Good day, and thank you for standing by. Welcome to the Stoneridge Fourth Quarter 2022 Conference Call. At this time, all participants are in a listen-only mode. 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 fourth quarter and full-year 2022 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 Webcast and Presentation. Joining me on today's call are Jim Zizelman, our President and Chief Executive Officer; and Matt Horvath, our Chief Financial Officer. 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-K, which will be filed today 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. Please see the appendix 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. Turning to Page 3. I would like to introduce Jim Zizelman, who was recently appointed as President and Chief Executive Officer of Stoneridge, and was also appointed to the Stoneridge Board of Directors effective January 30. After a year of consulting with the company, Jim joined Stoneridge almost three years ago as President of the Control Devices division and has played an integral role in developing and executing on the strategic priorities, product development, and technical vision for both Control Devices and Stoneridge more broadly. Jim brings a wealth of knowledge and experience, and we are fortunate to have a proven business leader and experienced executive step into the CEO role.

Thank you, Kelly. I am fortunate enough to have already spent a significant amount of time at the company as President of the Control Devices division and as a member of the executive staff, where I was able to have a broad impact on the overall strategic direction of the company. I focused on aligning the segment with industry megatrends, while sustaining strong margins during challenging macroeconomic conditions by placing a key focus on rigor and discipline across all elements of the business. I look forward to working closely with our Board, our senior leadership team, and our dedicated global teams as we continue to execute on a strong long-term strategy focused on sustainable, profitable growth. Turning to Page 4. With my transition to CEO, Rajaey Kased was appointed as President of the Control Devices business. Rajaey was most recently the Vice President of Sales and Product Line Management for Control Devices, where during his three-year tenure, he demonstrated the leadership and strategic thinking that has helped advance the division's priorities and performance. Rajaey was responsible for overseeing a number of divestitures of noncore business that helped shape the Control Devices portfolio to better align with industry megatrends that will drive growth going forward. In his new role, Rajaey will be responsible for driving business performance, commercial relationships, product development, and our continued innovation strategy within the segment. Turning to Page 5. In the fourth quarter, we continued to see sequential revenue improvement with 5.2% growth, compared to the third quarter and EBITDA margin expansion of 100 basis points, excluding an adjustment related to a prior quarter correction. This $0.10 correction was driven by the FX impact on non-operating gain recorded in the second quarter related to a derivative security and not material to our operations or baseline operating performance. Matt will provide further detail later in the call. Excluding this correction, adjusted earnings per share was $0.11, which was an $0.08 increase over the prior quarter. Overall, 2022 sales increased by 12% relative to 2021, while EBITDA increased by over 25%. We expect this trend to continue as we are guiding midpoint revenue growth of approximately 16% in 2023, with EBITDA growth of over 75% and EBITDA margin expansion of approximately 210 basis points based on our midpoint guidance. Most importantly, we continue to focus on the product platforms that will drive future growth. Our first OEM MirrorEye program launched over a year ago in Europe and has significantly outperformed original expectations with a take-rate of approximately 40% going into 2023. Our next MirrorEye program launches in North America in the second quarter of this year with the customer expected take-rate of approximately 10%. This morning, I am pleased to announce that our second European OEM partner has increased their forecasted take rate from 25% originally to approximately 45% based on expected market demand. This program is expected to launch in 2024. Similarly, we continue to expand our retrofit applications and develop technologies in adjacent markets that will continue to drive our future growth. Earlier this week, we announced a partnership with KLLM Transport Services and Frozen Food Express, detailing their intention to equip approximately 1,000 new and existing vehicles with MirrorEye this year. Similarly, we announced a partnership with Grote Industries to introduce the industry's first wired rearview trailer camera. I will discuss these applications and provide more detail on our progress with the MirrorEye platform later in the call. As a result of continued success in our core products, this morning, we are updating our long-term financial targets to include strong backlog growth, our expectations of significant top-line outperformance relative to our end markets, and substantial market expansion through our 5-year plan. Our 5-year awarded business backlog grew by 6% in 2022 to $3.6 billion, supporting a 5-year compound annual growth rate of more than 7.5%, resulting in a targeted revenue of $1.3 billion to $1.5 billion and targeted EBITDA margin of 11.5% to 13.5% by 2027.

Thanks, Jim. Turning to Slide 13. Sales in the fourth quarter were approximately $225.2 million, an increase of 5.2% relative to the third quarter. Operating income was $6 million or 2.7% of adjusted sales. More specifically, Control Devices sales were approximately $86 million, which was a decrease of approximately 3.9% compared to the third quarter, resulting in operating income of $5.5 million or 6.4% of sales. Electronics adjusted sales of $134.8 million increased by 15%, compared to the third quarter, resulting in operating income of $4.9 million or 3.7% of sales. Stoneridge Brazil sales of $13.1 million decreased 5.5%, compared to the third quarter, resulting in operating income of $800,000 or 6.4% of sales. This morning, we are establishing guidance for our 2023 financial performance. We are guiding 2022 revenue to a midpoint of $975 million, implying an increase of approximately 16% versus our 2022 revenue, which is more than 13 times our underlying weighted average end market growth. Despite continued pressure on gross margin, we are expecting to leverage our existing cost structure to drive overall margin expansion on substantial growth. We are guiding adjusted gross margin to a midpoint of 20.9%, adjusted operating income to a midpoint of 1.9%, and adjusted EBITDA to a midpoint of $54.6 million or 5.6% of sales. Our midpoint guidance implies EBITDA margin expansion of 210 basis points and almost $29 million relative to 2022. As a result, we are guiding to a midpoint of breakeven adjusted earnings per share for 2023.

Turning to Page 8. Our long-term strategy focused on transforming our portfolio to align with industry megatrends continues to drive strong long-term growth prospects. Our 5-year backlog at the end of 2022 grew by 6% versus the prior year. MirrorEye contributed to growth in our backlog as OEM take rates continue to trend up and program launches contributed positively to the 5-year window. Digital driver information systems continue to ramp up and expand in 2023. Similarly, our connectivity programs continue to grow, driven by our Smart 2 tachograph program, which we'll launch later this year. This program not only contributes meaningfully to our backlog, but also represents a significant aftermarket opportunity as regulatory requirements will drive retrofit applications for this product over the next several years. This retrofit opportunity, similar to the MirrorEye retrofit opportunity, is not represented in this backlog, but they are not awarded OEM programs. Incremental MirrorEye penetration rates, particularly in North America in new programs, where customer forecasted take rates lag our European programs, could have a significant positive impact on our backlog. Finally, Control Devices contributed to our backlog with program expansions for our park-by-wire actuation programs and continued growth in our electrification focused sensor applications. While 100% of our electronics portfolio is currently drivetrain agnostic, the continued progression in Control Devices will drive our target to at least 90% of total product portfolio being drivetrain agnostic by 2027. We have been successful in aligning our portfolio with industry megatrends and that strategy is paying off as our backlog continues to grow year-over-year as we expand existing programs leverage the MirrorEye platform and win new business.

Turning to Page 14. Before we discuss the factors impacting operating performance in the quarter, I'd like to provide some detail on a prior quarter correction that impacted the fourth quarter. In the second quarter of 2022, the company unwound two net investment hedges driven by favorable FX movements and recognized a net gain of approximately $3.7 million of other non-operating income or adjusted earnings per share of $0.10. In the fourth quarter, the company determined, we had incorrectly recognized the net gain in the income statement and reclassified the gain to other comprehensive income, resulting in reduced earnings of $3.7 million or $0.10 in the fourth quarter. On our third quarter earnings call, we guided our fourth quarter EPS to a midpoint of $0.24 with an expected revenue midpoint of $239 million. Reduced production volumes from customers, material constraints, and our inability to reduce our short-term backlog as quickly as previously expected resulted in a $0.07 headwind relative to our previously provided guidance. This was primarily due to lower customer production in our North American passenger car end market, COVID-related shutdowns in China impacting customer demand, and material constraints impacting production for our off-highway products. These factors drove revenue underperformance of approximately $14 million versus our prior expectation. That said, commercial vehicle demand has remained strong with sales volumes outperforming prior expectations. During the fourth quarter, we absorbed higher material, labor, and other manufacturing costs versus previous expectations. Incremental manufacturing costs were primarily driven by unexpected premium freight costs, manufacturing inefficiencies, and incremental labor costs. That said, we partially offset these incremental costs through reduced operating expenses, including the reduction of our annual incentive compensation program. Although fourth quarter performance was lower than previous expectations, we have the ability to retime a portion of that performance through a reduction of a strong backlog in early 2023 and continued cost recovery actions. We will continue to focus on improved manufacturing performance to drive margin expansion.

So, I just wanted to take a step back. The company's results have obviously been pretty volatile recently. And while revenue performance seems to be a bright spot as you outperform the market, there's been a struggle taking this to the bottom line. Jim, as you step into the CEO role, what are the steps you plan to take to, number one, improve the predictability of earnings? And number two, improve the profitability of this company?

Thanks, Justin, for the question. I think the steps I'm taking actually will address both of those concerns. And where I'm focused more so going forward is on execution, you know driving rigor and discipline in the company across all elements of the business, making sure that we have a program management focus. By doing so, we will seriously minimize the potential for any surprises that had historically had the opportunity to creep into our numbers. And I think by holding us accountable to these, I'll say, elevated elements and rigor and discipline across all elements of the business, I think that we'll more successfully drive excellence and execution and again, drive out issues that have, again, historically crept in.

Good morning, Matt, Jim, Kelly. A couple of questions. First of all, on the rate of revenue that you're projecting for the MirrorEye business. Does that – given that level of volume that you're doing, does that become adjusted EBITDA margin accretive to bottom line results in 2023 or does it flatline it or is it lower than what you're looking at?

Gary, I would say, with a ramp-up in that program that percentage-wise is so substantial year-over-year, you will see accretive EBITDA performance from that level of growth. And we expect that level of growth to continue, obviously, as we are increasing the forecasted take rates on the second European launch substantially, almost double, and obviously have a relatively lower take rate on the first North American program currently forecasted that we rightly saw we're optimistic around given what we're seeing in other OEM products or our first OEM program and the MirrorEye retrofit momentum in North America. So, it will have an accretive impact this year, and I expect that, that will continue and accelerate because of the substantial growth opportunity in not only this program but this platform, this vision and safety platform going forward.

Yes. Gary, that is, in fact – everything you said actually is, you're correct and in-line with what we're thinking. First off, we do think this is a major breakthrough and a real opportunity for us to expand the MirrorEye platform. And there are just a very, very large number of trailers out there in the market. Right now, best estimation for trailers existing in the U.S. is 6 million. And also, if you look at the yearly production in just the U.S. for new trailers, it's about 300,000 a year. So, this is a very substantive market. And you think about the technology and what it can bring here with looking directly behind the trailer, looking inside the trailer, there's a lot of things that the driver could benefit from seeing relative to risk mitigation, relative to product he's carrying, but also relative to safety. So, this is a major step forward. And the technology itself, there is so much innovation in this. I mean oftentimes, people say, well, you're just adding a camera back there, but think about what we're talking here. Adding several cameras without the need to add any additional wiring to the trailer. The innovation really is around how we've encoded the signal of the camera to be pushed through the power lines and the existing wiring harness in the trailer up to a connector that's exactly the same as the connector today to drive the signal into the cab itself. It's an extreme innovation. We were at the TMC exhibition in Orlando, Florida this week, and we saw extreme interest by trucking companies and trailer companies relative to this technology. So, we are very optimistic about the expansion of MirrorEye based on this new addition to the family.

Yes, Gary, I would add to that. When you think about the speed of implementation there because it uses existing technology that's already on the tractor or the trailer, there's a benefit of speed of implementation, but also, this is more broadly, Gary, this is a testament to the significant investment we have made over the last several years in this platform. You're seeing these things start to pay off, not only in the OEM programs and the retrofit along with the – aligned with the MirrorEye product, but this vision and safety commercial vehicle platform in total. So, developing these capabilities and these technologies and applying them in the right way as we work with the fleets to better understand value proposition and where these things are applied most beneficially to the fleet to our ultimate end customer, driving the adoption and development of these advanced technologies that we agree with you, we think are changing the industry.

Well, thank you, everyone, for joining us for the call. I know your time is very important, and we truly appreciate your willingness to engage us today. We couldn't be more excited, I think, as you can tell, 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.

This concludes today's conference call. Thank you all for participating. You may now disconnect, and have a pleasant day.