Good morning and welcome to the Stoneridge First Quarter 2022 Conference Call. My name is Anera and I'll be the operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded. I will now turn the call over to Ms. Kelly Harvey, Director of Investor Relations. Ms. Harvey, you may begin.

Good morning everyone and thank you for joining us to discuss our first quarter results. The release and accompanying presentation was filed with the SEC yesterday evening and is posted on our website at stoneridge.com in the Investors section under Webcast and Presentation. Joining me on today's call are Jon DeGaynor, 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-Q which was filed with the Securities and Exchange Commission under the heading Forward-Looking Statements. During today's call, we will 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 Jon and Matt have finished their formal remarks, we will open up the call to questions. [Operator Instructions] With that, I will turn the call over to Jon.

Thanks Kelly and good morning everyone. Let me begin on page three. In the first quarter, we continued to navigate through the challenges resulting from the global pandemic including continued supply chain disruptions, production volatility, and rising material costs. We focused on responding to fluctuating production schedules limited component availability managing our cost structure and continuing to engage with our customers and suppliers on cost recovery actions. These actions resulted in improved financial performance during the quarter. Our first quarter adjusted sales of $196.6 million, resulted in an adjusted gross margin of 21.1% translating to an adjusted operating margin of negative 1.5%. Adjusted EPS for the quarter was negative $0.27. During the first quarter, we made significant progress with the majority of our customers on pricing actions to offset a large portion of the incremental material and supply chain costs we are focusing or forecasting for 2022. These negotiations resulted in increased pricing that offset approximately 90% of the incremental material costs we incurred during the quarter relative to the fourth quarter of last year. The price increases, agreed upon in the first quarter, will continue to provide relief related to incremental material costs going forward. Additionally, we continue to pass spot purchases through to our OEM customers, offsetting more than $24 million in spot buys. We will continue to evaluate macroeconomic conditions and expect ongoing discussions with our customers regarding price increases as necessary. This morning, we are confirming our full year revenue and adjusted EPS guidance. We are raising our midpoint adjusted gross, operating, and EBITDA margin expectations by 25 basis points to account for the continued impact of pricing actions taken in the first quarter. Our adjusted EPS guidance reflects the expectation of continued strong margin performance, offset by expected incremental tax expense due to our forecasted…

Thanks Jon. Turning to slide 9, adjusted sales in the first quarter were approximately $197 million, an increase of 7.5% relative to the prior quarter. Adjusted operating loss was $3 million or negative 1.5% of adjusted sales, which improved 260 basis points versus the prior quarter. The improvement in margin performance is primarily due to pricing actions taken in the first quarter offsetting incremental material costs, reduced SG&A costs and favorable net engineering costs due to timing of customer recoveries. I will provide additional detail on segment performance and a brief discussion on expectations for each segment for the remainder of 2022 on the subsequent slides. As Jon discussed earlier in the call, we are maintaining our full year 2022 revenue and adjusted EPS guidance. We are raising our midpoint adjusted gross operating and EBITDA margin expectations by 25 basis points to account for the favorable impact of pricing actions taken in the first quarter. However, we expect offsetting incremental tax expenses to result in adjusted EPS guidance in line with our previously outlined expectations of negative $0.15 to positive $0.10. Page 10 summarizes our key financial metrics specific to Control Devices. Control Devices first quarter sales were approximately $85 million, an increase of 6.4% compared to the fourth quarter of 2021. This was primarily due to relatively improved stability in our OEM production schedules compared to the prior quarter, as well as incremental revenue from recently launched powertrain actuation programs. Adjusted operating income was $6.8 million for the quarter, or 8% of adjusted sales. Adjusted operating margin increased by approximately 300 basis points versus the fourth quarter of 2021, driven by lower SG&A costs. As discussed during our fourth quarter call in 2022 we expect Control Devices sales and operating margin to continue to improve sequentially throughout the year,…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Justin Long. Please go ahead. Your line is open.

Thanks and good morning.

Good morning, Justin.

So I wanted to start with a question on the 2022 guidance. I know the revenue range didn't change, but is there a way you could speak to the MirrorEye assumption within that revenue guidance? And just given some of the commercial momentum that it seems like you've seen has that expectation for MirrorEye revenue in 2022 changed at all versus the beginning of the year?

Yes. Justin, obviously, we're really excited about the momentum -- the continued momentum of MirrorEye. We're seeing forecasted take rates -- or I'm sorry take rates in the OEM, space remains strong. And obviously we're excited about some of the incremental announcements we've made this quarter and expect to continue to make on the retrofit side. We have incorporated some of that upside into the guidance. Obviously, we've kept the range a little bit broader than we historically have at this point in the year to account for both -- some potential for volatility in the second half of the year given supply chain --continued supply chain disruptions or the possibility of that. But also to offset that some of the upside that we're seeing on MirrorEye in both of our channels. So we have incorporated some of that upside in the guidance and expect to continue to talk about that that momentum as the year progresses here.

Okay. And just given the supply chain constraints, I mean, we're all well aware of those challenges. But is that driving any of this commercial momentum in MirrorEye? Are people pulling forward orders in an effort to just kind of get in the backlog that could build pretty substantially over the next 6 months to 12 months?

Yes. What I would say Justin is I think it's actually the opposite way both from a take rate on the OE side as well as from our retrofit installation rates. Our constraints from a supply chain perspective and where the semiconductor side is actually constraining us. The take rates I believe would be higher if we didn't have the constraints. Now what I can say to you is the supply chain challenges and what it means, particularly, in North American fleets with regard to driver retention and driver attraction is accelerating retrofit activities. Maverick's move and some of the other moves that you see and the people who are looking at what Maverick is doing not only do they do it from a safety standpoint, but they're making these decisions because it allows them to attract drivers with the best technology out there. It allows them to take younger drivers and get them well-trained and make sure that they're safe. So the stress that's in the supply chain as we see it throughout the entire supply chain creates more market need, but the semiconductor challenge constrains us a bit.

Okay. That's helpful. Thanks, Jon. And just a follow-up on the guidance cadence that you talked about Matt. So if I just look at what you reported in the first quarter, I'd think about your guidance for the second quarter and I just take the midpoint of the full year guidance. It implies back half of this year -- we're going to see revenue per quarter jump up to $240 million or so versus just a touch over $200 million potentially here in the second quarter. As you think about that kind of back half ramp and obviously that's flowing through to EPS as well. Could you just speak to your visibility on that ramp?

Yes. So Justin, there's a couple of components to that. One is obviously forecasted production by our customers. We're seeing really strong forecasted production in the third and fourth quarter in particular. The good news is we're seeing strong demand. The challenge is that procuring material to support that demand has been the issue for the first half of the year, and we're expecting some continued stability and sequential improvements to drive the level of revenue that you just outlined. And similarly, some of the things that -- we've got our own self-help, right? We've got the continued ramp-up of some really exciting driver information systems that are getting really good pull-through with the customers that we're working with on those systems. Obviously, the MirrorEye retrofit momentum is the snowball is rolling down the hill a little bit here, and we're getting some really good momentum on the retrofit side, and the MirrorEye take rates remain really strong. When you add that to the fact like we talked about last quarter that we are on some of the passenger car platforms, particularly the electrified vehicle platforms that are really seeing strong demand and winning in the marketplace, we're getting some pull-through that is not just peanut butter spread overall of the production in North America and Europe. So we do expect macroeconomics to improve and see production tailwind, but we've also got our own self-help story there to facilitate some of that growth in the third and fourth quarters both on programs that we've already announced and have good visibility too and also on some of the things that are gaining momentum like the retrofit programs and the continued demand on some of those electrified vehicle passenger car platforms.

Okay. And just to follow-up on that kind of second half ramp versus first half ramp from a revenue perspective is the majority of that coming from electronics, or is there any way you could give us a little bit more color on how much of that pickup is Electronics versus Control Devices?

Yes, Justin. If you look at where -- if you think about what we just talked about where the areas of opportunity are we've got continued ramp-up in programs that we've launched in the Electronics segment, particularly in the digital driver information systems. And we've got ramp up on the existing MirrorEye as well as the next OEM MirrorEye launch and the retrofit adoption improvement over the second half. So, I think if you think about it that way while there's growth, obviously in both the relative growth is probably more weighted to Electronics in the second half than Control Devices.

Okay. Got it. I’ll leave it at that. Appreciate the time.

Thanks, Justin.

Thanks, Justin.

Thank you. And I'm not showing any further questions at this time. I'd like to turn the call back over to Mr. Jon DeGaynor.

Thank you, and thanks everybody for your participation in today's call. I want to conclude by saying, first, I'm really proud of the Stoneridge team and their dedication and hard work during this incredibly challenging time. I can assure you for our investors that our company is committed to driving shareholder value through, our operating results through, profitable new business and really focused deployment of our available resources. This management team will respond efficiently and effectively to manage and control the variables that we can impact and continue to drive strong financial performance. We're confident that our actions will result in continued success for 2022 and beyond. Thank you.

Thank you. And thank you ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.