# Stoneridge Inc: Form 10-Q for the period ended Jun 30, 2024

- Company: [Stoneridge Inc](/companies/sri.md) (CIK 1043337)
- Form: 10-Q
- Filed: 2024-07-31
- Accepted by EDGAR: Jul 31, 2024, 17:05 ET
- Period: 2024-06-30
- Accession: 0001043337-24-000106
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1043337/000104333724000106/sri-20240630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1043337/000104333724000106/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-04-01 to 2024-06-30 | $237.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2024-01-01 to 2024-06-30 | $476.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-04-01 to 2024-06-30 | $183.3m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2024-01-01 to 2024-06-30 | $374.1m | us-gaap:CostOfGoodsAndServicesSold |
| Research and development | 3 months, 2024-04-01 to 2024-06-30 | $18.5m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2024-01-01 to 2024-06-30 | $36.1m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2024-04-01 to 2024-06-30 | $31.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2024-01-01 to 2024-06-30 | $62.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-04-01 to 2024-06-30 | $3.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2024-01-01 to 2024-06-30 | $3.7m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-04-01 to 2024-06-30 | −$936.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2024-01-01 to 2024-06-30 | −$426.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-04-01 to 2024-06-30 | $2.8m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2024-01-01 to 2024-06-30 | −$3.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-04-01 to 2024-06-30 | $0.10 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2024-01-01 to 2024-06-30 | −$0.12 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-04-01 to 2024-06-30 | $0.10 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2024-01-01 to 2024-06-30 | −$0.12 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-04-01 to 2024-06-30 | 27,852,627 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2024-01-01 to 2024-06-30 | 27,570,014 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2024-01-01 to 2024-06-30 | $17.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2024-01-01 to 2024-06-30 | $12.9m | us-gaap:PaymentsToAcquireProductiveAssets |
| Cash and equivalents | at 2024-06-30 | $42.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-06-30 | $422.0m | us-gaap:AssetsCurrent |
| Total assets | at 2024-06-30 | $666.7m | us-gaap:Assets |
| Current liabilities | at 2024-06-30 | $186.2m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2024-06-30 | $0 | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-06-30 | $2.1m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-06-30 | $270.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 43,723 characters.

We are a global designer and manufacturer of highly engineered electrical and electronic systems, components and modules primarily for the automotive, commercial, off-highway and agricultural vehicle markets.

The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and notes related thereto and other financial information included elsewhere herein.

### Segments

We are organized by products produced and markets served. Under this structure, our operations have been reported using the following segments:

*Control Devices.* This segment includes results of operations that manufacture actuators, sensors, switches and connectors.

*Electronics.* This segment includes results of operations from the production of driver information systems, vision and safety systems, connectivity and compliance products and electronic control units.

*Stoneridge Brazil.* This segment includes results of operations that design and manufacture vehicle tracking devices and monitoring services, vehicle security alarms and convenience accessories, in-vehicle audio and infotainment devices, driver information systems and telematics solutions.

### Second Quarter Overview

The Company had net income of $2.8 million, or $0.10 per diluted share, for the three months ended June 30, 2024.

Net income for the quarter ended June 30, 2024 improved by $5.8 million, or $0.21 per diluted share, from net loss of $3.0 million, or $(0.11) per diluted share, for the three months ended June 30, 2023. Net income improved due to lower D&D costs from higher customer reimbursements and the favorable impact of non-operating foreign currency gains. Net sales decreased by $29.8 million, or 11.2%, compared to the three months ended June 30, 2023, primarily from lower volumes in our North American automotive market for Control Devices and lower volumes in our European and North American commercial vehicle markets for Electronics. Gross margin as a percent of sales remained consistent at 22.7% driven by lower contribution from lower sales offset by favorable sales mix and a reduction in adverse foreign exchange related material variances.

Our Control Devices segment net sales decreased by 13.3% compared to the second quarter of 2023 primarily as a result of decreases in our North American and China automotive markets. The decrease in our North American automotive market was due to lower customer volumes and the expected wind down of end-of-life programs. These decreases were offset by increases in our China commercial vehicle market. Segment gross margin as a percentage of sales decreased slightly due to lower contribution from lower sales levels. Segment operating income decreased due to lower contribution from lower sales volumes offset by lower D&D and SG&A spending.

Our Electronics segment net sales decreased by 8.9% compared to the second quarter of 2023 primarily due to lower sales volumes in our European and North American commercial vehicle markets, partially mitigated by the ramp-up of recently launched programs, including our next generation tachograph. Net sales also decreased due to a reduction in pricing actions including the impact of retroactive pricing and lower electronic component spot buy purchases, which are material purchases reimbursed by customers and recorded as both revenue and offsetting material cost. As such, spot buy purchases do not impact gross profit. We experienced higher sales volumes in our European off-highway vehicle market which offset the aforementioned reductions. Segment gross margin as a percent of sales remained consistent with the prior year second quarter as lower contribution from lower sales levels was offset by a reduction in foreign exchange related material variances. Operating income for the segment increased compared to the second quarter of 2023 primarily due to lower D&D from higher customer reimbursements and lower SG&A from 2023 business realignment costs offset by lower contribution from lower sales levels.

Our Stoneridge Brazil segment net sales decreased by 21.9% compared to the second quarter of 2023 primarily due to lower OEM product sales from lower customer volumes and lower sales of tracking devices and monitoring service fees. Operating loss increased due to lower contribution from lower sales volumes offset by favorable sales mix and lower SG&A spending.

In the second quarter of 2024, SG&A expenses decreased by $1.6 million compared to the second quarter of 2023 primarily due to lower SG&A business realignment costs, lower professional services and a 2024 non-recurring commercial settlement gain offset by higher medical insurance costs.

In the second quarter of 2024, D&D costs decreased by $4.2 million compared to the prior year second quarter primarily due to higher customer reimbursements in our Electronics segment.

At June 30, 2024 and December 31, 2023, we had cash and cash equivalents balances of $42.1 million and $40.8 million, respectively, and we had $187.4 million and $189.3 million, respectively, in borrowings outstanding on our Credit Facility. The 2024 increase in cash and cash equivalents was mostly due to cash generated from operating activities including a reduction in inventory balances.

### Outlook

The Company believes that focusing on products that address industry megatrends has had and will continue to have a positive effect on both our top-line growth and underlying margins. Expanding on our existing products and technology platforms with advanced capabilities, applications and data services is core to our long-term strategy. For example, the Company is aligned with platforms likely to perform well against overall market dynamics including light-trucks, SUVs and crossover vehicles and our continued focus on safety, vehicle intelligence and connectivity based products, such as our ongoing launches of our OEM MirrorEye® programs in North America and Europe as well as our next generation tachograph in Europe. In addition, we are partnering with an OEM to develop advanced system capabilities based on data services, software and AI in bus applications.

Based on IHS Market production forecasts, the North American automotive market is expected to increase from 15.6 million units in 2023 to 15.8 million units in 2024. In our Control Devices segment, we expect modest sales growth of products used in electric vehicle platforms, however, lower than initially expected due to reduced production expectations with some of our key customers. We continue to focus on improved manufacturing execution, supply chain strategies, material cost improvement actions and enterprise-wide cost improvement plans and will continue to react to changes in our end markets as needed to maintain and improve our margins. During 2024, our Control Devices segment has incurred $1.0 million of support costs for a troubled supplier. We do not expect these costs to be material for the remainder of 2024. We remain focused on drivetrain agnostic technologies to drive new business awards as our markets evolves.

In 2024, our European and North American commercial vehicle end market volumes are forecasted to decrease 11.5% and 3.0%, respectively. We expect our Electronics’ segment sales to outperform forecasted changes in production volumes due to strong demand for our existing products and the impact of ongoing launches of our OEM MirrorEye programs in North America and Europe as well as our next generation tachograph in Europe. Driven by European regulatory requirements we expect significant growth of our next generation tachograph product over the next several years. We expect continued growth in MirrorEye as our OEM programs continue to launch and as take rates continue to increase for existing OEM programs. Recovery from customers related to spot buys of materials purchased by the Company on behalf of those customers, which is recognized as revenue and material costs, increased net sales by $14.6 million for the full year 2023. As a result of supply chains normalizing and material availability improving, the Company did not incur any spot buy material purchases in the first half of 2024 and does not expect to incur additional spot buy material purchases in the future based on current market conditions. During 2024, our Electronics segment has incurred $0.5 million of support costs for a troubled supplier. We expect to continue to incur these costs in the second half of 2024.

In the second half of 2024, we expect net D&D spending to remain relatively stable driven by operating cost control reduced launch activities, and as a result, we expect lower customer reimbursements and capitalization of software development costs. We continue to execute our strategy to optimize our engineering footprint to enhance capabilities and capacity for the most efficient return on our engineering spend including the reorganization of our Solna, Sweden location which resulted in business realignment expense of $1.4 million in the second quarter of 2024.

In July 2024, the International Monetary Fund forecasted the Brazil gross domestic product to grow 2.1% in 2024. We expect our served market channels to remain relatively stable in 2024 based on current market and economic conditions, however our sales of in region OEM products have been lower than expected due to lower customer demand. Stoneridge Brazil continues to focus on growing our OEM capabilities in-region to better support our global customers. We expect this strategy will provide opportunities for future growth and a platform to continue to rotate our local portfolio to more closely align with our global products. In addition, we continue to align our global engineering capabilities and footprint by expanding our Brazilian engineering center.

We remain focused on improving cash generation and the reduction of debt through targeted actions to reduce net working capital, particularly our inventory levels, as the impacts from our Electronics segment product launches normalize.

We expect higher interest expense in 2024 driven by higher outstanding balances on our Credit Facility.

Our future effective tax rate depends on various factors, such as changes in tax laws, regulations, accounting principles and our jurisdictional mix of earnings. We monitor these factors and the impact on our effective tax rate.

### Other Matters

A significant portion of our sales are outside of the United States. These sales are generated by our non-U.S. based operations, and therefore, movements in foreign currency exchange rates can have a significant effect on our results of operations, which are presented in U.S. dollars. A significant portion of our raw materials purchased by our Electronics and Stoneridge Brazil segments are denominated in U.S. dollars, and therefore movements in foreign currency exchange rates can also have a significant effect on our results of operations. The U.S. Dollar strengthened against the euro, Swedish krona, Chinese yuan, Mexican peso, Brazilian real and Argentine peso in 2024 and the Swedish krona, Chinese yuan and Argentine peso in 2023, unfavorably impacting our reported results.

We regularly evaluate the performance of our businesses and their cost structures, including personnel, and make necessary changes thereto in order to optimize our results. We also evaluate the required skill sets of our personnel and periodically make strategic changes. As a consequence of these actions, we incur severance and resignation related costs that we refer to as business realignment charges. Business realignment costs of $1.9 million were incurred in both the three months ended June 30, 2024 and 2023, respectively.

Because of the competitive nature of the markets we serve, we face pricing pressures from our customers in the ordinary course of business. In response to these pricing pressures we have been able to effectively manage our production costs by the combination of lowering certain costs and limiting the increase of others, the net impact of which to date has not been material. However, if we are unable to effectively manage production costs in the future to mitigate future pricing pressures, our results of operations would be adversely affected.

### Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

Condensed consolidated statements of operations as a percentage of net sales are presented in the following table (in thousands):

| Three months ended June 30, | 2024 |  | 2023 |  | Dollar increase (decrease) |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net sales | **$237,059** | **100.0%** | $266,814 | 100.0% | $(29,755) |
| Costs and expenses: |  |  |  |  |  |
| Cost of goods sold | **183,319** | **77.3** | 206,326 | 77.3 | (23,007) |
| Selling, general and administrative | **31,876** | **13.4** | 33,491 | 12.6 | (1,615) |
| Design and development | **18,457** | **7.8** | 22,666 | 8.5 | (4,209) |
| Operating income | **3,407** | **1.4** | 4,331 | 1.6 | (924) |
| Interest expense, net | **3,801** | **1.6** | 3,120 | 1.2 | 681 |
| Equity in loss of investee | **52** | **—** | 329 | 0.1 | (277) |
| Other (income) expense, net | **(2,296)** | **(1.0)** | 2,387 | 0.9 | (4,683) |
| Income (loss) before income taxes | **1,850** | **0.8** | (1,505) | (0.6) | 3,355 |
| (Benefit) provision for income taxes | **(936)** | **(0.4)** | 1,487 | 0.6 | (2,423) |
| Net income (loss) | **$2,786** | **1.2%** | $(2,992) | (1.1)% | $5,778 |

*Net Sales.* Net sales for our reportable segments, excluding inter-segment sales, are summarized in the following table (in thousands):

| Three months ended June 30, | 2024 |  | 2023 |  | Dollar decrease | Percent decrease |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Control Devices | **$79,899** | **33.7%** | $92,120 | 34.5% | $(12,221) | (13.3)% |
| Electronics | **145,511** | **61.4** | 159,786 | 59.9 | (14,275) | (8.9)% |
| Stoneridge Brazil | **11,649** | **4.9** | 14,908 | 5.6 | (3,259) | (21.9)% |
| Total net sales | **$237,059** | **100.0%** | $266,814 | 100.0% | $(29,755) | (11.2)% |

Our Control Devices segment net sales decreased $12.2 million because of decreases in our North American and China automotive markets of $11.5 million and $1.4 million, respectively. The decrease in our North American automotive market was primarily due to lower customer volumes and the expected wind down of end-of-life programs. These decreases were offset by an increase in our China commercial vehicle markets of $1.2 million. In addition, second quarter of 2024 net sales were adversely impacted by an increase in unfavorable foreign currency translation of $0.4 million.

Our Electronics segment net sales decreased $14.3 million because of lower customer production volumes in our European and North American commercial vehicle markets of $5.8 million and $2.5 million, respectively, mitigated by the ramp-up of recently launched programs, including our next generation tachograph. Net sales also decreased because of the 2023 impacts of both required electronic component spot buy purchases of $4.3 million and retroactive price increases of $3.1 million. These decreases were offset by increases in our European off-highway market of $2.3 million. Second quarter of 2024 net sales were adversely impacted by euro and Swedish krona foreign currency translation of $1.1 million compared to the prior year quarter.

Our Stoneridge Brazil segment net sales decreased $3.3 million mostly because of lower OEM product sales from lower customer volumes and lower sales of tracking devices and monitoring service fees. In addition, second quarter of 2024 net sales were adversely impacted by an increase in unfavorable foreign currency translation of $0.7 million.

Net sales by geographic location are summarized in the following table (in thousands):

| Three months ended June 30, | 2024 |  | 2023 |  | Dollar decrease | Percent decrease |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| North America | **$121,515** | **51.3%** | $135,590 | 50.8% | $(14,075) | (10.4)% |
| South America | **11,649** | **4.9** | 14,908 | 5.6 | (3,259) | (21.9)% |
| Europe and Other | **103,895** | **43.8** | 116,316 | 43.6 | (12,421) | (10.7)% |
| Total net sales | **$237,059** | **100.0%** | $266,814 | 100.0% | $(29,755) | (11.2)% |

The decrease in North American net sales was mostly attributable to a decrease in sales volume in our automotive and commercial vehicle markets of $11.6 million and $3.0 million, respectively. The decrease in our North American automotive market was partially caused by the expected wind down of end-of-life programs. These decreases were offset by higher sales in our agricultural market of $0.5 million.

The decrease in net sales in South America was primarily due to lower sales in local OEM products, tracking devices and monitoring service fees. In addition, second quarter of 2024 net sales were adversely impacted by an increase in unfavorable foreign currency translation of $0.7 million.

The decrease in net sales in Europe and Other was due to decreases in customer production volumes in our European commercial vehicle and China automotive markets of $5.9 million and $1.4 million, respectively, as well as a decrease in electronic component spot buys of $3.7 million and a decrease in negotiated price increases of $2.1 million. These decreases were offset by higher sales in our European off-highway market of $2.3 million. Net sales were adversely impacted by an increase in unfavorable foreign currency translation of $1.5 million.

*Cost of Goods Sold and Gross Margin.* Cost of goods sold decreased compared to the second quarter of 2023 and our gross margin remained consistent at 22.7% compared to the second quarter of 2023. Our material cost as a percentage of net sales decreased to 55.9% in the second quarter of 2024 from 58.3% in the second quarter of 2023. The decrease in material cost percentage was due to favorable product mix and material cost improvements as well as a reduction in foreign exchange related material variances. Overhead as a percentage of net sales was 16.6% and 14.1% for the second quarter of 2024 and 2023, respectively. The increase in overhead as a percentage of sales was attributable to higher warranty and indirect wage and fringe benefits.

Our Control Devices segment gross margin slightly decreased primarily because of lower sales offset by improved sales mix.

Our Electronics segment gross margin remained consistent with the prior year second quarter as lower contribution from lower sales levels and higher overhead spending were offset by lower direct material from a reduction in foreign exchange related material variances.

Our Stoneridge Brazil segment gross margin increased primarily because of favorable sales mix of relatively higher proportion of monitoring fees.

*Selling, General and Administrative.* SG&A expenses decreased by $1.6 million primarily because of lower business realignment costs, lower professional services and a 2024 non-recurring commercial settlement gain offset by higher medical insurance costs.

*Design and Development.* D&D costs decreased by $4.2 million because of higher customer reimbursements in our Electronics segment.

*Operating Income.* Operating income (loss) by segment is summarized in the following table (in thousands):

| Three months ended June 30, | 2024 | 2023 | Dollar increase (decrease) | Percent increase (decrease) |
| --- | ---: | ---: | ---: | ---: |
| Control Devices | **$3,725** | $5,074 | $(1,349) | (26.6)% |
| Electronics | **9,831** | 7,444 | 2,387 | 32.1 |
| Stoneridge Brazil | **(41)** | 899 | (940) | (104.6) |
| Unallocated corporate | **(10,108)** | (9,086) | (1,022) | (11.2) |
| Operating income (loss) | **$3,407** | $4,331 | $(924) | (21.3)% |

Our Control Devices segment operating income decreased because of lower contribution margin from lower sales levels offset by lower D&D spending.

Our Electronics segment operating income increased primarily because of lower D&D from higher customer reimbursements and lower SG&A from 2023 business realignment costs offset by lower contribution from lower sales levels.

Our Stoneridge Brazil segment prior year operating income decreased to an operating loss in the current year because of lower contribution from lower sales levels offset by lower SG&A spending.

Our unallocated corporate operating loss increased from higher SG&A and D&D spending.

Operating income (loss) by geographic location is summarized in the following table (in thousands):

| Three months ended June 30, | 2024 | 2023 | Dollar increase (decrease) | Percent increase (decrease) |
| --- | ---: | ---: | ---: | ---: |
| North America | **$(7,158)** | $(489) | $(6,669) | (1,363.8)% |
| South America | **(41)** | 899 | (940) | (104.6) |
| Europe and Other | **10,606** | 3,921 | 6,685 | 170.5 |
| Operating income (loss) | **$3,407** | $4,331 | $(924) | (21.3)% |

Our North American operating loss increased due to higher SG&A and D&D spending. Operating loss in South America increased due to lower contribution from lower sales levels offset by favorable product mix. Our operating results in Europe and Other increased primarily due to lower D&D and SG&A spending.

*Interest Expense, net.* Interest expense, net was $3.8 million and $3.1 million for the three months ended June 30, 2024 and 2023, respectively. The increase for the quarter ended June 30, 2024, was the result of higher outstanding balances and higher benchmark rates affecting our floating rate Credit Facility debt.

*Equity in Loss of Investee.* Equity loss for Autotech Fund II was $0.1 million and $0.3 million for the three months ended June 30, 2024 and 2023, respectively.

*Other (Income) Expense, net*. We record certain foreign currency transaction (gains) losses as a component of other (income) expense, net on the condensed consolidated statement of operations. Other (income) expense, net of $(2.3) million increased by $4.7 million compared to the second quarter of 2023 due to foreign currency transaction gains in our Electronics and SRB segments from the strengthening of the U.S. dollar.

*(Benefit) Provision for Income Taxes.* For the three months ended June 30, 2024, income tax benefit of $0.9 million was attributable to the mix of earnings among tax jurisdictions and U.S. taxes on foreign earnings, offset by tax losses for which no benefit is recognized due to valuation allowances in certain jurisdictions. The effective tax rate of (50.6)% varies from the statutory tax rate primarily due to U.S. taxes on foreign earnings offset by the impact of tax losses for which no benefit is recognized due to valuation allowances in certain jurisdictions.

For the three months ended June 30, 2023, income tax expense of $1.5 million was attributable to the mix of earnings among tax jurisdictions as well as tax losses for which no benefit is recognized due to valuation allowances in certain jurisdictions. The effective tax rate of (98.8)% varies from the statutory tax rate primarily due to U.S. taxes on foreign earnings and non-deductible expenses offset by the impact of tax losses for which no benefit is recognized due to valuation allowances in certain jurisdictions and tax credits and incentives.

### Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

Condensed consolidated statements of operations as a percentage of net sales are presented in the following table (in thousands):

| Six months ended June 30, | 2024 |  | 2023 |  | Dollar increase / (decrease) |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net sales | **$476,216** | 100.0% | $508,139 | 100.0% | $(31,923) |
| Costs and expenses: |  |  |  |  |  |
| Cost of goods sold | **374,119** | 78.6 | 404,849 | 79.7 | (30,730) |
| Selling, general and administrative | **62,299** | 13.1 | 63,354 | 12.5 | (1,055) |
| Design and development | **36,060** | 7.6 | 39,634 | 7.8 | (3,574) |
| Operating income | **3,738** | 0.7 | 302 | 0.2 | 3,436 |
| Interest expense, net | **7,435** | 1.6 | 5,866 | 1.2 | 1,569 |
| Equity in loss of investee | **329** | 0.1 | 500 | 0.1 | (171) |
| Other (income) expense, net | **(260)** | — | 3,535 | 0.8 | (3,795) |
| Loss before income taxes | **(3,766)** | (1.0) | (9,599) | (2.0) | 5,833 |
| (Benefit) provision for income taxes | **(426)** | (0.1) | 779 | 0.2 | (1,205) |
| Net loss | **$(3,340)** | (0.9)% | $(10,378) | (2.1)% | $7,038 |

*Net Sales.* Net sales for our reportable segments, excluding inter-segment sales, are summarized in the following table (in thousands):

| Six months ended June 30, | 2024 |  | 2023 |  | Dollar decrease | Percent decrease |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Control Devices | **$157,057** | **33.0%** | $178,062 | 35.0% | $(21,005) | (11.8)% |
| Electronics | **295,294** | **62.0** | 300,913 | 59.2 | (5,619) | (1.9)% |
| Stoneridge Brazil | **23,865** | **5.0** | 29,164 | 5.7 | (5,299) | (18.2)% |
| Total net sales | **$476,216** | **100.0%** | $508,139 | 100.0% | $(31,923) | (6.3)% |

Our Control Devices segment net sales decreased $21.0 million because of decreases in our North American automotive market of $21.1 million, including the impact of expected end of life production for certain programs and lower demand for electronic vehicle related products, and decreases in our China automotive market of $0.8 million. These decreases were offset by an increase in our China commercial vehicle market of $2.1 million. In addition, net sales for the six months ended June 30, 2024 were impacted by unfavorable foreign currency translation of $0.9 million.

Our Electronics segment net sales decreased $5.6 million because of higher sales volumes in our European and North American commercial vehicle markets of $6.4 million and $2.4 million, respectively, which were more than offset by the 2023 impacts of both required electronic component spot buy purchases of $13.3 million and retroactive price increases of $3.0 million. As well as lower sales in our agricultural market of $1.8 million. In addition, we experienced higher sales volumes in our North American and European off-highway vehicle markets of $2.9 million and $1.2 million, respectively, and unfavorable euro and Swedish krona foreign currency translation of $0.5 million compared to the prior year.

Our Stoneridge Brazil segment net sales decreased because of lower sales of our OEM products, monitoring service fees and tracking devices.

Net sales by geographic location are summarized in the following table (in thousands):

| Six months ended June 30, | 2024 |  | 2023 |  | Dollar decrease | Percent decrease |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| North America | **$239,630** | **50.3%** | $259,313 | 51.0% | $(19,683) | (7.6)% |
| South America | **23,865** | **5.0** | 29,164 | 5.7 | (5,299) | (18.2)% |
| Europe and Other | **212,721** | **44.7** | 219,662 | 43.2 | (6,941) | (3.2)% |
| Total net sales | **$476,216** | **100.0%** | $508,139 | 100.0% | $(31,923) | (6.3)% |

29

The decrease in North American net sales was mostly attributable to decreases in sales volume in our automotive market including the impact of expected end of life production for certain programs and lower demand for electric vehicle related products and our agricultural market of $21.2 million and $0.6 million, respectively, as well as the 2023 impact of required electronic component spot buy purchases of $2.2 million. These decreases were offset by higher sales volume in our North American off-highway and commercial vehicle markets of $2.8 million and $1.8 million, respectively.

The decrease in net sales in South America was primarily due to lower sales in our OEM products, monitoring service fees and tracking devices.

The decrease in net sales in Europe and Other was due to 2023 required customer recoveries of electronic component spot buys of $11.1 million and a reduction in negotiated price increases of $2.0 million. In addition, we experienced decreases in our China automotive market of $0.8 million as well as unfavorable foreign currency translation of $1.5 million. These decreases were offset by increases in our European commercial vehicle market, including sales related to the launch of a next generation tachograph, and China commercial vehicle markets of $6.4 million and $2.3 million, respectively.

*Cost of Goods Sold and Gross Margin.* Cost of goods sold decreased compared to the six months ended June 30, 2023 and our gross margin increased from 20.3% in the first six months of 2023 to 21.4% in the first six months of 2024. Our material cost as a percentage of net sales decreased from 60.3% in the first six months of 2023 to 57.4% in the first six months of 2024. The decrease in material cost percentage was partially due to the impact of required electronic component spot buy purchases, reimbursed by customers. The impact of these spot buy purchases increased cost of goods sold by $13.5 million, or 2.7% of sales, for the first six months of 2023, which reduced gross margin percent by 0.6% in 2023. Other factors contributing to the reduction in material costs were favorable product mix and material cost improvement actions. Overhead as a percentage of net sales was 16.4% and 14.4% for the first six months of 2024 and 2023, respectively. The increase in overhead as a percentage of sales was attributable to higher indirect wage inflation and adverse leverage from lower sales levels.

Our Control Devices segment gross margin increased primarily as a result of favorable sales mix.

Our Electronics segment gross margin increased because of the reduction of the adverse effect of required electronic component spot buy purchases, net of customer recoveries, favorable sales mix and material cost improvement actions.

Our Stoneridge Brazil segment gross margin decreased primarily because of lower contribution on lower sales levels.

*Selling, General and Administrative.* SG&A expenses decreased by $1.1 million primarily due to lower business realignment costs offset by higher share based compensation expense due the forfeiture of certain grants associated with employee resignations in 2023.

*Design and Development.* D&D costs decreased by $3.6 million because of higher customer reimbursements for our Electronics segment.

*Operating Income*. Operating income (loss) by segment is summarized in the following table (in thousands):

| Six months ended June 30, | 2024 | 2023 | Dollar increase / (decrease) | Percent increase / (decrease) |
| --- | ---: | ---: | ---: | ---: |
| Control Devices | **$5,889** | $7,161 | $(1,272) | (17.8)% |
| Electronics | **16,920** | 8,844 | 8,076 | 91.3% |
| Stoneridge Brazil | **163** | 2,242 | (2,079) | (92.7)% |
| Unallocated corporate | **(19,234)** | (17,945) | (1,289) | (7.2)% |
| Operating income (loss) | **$3,738** | $302 | $3,436 | (1137.7)% |

Our Control Devices segment operating income decreased because of lower contribution from lower sales offset by lower D&D spending and lower SG&A from a 2024 nonrecurring commercial settlement gain.

Our Electronics segment operating income increased primarily because of lower D&D from higher customer reimbursements and lower SG&A from 2023 business realignment costs.

Our Stoneridge Brazil segment operating income decreased because of lower contribution from lower sales levels offset by favorable sales mix of relatively higher proportion of monitoring fees.

Our unallocated corporate operating loss increased primarily from higher share based compensation expense due the forfeiture of certain grants associated with employee resignations in 2023 offset by lower business realignment costs.

Operating income (loss) by geographic location is summarized in the following table (in thousands):

| Six months ended June 30, | 2024 | 2023 | Dollar increase (decrease) | Percent increase (decrease) |
| --- | ---: | ---: | ---: | ---: |
| North America | **$(12,764)** | $(7,359) | $(5,405) | (73.4)% |
| South America | **163** | 2,242 | (2,079) | (92.7)% |
| Europe and Other | **16,339** | 5,419 | 10,920 | 201.5% |
| Operating income (loss) | **$3,738** | $302 | $3,436 | (1137.7)% |

Our North American operating loss increased because of higher material and labor costs, higher share based compensation and a 2023 gain on disposal of fixed assets offset by a favorable commercial settlement. Operating income in South America decreased because of lower contribution from lower sales levels offset by favorable product mix. Our operating results in Europe and Other increased primarily because of lower direct material costs and SG&A and D&D spending offset by lower contribution and adverse leverage from lower sales levels.

*Interest Expense, net.* Interest expense, net was $7.4 million and $5.9 million for the six months ended June 30, 2024 and 2023, respectively. The increase was the result of higher outstanding balances and higher benchmark rates affecting our floating rate Credit Facility debt.

*Equity in Loss of Investee.* Equity loss for Autotech Fund II was $0.3 million and $0.5 million for the six months ended June 30, 2024 and 2023, respectively.

*Other (Income) Expense, net*. We record certain foreign currency transaction (gains) losses as a component of other (income) expense, net on the condensed consolidated statement of operations. Other (income) expense, net of $(0.3) million increased by $3.8 million compared to the first six months of 2023 due to the impact of favorable foreign currency movements in our Electronics and SRB segments from moderated strengthening of the U.S. dollar.

*(Benefit) Provision for Income Taxes.* For the six months ended June 30, 2024, income tax benefit of $0.4 million was attributable to the mix of earnings among tax jurisdictions and U.S. taxes on foreign earnings offset by tax losses for which no benefit is recognized due to valuation allowances in certain jurisdictions and tax credits and incentives. The effective tax rate of 11.3% varies from the statutory tax rate primarily due to U.S. taxes on foreign earnings offset by the impact of tax losses for which no benefit is recognized due to valuation allowances in certain jurisdictions and tax credits and incentives.

For the six months ended June 30, 2023, income tax expense of $0.8 million was attributable to the mix of earnings among tax jurisdictions as well as tax losses for which no benefit is recognized due to valuation allowances in certain jurisdictions. The effective tax rate of (8.1%) varies from the statutory tax rate primarily due to U.S. taxes on foreign earnings and non-deductible expenses offset by the impact of tax losses for which no benefit is recognized due to valuation allowances in certain jurisdictions and tax credits and incentives.

### Liquidity and Capital Resources

#### Summary of Cash Flows:

| Six months ended June 30, Net cash provided by (used for): | 2024 | 2023 |
| --- | ---: | ---: |
| Operating activities | **$17,762** | $(4,688) |
| Investing activities | **(12,958)** | (16,296) |
| Financing activities | **(1,679)** | 923 |
| Effect of exchange rate changes on cash and cash equivalents | **(1,854)** | (32) |
| Net change in cash and cash equivalents | **$1,271** | $(20,093) |

Cash provided by operating activities increased compared to 2023 primarily due to a reduction in cash used to support working capital levels. Cash provided by receivables was favorable to 2023 as the result of lower sales levels while collection terms remained consistent. Cash provided by inventory improved from the prior year due to the 2023 ramp up of new product launches, the mitigation of supply chain disruptions and the impact of our inventory reduction actions.

Net cash used for investing activities decreased compared to 2023 due to lower capital expenditures and capitalized software development costs as well as the 2023 impact of cash proceeds from the sale of equipment.

Net cash used for financing activities increased compared to 2023 due to an increase in Credit Facility payments net of borrowings.

As outlined in Note 7 to our condensed consolidated financial statements, the Credit Facility permits borrowing up to a maximum level of $275.0 million. This variable rate facility provides the flexibility to refinance other outstanding debt or finance acquisitions through November 2026. The Credit Facility contains certain financial covenants that require the Company to maintain less than a maximum leverage ratio and more than a minimum interest coverage ratio. The Credit Facility also contains affirmative and negative covenants and events of default that are customary for credit arrangements of this type including covenants that place restrictions and/or limitations on the Company’s ability to borrow money, make capital expenditures and pay dividends. The Credit Facility had an outstanding balance of $187.4 million at June 30, 2024.

The Company was in compliance with all covenants at June 30, 2024 and December 31, 2023. The Company has not experienced a violation that would limit the Company’s ability to borrow under the Credit Facility and does not expect that the covenants under it will restrict the Company’s financing flexibility. However, it is possible that future borrowing flexibility under the Credit Facility may be limited as a result of lower than expected financial performance due to the adverse impact of macroeconomic conditions and supply chain disruptions on the Company’s markets and general global demand. The Company expects to make additional repayments on the Credit Facility when cash exceeds the amount needed for operations and to remain in compliance with all covenants.

The Company’s wholly owned subsidiary located in Stockholm, Sweden, has an overdraft credit line that allows overdrafts on the subsidiary’s bank account up to a daily maximum level of 20.0 million Swedish krona, or $1.9 million and $2.0 million at June 30, 2024 and December 31, 2023, respectively. At June 30, 2024 and December 31, 2023 there were no borrowings outstanding on this overdraft credit line. During the six months ended June 30, 2024, the subsidiary borrowed and repaid 186.5 million Swedish krona, or $17.6 million.

The Company’s wholly owned subsidiary located in Suzhou, China, has lines of credit that allow up to a maximum borrowing level of 20.0 million Chinese yuan, or $2.8 million at both June 30, 2024 and December 31, 2023. At June 30, 2024 and at December 31, 2023 there was $2.1 million and $2.1 million, respectively, in borrowings outstanding on the Suzhou credit line with a weighted-average interest rate of 3.25%. The Suzhou credit line is included on the condensed consolidated balance sheet within current portion of debt. In addition, the Suzhou subsidiary has a bank acceptance draft line of credit which facilitates the extension of trade payable payment terms by 180 days. The bank acceptance draft line of credit allows up to a maximum borrowing level of 60.0 million Chinese yuan, or $8.3 million and $8.5 million at June 30, 2024 and December 31, 2023, respectively. There was $0.0 million and $2.4 million utilized on the Suzhou bank acceptance draft line of credit at June 30, 2024 and December 31, 2023, respectively. The Suzhou bank acceptance draft line of credit is included on the condensed consolidated balance sheet within accounts payable.

In December 2018, the Company entered into an agreement to make a $10.0 million investment in Autotech Fund II managed by Autotech, a venture capital firm focused on ground transportation technology. The Company’s $10.0 million investment in the Autotech Fund II will be contributed over the expected ten-year life of the fund. As of June 30, 2024, the Company’s cumulative investment in the Autotech Fund II was $8.7 million. The Company contributed $0.3 million to Autotech Fund II during the six months ended June 30, 2024 and made no contributions during the six months ended June 30, 2023.

Our future results could also be adversely affected by unfavorable changes in foreign currency exchange rates. We have significant foreign denominated transaction exposure in certain locations, especially in Brazil, Argentina, Mexico, Sweden, Estonia, the Netherlands, United Kingdom and China. Currently, we have foreign currency forward contracts in place for Mexican pesos. See Note 5 to the condensed consolidated financial statements for additional details. Our future results could also be unfavorably affected by increased commodity prices and material cost inflation as these fluctuations impact the cost of our raw material purchases.

At June 30, 2024, we had a cash and cash equivalents balance of approximately $42.1 million, of which 84.7% was held in foreign locations. The Company has approximately $87.6 million of undrawn commitments under the Credit Facility as of June 30, 2024, which results in total undrawn commitments and cash balances of more than $129.7 million. However, it is possible that future borrowing flexibility under our Credit Facility may be limited as a result of our financial performance.

The principal sources of liquidity available for our future cash requirements are expected to be (i) cash flows from operations, (ii) cash and cash equivalents on hand and (iii) borrowings from our Credit Facility. We believe that our overall liquidity and operating cash flow will be sufficient to meet our anticipated cash requirements for capital expenditures, working capital and other commitments during the next twelve months. While uncertainty surrounding the current economic environment could adversely impact our business, based on our current financial position, we believe it is unlikely that any such effects would preclude us from maintaining sufficient liquidity.

### Commitments and Contingencies

See Note 10 to the condensed consolidated financial statements for disclosures of the Company’s commitments and contingencies.

### Seasonality

Our Control Devices and Electronics segments are moderately seasonal, impacted by mid-year and year-end shutdowns and the ramp-up of new model production at key customers. In addition, the demand for our Stoneridge Brazil segment consumer products is generally higher in the second half of the year.

### Critical Accounting Policies and Estimates

The Company’s critical accounting policies, which include management’s best estimates and judgments, are included in Part II, Item 7, to the consolidated financial statements of the Company’s 2023 Form 10-K. These accounting policies are considered critical as disclosed in the Critical Accounting Policies and Estimates section of Management’s Discussion and Analysis of the Company’s 2023 Form 10-K because of the potential for a significant impact on the financial statements due to the inherent uncertainty in such estimates. There have been no material changes in our significant accounting policies or critical accounting estimates during the second quarter of 2024.

Information regarding other significant accounting policies is included in Note 2 to our consolidated financial statements in Item 8 of Part II of the Company’s 2023 Form 10-K.

### International Presence

By operating internationally, we are affected by foreign currency exchange rates and the economic conditions of certain countries. Furthermore, given the current economic climate and fluctuations in certain commodity prices, we believe that an increase in such items could significantly affect our profitability. See Note 5 to the condensed consolidated financial statements for additional details on the Company’s foreign currency exchange rate and interest rate risks.

## Market risk

As filed, 204 characters.

There have been no material changes to the quantitative and qualitative information about the Company’s market risk from those previously presented within Part II, Item 7A of the Company’s 2023 Form 10-K.

## Controls and procedures

As filed, 862 characters.

### Evaluation of Disclosure Controls and Procedures

As of June 30, 2024, an evaluation was performed under the supervision and with the participation of the Company’s management, including the principal executive officer (“PEO”) and principal financial officer (“PFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the PEO and PFO, concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2024.

### Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the three months ended June 30, 2024 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Filed Jul 31, 2024.
Source: SEC EDGAR, the filing index for accession 0001043337-24-000106. Last ingested by Listed: Nov 4, 2026, 19:37 ET. No prices; not investment advice.