Stoneridge, Inc. (NYSE:SRI) Q3 2023 Earnings Call Transcript

In October, UAW strikes reduced revenue by approximately $3.5 million and operating income by approximately by $1 million or $0.03 for the month. We expect there to be some residual impact of the strikes as impacted facilities return to work and ramp up production to normalize the output. We expect this residual impact to reduce revenue by an incremental $3 million and approximately $800,000 in operating income or additional $0.02 in November before normalizing in December. In total, we expect that the UAW strikes will reduce revenue $7 million, reduce operating income by $2 million, 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.

We remain focused on responding to strike impacts as appropriate with consideration for an efficient ramp-up as strikes ended. We continue to move forward with stable production now and our efficiency and our supple chain, our customer orders and business operations. Now turning to page six, this morning I want to highlight yet another recent program launch; the launch of our next-generation tachograph, the Smart 2, in Europe. The program aligns with our overall strategy and continued focus on vehicle intelligence and connectivity as we expand our content for vehicle aligned with industry megatrends, and in this case, also aligned with regulatory requirements. The Smart 2 tachograph is the next generation of our existing tachograph product, providing incremental capabilities to conform with the EU mobility package standards.

Our platform makes drive 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. The new European standard also has incremental regulations requiring adoption on various vehicles 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 third quarter and will ramp up next year, continuing to grow as new vehicles fall under the updated requirements. We are estimating Smart 2 tachograph revenue to be approximately $20 million in 2023 and more than $60 million in 2024 for both OEM and aftermarket opportunities. This is the latest in the longline of program and product launches over the last several years, including our digital driver information systems, our park by wire actuators, our axel-based actuators, our MirrorEye, and now our most innovative tachograph yet. Stoneridge continues to build a strong portfolio of technologies and vehicle systems aligned with the global industry megatrends.

Now turning to page seven, I am happy to announce and discuss our involvement with the Department of Energy Super Truck 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 I program that launched in 2009. The Department of Energy has indicated that heavy duty trucks haul 80% of goods in United States and use about 28 billion 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 for our nation’s transportation sector. The DoE has funded four projects to develop and demonstrate cost-effective technologies that collectively will more than double the freight efficiency of Class A trucks, and as I mentioned with Navistar, with Daimler Truck North America, with Peterbilt, and with Volvo Trucks.