Executive Summary / Key Takeaways

• Strategic Pivot for Enhanced Focus: Stoneridge is undertaking a significant strategic review of its Control Devices division, with a primary focus on a potential sale. This move aims to optimize capital allocation, engineering resources, and leadership attention towards its high-growth Electronics and Stoneridge Brazil segments, which are driving record business wins.
• MirrorEye and Advanced Electronics Lead Growth: The company's MirrorEye camera monitor system continues to set sales records, with a recent program extension representing the largest award in company history ($535 million lifetime revenue). MirrorEye is now available from every North American OEM and is becoming standard equipment on key European truck platforms, underscoring its market leadership and strong adoption.
• Operational Excellence Driving Margin Expansion: Despite market headwinds, Stoneridge is demonstrating robust operational improvements, including a significant reduction in quality-related costs, a 220 basis point reduction in material costs in Q1 2025, and ongoing structural cost controls. These initiatives are crucial for margin expansion and cash flow generation.
• Strengthening Financial Foundation: A successful $44 million international cash repatriation in Q2 2025 led to a $38.8 million reduction in total debt and nearly $20 million in net debt, improving the balance sheet and providing greater financial flexibility. The company maintains its full-year 2025 revenue guidance and expects positive free cash flow of $25 million to $30 million.
• Long-Term Growth Trajectory: Stoneridge projects substantial long-term growth, targeting $1.3 billion to $1.45 billion in revenue and $160 million to $200 million in EBITDA by 2029, driven by its advanced technology platforms and strategic market positioning.

A Focused Vision for the Future: Stoneridge's Strategic Re-Engineering

Stoneridge, Inc., founded in 1965, has evolved into a global designer and manufacturer of engineered electrical and electronic systems, components, and modules for the automotive, commercial, off-highway, and agricultural vehicle markets. The company's overarching strategy centers on leveraging industry megatrends to expand its existing product portfolio and technology platforms, aiming for advanced capabilities, applications, and data services. This approach is designed to drive long-term growth and enhance shareholder value through a relentless focus on operational excellence and strategic resource allocation.

The company operates through three primary segments: Control Devices, Electronics, and Stoneridge Brazil. Historically, investments like the $10 million in Autotech Fund II in 2018 signaled an early commitment to emerging transportation technologies. This foundational journey has culminated in a pivotal strategic decision: the review of strategic alternatives for its Control Devices division, primarily focusing on a potential sale. This move is intended to sharpen the company's focus and resources on its high-growth Electronics and Stoneridge Brazil segments, which are currently experiencing record business wins.

Technological Edge: Powering Safety, Efficiency, and Connectivity

Stoneridge's competitive differentiation is deeply rooted in its proprietary technologies, which offer tangible benefits across its diverse markets. The company's commitment to innovation is evident in its core product platforms and ongoing research and development initiatives.

MirrorEye Camera Monitor System: This flagship product is an industry-leading camera monitor system for commercial vehicles globally. MirrorEye offers significant advantages over traditional mirrors, enhancing driver visibility and vehicle efficiency. Its aerodynamic design reduces drag, contributing to improved fuel efficiency by up to 3% when conventional side mirrors are removed. The system integrates advanced driver-assistance systems (ADAS) functionality, with side-view cameras that automatically adjust based on trailer position, identify trailer length, and display alerts for objects or pedestrians. This technology also ensures compliance with new EU general safety regulations, which mandate advanced safety features. The recently launched MirrorEye Multipurpose 2 for buses and rigid vehicles further extends these benefits with a compact design, consistent image quality, blind spot/forward-facing detection, and digital video stream output for recording. These features collectively provide a compelling value proposition, driving higher take rates and solidifying MirrorEye's position as a market leader.

SMART2 Tachograph: As a next-generation compliance solution, the SMART2 tachograph meets evolving European regulations, ensuring accurate driver information and compliance. Its strong demand underscores Stoneridge's expertise in regulatory-driven solutions and provides a consistent revenue stream within the Electronics segment.

Leak Detection Module (LVM): A new technology developed within the Control Devices segment, the LVM addresses the critical challenge of evaporative emissions, particularly in hybrid vehicles. Hybrid vehicles face greater evaporative emissions issues due to extended periods of electric-only driving, where gasoline vapors accumulate without continuous consumption by the engine. The LVM simplifies this complex problem by enabling leak checks on emission systems through an integrated vacuum pump and canister vent solenoid technology. This highly integrated solution offers a high-value proposition, positioning Stoneridge for growth in the expanding global hybrid vehicle market and opening incremental global opportunities.

Connected Trailer Products: Stoneridge is developing a suite of connected trailer products utilizing proprietary technology that enables seamless data transmission through existing power cables. This innovative approach ensures fast and easy adoption without requiring additional driver training. A key component is a digital backup camera with integrated lighting and software overlays, providing a high-quality, low-latency image that avoids the issues common with wireless systems. This platform has the potential for further expansion with additional cameras, sensors, tire pressure/temperature monitoring, and cargo surveillance, representing a significant long-term growth opportunity.

These technological differentiators collectively contribute to Stoneridge's competitive moat, enabling higher average selling prices, lower operational costs for customers, and stronger market positioning. The company's R&D efforts are strategically aligned to capitalize on industry megatrends, ensuring a robust technological roadmap for sustained growth.

Competitive Landscape: A Niche Player with Strategic Advantages

Stoneridge operates in a competitive landscape populated by larger, more diversified automotive suppliers such as Aptiv PLC (APTV), Visteon Corporation (VC), BorgWarner Inc. (BWA), and Magna International Inc. (MGA). While these competitors boast greater scale and broader portfolios, Stoneridge carves out a niche through specialized expertise and targeted technological advantages.

Aptiv, for instance, leads in advanced connectivity and safety systems for EVs and autonomous driving, often demonstrating higher revenue growth and profitability due to its scale. Visteon excels in cockpit electronics and infotainment, offering advanced user experiences. BorgWarner focuses on powertrain systems and electrification, while Magna provides diversified automotive parts and systems integration.

Stoneridge's competitive edge lies in its operational reliability for specific, ruggedized components, particularly in off-highway and agricultural applications, where its actuators and sensors offer notably greater durability. The MirrorEye system stands out as a market leader in commercial vehicle camera vision systems, with its unique FMCSA exemption in North America and increasing adoption as standard OEM equipment. The Leak Detection Module, with its integrated and elegant solution for evaporative emissions, offers a high-value proposition that, while not entirely unique, is presented as superior to existing alternatives.

However, Stoneridge's smaller scale can lead to challenges in matching the pricing power and R&D investment of larger rivals. Its financial performance, particularly in terms of growth rates and profitability margins, may trail that of companies like Aptiv and Magna, which benefit from greater economies of scale and broader market penetration. The company also faces pricing pressures from customers, a common challenge in the competitive auto parts industry. To mitigate these, Stoneridge employs strategies such as USMCA certification for its Mexico operations, cost-sharing agreements with key customers, and strategic sourcing. Barriers to entry, such as high R&D costs and stringent regulatory requirements, help protect Stoneridge's specialized market segments, though these same barriers also favor larger, well-resourced competitors.

Financial Performance and Operational Resilience

Stoneridge's recent financial performance reflects a company actively managing market headwinds while executing on strategic growth initiatives and operational improvements.

For the three months ended June 30, 2025 (Q2 2025), net sales decreased by 3.8% to $228.0 million compared to Q2 2024. This decline was primarily driven by lower volumes in the North American automotive market (including an end-of-life actuator product in Control Devices) and reduced demand in North American commercial vehicle and European off-highway markets for Electronics. These headwinds were partially offset by strong OEM product sales in Stoneridge Brazil and favorable foreign exchange translation in Electronics.

Gross profit for Q2 2025 was $48.9 million, representing a gross margin of 21.5%, down from 22.7% in Q2 2024. This was attributed to an unfavorable sales mix, particularly higher Stoneridge Brazil OEM sales, and lower contribution from reduced sales volumes. The company reported an operating loss of $2.6 million, with an adjusted operating income of $0.4 million. Adjusted EBITDA for the quarter was $4.6 million (2.0% of sales), significantly impacted by $3.4 million in non-operating foreign currency expense related to intercompany loans. Excluding this non-operating FX, adjusted EBITDA would have been $8.1 million (3.5% of sales).

Segment-Specific Performance (Q2 2025):

• Control Devices: Net sales decreased by 11.9% to $70.4 million. Operating income fell by 31.1% to $2.6 million, impacted by lower sales and a non-recurring commercial settlement gain in 2024, though partially offset by lower Design and Development (DD) spending.
• Electronics: Net sales decreased by 1.9% to $142.7 million. Operating income saw a significant 72.1% decline to $2.7 million, primarily due to lower sales contribution, adverse material mix, higher overhead, and increased DD expense from reduced customer reimbursements. MirrorEye sales, however, achieved a new quarterly record, growing 21% quarter-over-quarter.
• Stoneridge Brazil: Net sales surged by 27.6% to $14.9 million, driven by higher OEM product sales. Operating income dramatically increased to $969 thousand from $41 thousand in Q2 2024, reflecting the strong sales contribution.

Operationally, Stoneridge has made notable progress. Quality-related costs saw a continued reduction in Q2 2025, building on a $2.5 million improvement in Q1 2025 over Q4 2024. Material costs were reduced by 220 basis points in Q1 2025, and overall material costs improved by 120 basis points in 2024, alongside a 7% improvement in direct labor. The company incurred $1.4 million in business realignment costs in Q2 2025, primarily for operational efficiency initiatives at its Juarez, Mexico facility, with further cost savings expected.

From a liquidity perspective, Stoneridge is actively strengthening its balance sheet. A $44 million tax-efficient international cash repatriation project in Q2 2025 facilitated a $38.8 million reduction in total debt and nearly $20 million in net debt for compliance purposes.

The company's inventory management efforts resulted in a $7.3 million reduction in Q2 2025 and over $34 million over the last 12 months, with further improvements expected. As of June 30, 2025, Stoneridge held $49.8 million in cash and cash equivalents and had $110.6 million in undrawn commitments under its Credit Facility, providing over $160.4 million in available liquidity. An amendment to the Credit Facility in February 2025 provided covenant relief through December 31, 2025, and the company remains in compliance.

Outlook and Strategic Initiatives: A Clear Path Forward

Stoneridge's outlook is characterized by a clear strategic roadmap focused on leveraging its advanced technology platforms and optimizing its business portfolio for long-term profitable growth.

The company is maintaining its full-year 2025 revenue guidance of $860 million to $890 million (midpoint $875 million). This is despite external forecasts (IHS Market) predicting a 2.2% reduction in weighted average end markets, including a significant 17.5% decline in North American commercial vehicle production. Stoneridge anticipates offsetting these market headwinds through favorable foreign currency impacts and strong operating performance, particularly from its Electronics segment.

Adjusted EBITDA guidance for full-year 2025 has been updated to $34 million to $38 million (4.0% to 4.3% margin). This adjustment primarily reflects the $3.0 million in year-to-date non-operating net foreign currency expenses and an estimated $1.0 million in incremental tariff-related costs, which are strategic decisions to share costs with customers to deepen relationships and drive future business. Management expects operating performance improvements to largely offset customer production volume headwinds. The company also projects free cash flow of $25 million to $30 million for 2025, driven by continued inventory reduction and improved earnings.

Key Growth Drivers:

• MirrorEye's Continued Ascent: MirrorEye revenue is expected to almost double in 2025 to $120 million, with $100 million from OEM programs. The recent extension of a global MirrorEye program through 2033, valued at $535 million in lifetime revenue and $140 million in peak annual revenue, highlights its long-term potential. This next-generation system will feature incremental upgraded technology, with peak take rates projected to exceed 80% for heavy-duty commercial vehicles in Europe. MirrorEye is now available from every North American OEM, with two new OEM programs (Daimler Truck North America and Volvo Trucks North America) successfully launched in Q2 2025.
• Electronics Segment Outperformance: The Electronics segment is expected to outperform market production forecasts in 2025 and long-term, driven by strong demand for the next-generation tachograph in Europe and ongoing MirrorEye OEM program launches.
• Stoneridge Brazil's OEM Expansion: Stoneridge Brazil secured its largest OEM business award in history – an electronic control unit for an infotainment system, valued at $85 million in lifetime revenue and $20 million in peak annual revenue, launching in the second half of 2026. This is expected to drive significant OEM channel sales growth in 2025.
• New Technology Launches: The Leak Detection Module (LVM) is set for production in Q4 2025, and connected trailer products will see a limited rollout in 2025, with significant expansion anticipated in 2026.

Looking further ahead, Stoneridge targets revenue of at least $975 million in 2026, representing 11% growth over the 2025 midpoint, with EBITDA of at least $70 million (7% margin). This growth is primarily driven by strong commercial vehicle production, particularly in North America, due to anticipated pre-buying ahead of 2027 emissions regulations, and continued MirrorEye expansion. By 2029, the company aims for revenue between $1.3 billion and $1.45 billion, implying a 7.5% to 10% compound annual growth rate from 2024, with EBITDA projected at $160 million to $200 million.

Risks and Challenges

While Stoneridge's strategic direction is clear, several risks warrant investor attention. Geopolitical and trade tensions, including the imposition of new tariffs, could impact costs and market demand. While the company has mitigation strategies in place (USMCA compliance, customer pricing adjustments), the volatile nature of global trade policies introduces uncertainty. Market demand volatility, particularly the expected decline in North American commercial vehicle production, poses a near-term headwind. Foreign currency fluctuations also present a risk, as evidenced by the unfavorable impact on Q2 2025 results. Furthermore, the company faces inherent risks from product warranty and recall claims, including an ongoing $34.6 million arbitration related to a past product line, and various civil, labor, and tax contingencies in Stoneridge Brazil totaling $8.7 million. The success of the Control Devices divestiture is also a key factor, as delays or unfavorable terms could impact the anticipated benefits.

Conclusion

Stoneridge is at a transformative juncture, strategically re-engineering its business to capitalize on its most promising growth avenues. The decision to explore a sale of its Control Devices division is a bold move to unlock value, streamline operations, and dedicate resources to the high-growth Electronics and Stoneridge Brazil segments. This pivot is underpinned by the market-leading MirrorEye system, which continues to achieve record sales and OEM adoption, and other innovative technologies like the SMART2 Tachograph, Leak Detection Module, and connected trailer solutions.

Despite facing macroeconomic headwinds and competitive pressures, Stoneridge's commitment to operational excellence, including significant improvements in quality and material costs, is driving margin expansion and robust cash flow generation. The company's strengthened balance sheet, bolstered by recent debt reduction and ample liquidity, provides a solid foundation for future investments. With ambitious long-term targets and a clear technological roadmap, Stoneridge is positioning itself for sustainable growth and enhanced shareholder value, making it a compelling consideration for discerning investors focused on the evolving automotive and commercial vehicle technology landscape.