year and 2024. Brazil has become a critical engineering center we continue to expand our global engineering capabilities and capacity. We will continue to utilize our global footprint to cost effectively support our global business. Page 15 summarizes our expectations for full year adjusted EPS.

Speaker 3

As discussed earlier on the call, 3rd quarter adjusted EPS performance of $0.10 exceeded our prior expectations by approximately $0.08 Our updated guidance reduces our revenue expectations by $20,000,000 from the high end of our previously provided range as we discussed last quarter. This includes a couple of $1,000,000 of impact in the 3rd quarter and $7,000,000 worth of impact from the UAW strike. The remainder, which is expected to impact the 4th quarter, is primarily related to reduced demand for certain electrified vehicle platforms and reduced demand in our overall on and off highway commercial vehicle markets earlier than previously expected. In total, we expect 4th quarter production volume reductions to reduce adjusted EPS by $0.07 relative to our prior expectations, excluding the UAW strike impact, which I will discuss separately. We are also expecting incremental tax expense in the Q4 versus prior expectations, primarily due to the geographic mix of our pre tax earnings.

Speaker 3

In summary, excluding the estimated impact of the UAW strike, Our updated full year adjusted EPS midpoint is in line with our prior midpoint guidance of breakeven adjusted EPS for the year. As Jim discussed earlier on the call, the estimated impact of the UAW strike is approximately $6,500,000 in revenue in the 4th quarter and approximately $1,900,000 in operating income for approximately $0.05 As a result, we are refining our guidance to the low end of our previously provided adjusted EPS guidance range to reflect the estimated impact of the UAW strike. Our updated midpoint guidance implies 4th quarter adjusted EPS performance to be approximately $0.15 and revenue of approximately $238,000,000 representing continued earnings growth and stable revenue over the 3rd quarter. Our implied margin run rate in the 4th quarter provides a strong foundation to support significant earnings roll forward on our expectation of continued sales growth. We remain focused on creating a strong run rate from both the top and bottom line perspective into 2024.

Speaker 3

As we have referenced throughout the call this morning, we are expecting revenue growth next year that will significantly outperform our weighted average end markets. Turning to Slide 16, I'd like to provide the highlight highlight the major drivers of growth for our 2024 preliminary revenue guidance. One of the most significant specific growth drivers in 2024 is the expected ramp up of our SMART-two tachygraph program as Jim discussed in detail earlier on the call. We expect the program to contribute approximately $30,000,000 of incremental revenue in 2024. This replaces approximately $10,000,000 of revenue related to the SmartOne tech graph this year and in addition to the estimated $20,000,000 of incremental revenue expected this year for Smart2.

Speaker 3

As our MirrorEye OEM programs continue to launch and expand, We are expecting an incremental $30,000,000 in 20.24 related to MirrorEye OEM programs. This program is our largest OEM program with an estimated peak annual revenue of approximately $60,000,000 Prior to launch, the OEM has increased the volume expectations compared to the initially awarded take rate due to increased market demand across the industry. In addition, we expect our first OEM program in North America to continue to ramp up and expand as MirrorEye launches on the second nameplate and both nameplates continue to ramp up production. Our MirrorEye programs continue to have significant upside potential as the system becomes more widely adopted and validated by major fleets. Based on feedback received from fleets, we are optimistic that the take rates will increase over time and drive continued revenue upside for Stoneridge in both the OEM and retrofit markets.

Speaker 3

Other factors contributing to our growth in 2024 include the continued growth in our off highway vision systems and aftermarket Mirai fleet applications. Furthermore, there are several OEM programs launching in Brazil as we continue to expand our OEM product offerings in South America. As we continue to build on the foundation of the last couple of quarters, we expect to drive strong performance to finish this year and provide a good runway heading into 2024. We will provide our full 2024 guidance during our Q4 earnings call early next year. Moving to Slide 17, in closing, As evidenced by the strong operating performance in the quarter, this team is focused on strong execution and careful cost control to continue to drive margin improvement.

Speaker 3

We are very pleased with our progress during the quarter with sequential margin expansion and are even more excited for 2024 as we expect our top line growth to support continued earnings power. In addition, we continue to execute on our long term strategy by focusing on products that are drivetrain agnostic, winning business in critical growth areas and expanding our existing opportunities. 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.

Operator

Thank you so much, Matt. At this time, we will conduct a question and answer session. I will be moving up our first speaker and this is Justin Long from Stephens Institution. And give me one moment. Okay, Justin, you are now good to ask your question.

Speaker 4

Thanks and good morning. Maybe I'll start with one on the Refinancing announcement that just hit and I know you talked about that a little bit Matt and it sounds like The rates and covenants are fairly similar, but is there any additional color you can provide on interest expense Expectations in the Q4 and moving into next year? And can you comment on this refi being included in the guidance you just provided.

Speaker 3

Yes. Yes, the refinancing thanks Justin. Thanks for the question. The refinance is included in

Speaker 2

the guidance we just

Speaker 3

provided. We I wouldn't expect much incremental interest expense in the Q4 relative to prior expectations. The pricing good the pricing grid For the refinancing is very similar, only slightly higher than our prior facility, which given the market is a really great outcome for the company. The covenants and all of the really all of the general terms and conditions are very similar to our existing facilities. So I would not expect much change this year.

Speaker 3

Going forward, because the pricing grid is only slightly higher than where we are now, we expect obviously with continued earnings expansion On that continued growth, I would expect that interest expense would at worst remain relatively stable to where we are now with the opportunity to improve that As we improve cash flow, particularly focused on net working capital improvement and turning that into cash and of course the earnings power we expect next year. So we're really excited to announce the refinancing. It allows us to really focus on the performance of the business going forward, Gives us plenty of liquidity to fund the growth that we need going forward, all while really limiting any incremental interest expense going forward here.

Speaker 4

Okay, great. That's helpful. And then maybe Jim, I'll shift to you for my next question. I think One of the most impressive things about this quarter was the fact that revenue was down by a pretty substantial amount on a basis, but margins were up sequentially. So if as we look forward, How much of a remaining opportunity do you see from what I would define as self help margin improvement?

Speaker 4

I know You're expecting revenue to get better next year, but let's play out a scenario where the macro deteriorates and revenue is kind of more stable. How much additional runway do you see for margin expansion from things that you can control?

Speaker 2

Well, first off, good morning, Justin. Thanks for the question. And let me just first start by summarizing, how did we get here? And we had a very significant focus on material cost reduction. And as I've been saying for the last few months, We have been very strongly focused on operational excellence and that's both in the manufacturing plant as well as throughout all the supporting functions within the company upstream of the manufacturing plant.

Speaker 2

Not just efficiency, but also process and control in the organization. And so we've made some great progress here, But I have to say that we've only gotten started, right? This is really the beginning of the journey here to drive continued excellence and continued improvement. So there is certainly more to come from that perspective from inside of Stoneridge and some of the margin expansion that we talked about today comes from a continuous application of those methodologies throughout the company. So We're quite optimistic that we're going to see more from it.

Speaker 4

Okay, great. And last one for me, I wanted to ask about MirrorEye, it was helpful to get the outlook, preliminary outlook for 2024. But could you share your Base expectation for MirrorEye revenue in 2023, I think you had talked earlier this year about $60,000,000 in revenue. I'm just curious if that's changed. And then maybe you could give some color on the visibility you have

Speaker 2

Have we rejoined the conference?

Operator

I hear you loud and clear.

Speaker 4

Well, I'm not sure if you caught my question. So I'll re ask it and no problem at all. I was asking about the MirrorEye revenue contribution that you're Expecting in 2023, I think you had previously guided for $60,000,000 I'm curious If that base number has changed and then as we move into next year, as you think about that incremental $30,000,000 of revenue from MirrorEye, I wanted to ask about your visibility to that number. Thanks.

Speaker 3

Yes. Thanks for the question, Justin. And again, sorry for the disconnection there. Yes, so this year, obviously, the OEM program that we had originally in Europe has remained pretty strong. We talked about a little bit of a slower ramp up on the 1st North American program just as kind of The production ramp up and volume expectations continue to ramp up here as we head into the back half of the year.

Speaker 3

So Overall OEM volume was a little bit lower this year than what we expected and I would say kind of the same thing for retrofit, maybe a little bit lower than what we expected. That said, we have really good visibility obviously next year certainly as we've got a program launch in the middle of the year related to our largest program in Europe and that OEM has already increased their expectations, their volume expectations. So There's always variability, of course, in things that are take rate or option based. But between some incremental ramp up in the retrofit market we continue to work with some of the largest fleets, as well as continued growth in the OEM market and the addition of that incremental very large program in the middle of the year, We've got pretty good visibility to pretty strong incremental MirrorEye revenue next year.

Speaker 4

Okay, great. I'll leave it there. Thanks for the time.

Speaker 3

Thanks, Justin. Thank you

Speaker 2

very much.

Operator

Okay. Thank you so much, I am showing no further questions at this time. I would now like to turn it back to One moment please. I would like to turn it back to Jim Zisselman for closing remarks.

Speaker 2

Thank you everyone for joining us for the call. I know your time is very important and we really appreciate your willingness to engage with us today. In closing, I want to reiterate that we continue to deliver on our commitments by focusing on foundational improvements and strong execution, which led us once again to the results we outlined today. This is driven by an unwavering focus to both execute on the long term strategy and drive continuous operational excellence ultimately driving shareholder value as we continue to build on our strong strategic foundation. Thanks again.

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

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Earnings Conference Call
Stoneridge Q3 2023
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