Stoneridge, Inc. Aktie

Good day, everyone. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Stoneridge Third Quarter 2026 Earnings Conference Call and Webcast. [Operator Instructions] I will now turn the call over to Mike Swartz, Head of Investor Relations. Please go ahead.

Good morning, everyone. Thank you for joining us to discuss our third quarter 2026 results for the period ended September 30, 2026. The release and accompanying presentation were furnished to the SEC and are posted on our website at stoneridge.com in the Investors section under Presentations and Events. Joining me on today's call are Natalia Noblet, our President and Chief Executive Officer; and Scott Humphrey, our Chief Financial Officer.

Before we begin, I would like to inform you that as a result of the sale of the Control Devices business segment on January 30, 2026, the company has applied the provisions of discontinued operations accounting guidance and has retrospectively presented the financial results of the Control Devices segment as discontinued operations in the accompanying presentation for all periods presented. Additionally, in connection with the retrospective presentation of Control Devices as discontinued operations, prior period segment information has been recast to conform to current period presentation. More information on the basis of presentation is included in the Form 10-Q, which was filed with the Securities and Exchange Commission on November 4, 2026.

During today's call, we will be referring to certain non-GAAP financial measures. Please see Slide 2 of the presentation for a more detailed description of these non-GAAP measures and the appendix for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. In addition, certain statements made today may be forward-looking. 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 on Slide 3 of the presentation in our Form 10-Q, which was filed with the Securities and Exchange Commission under the heading Forward-Looking Statements. After Natalia and Scott have finished their formal remarks, we will then open the call to questions. And with that, I will hand the call over to Natalia.

Thank you, Mike, and good morning, everyone. Third quarter results offers further validation of the progress we are making against our previously communicated strategic priorities. Specifically, we are successfully expanding customer adoption of our market-defining safety and efficiency-enhancing technologies, sharpening our organizational focus, improving operational performance and realizing structural cost efficiencies. These efforts resulted in the strongest quarterly EBITDA performance since the second quarter of 2024, giving me further confidence that the enhancements we are making are putting us firmly on track to deliver a more profitable and sustainable long-term growth profile.

We have also strengthened our strategic and operational capabilities with recent additions to the Stoneridge executive team. Vivek Anand, who joined us as Vice President, Commercial Strategy and Global Sales, will lead Stoneridge's global commercial organization, including sales, product marketing, customer communications and sales and marketing strategy. And Uwe Brandenburg, Global Vice President, Engineering and Innovation, will lead Stoneridge's global engineering organization, driving the company's engineering vision and strategy across product development and innovation and advancing Stoneridge's focused technology priorities in vision and safety, vehicle intelligence and connectivity. Both bring extensive leadership experience within the automotive and commercial vehicle industries and will be invaluable as we look to deepen customer relationships, expand our portfolio of technological solutions and execute upon our longer-range growth initiatives. I couldn't be more excited to welcome Vivek and Uwe to the Stoneridge family.

Given the progress we have made against the current strategic plan as evidenced by our year-to-date results and with our new leadership team now assembled, we are prepared to accelerate value creation in 2027 and beyond. The strategic framework we have been discussing with you this year will remain central to our efforts. Specifically, we are committed to cultivating a broader market for our suite of innovative technologies, while strengthening product-level profitability, intensifying our quality assurance processes, reducing structural costs, optimizing working capital and enhancing our financial flexibility. While this will be an iterative process as we advance and execute against an evolving set of initiatives, our organizational North Star is resolute: delivering the most innovative and highest quality safety and efficiency-enhancing technologies to our commercial partners.

We look forward to sharing more color on our progress and specific achievements on our fourth quarter earnings call in March. To reiterate, the year-to-date progress we have made is commendable. I am very proud of our accomplishments thus far, none of which would be possible without the tireless efforts and dedication of the entire Stoneridge team. However, as I said a few months ago, this is a journey, not a sprint. Our central objective is to build a durable foundation for long-term profitable growth. This is something that requires hard work and difficult decisions. That said, with the team we have assembled, I have nothing but confidence that our progress will continue.

Let's now turn to Slide 4 for an overview of third quarter results. As referenced in an accompanying Form 10-Q filed on November 4, earlier this week, we received notice that on October 30, an arbitrator issued a ruling on outstanding warranty claims brought by a customer of Stoneridge's former Control Devices business. The claimant was awarded approximately $25.5 million related to a particulate matter, PM, sensor formerly manufactured by Stoneridge. This particular product line was exited in 2019, and we divested the Control Devices business in the first quarter of 2026. We disagree with the ruling and continue to believe the claims lack merit.

As such, we are evaluating our options. We are comfortable that we have sufficient cash on hand to satisfy the arbitration award in the current judgment amount. Consequently, reported third quarter results include a noncash pretax charge of approximately $24 million, net of existing accruals recorded as a reduction to net sales, reflecting the arbitration ruling. Unless otherwise noted, our discussion on today's call regarding third quarter and year-to-date results as well as any commentary that could be considered forward-looking are furnished on an adjusted or non-GAAP basis, excluding the impact of the arbitration ruling. We believe this is useful in assessing the company's core operating performance and provides direct comparability versus the year ago period.

Third quarter results came in ahead of our expectations. Revenue, excluding the impact of currency and the Mexico manufacturing agreement related to the sale of the Control Devices business, grew by nearly 26% versus a year ago. This was the fastest rate of organic growth in over 3 years and a meaningful acceleration versus the 8% rate of growth generated in the second quarter. In addition to vehicle production recovery trends in our European and North American commercial vehicle markets, we continue to gain traction with customers across existing verticals and key expansion areas, including bus and coach and off-highway industrial applications. Our suite of CMS technologies remain a key growth driver.

On top of MirrorEye achieving yet another sales record in the third quarter, we are pleased to announce that we recently secured additional orders in the OEM market for existing vision system technology. This particular program, which will ramp up in 2027, is anticipated to generate cumulative incremental sales of approximately $180 million through 2028. Next, our cost structure optimization and efficiency initiatives were once again evident during the third quarter. SG&A as a percentage of adjusted sales improved 317 basis points versus last year, contributing to an over 40% year-over-year increase in adjusted EBITDA to the highest level in 9 quarters. We remain on track to generate at least $5 million in structural cost improvement this year.

Finally, despite our investment in working capital to support new commercial programs that are expected to ramp up in 2027, cash from operations during the third quarter improved versus the prior year quarter to just over $4 million and total debt outstanding was reduced by $7 million during the quarter. These achievements are even more remarkable considering the inflationary cost environment, especially for memory chips and other electronic components that we are navigating at present as well as certain transitional actions undertaken that are temporarily masking our underlying financial performance.

In addition to the strategic inventory-related actions that were communicated last quarter, in the third quarter, we elected to settle certain legacy customer warranty matters, the result of which negatively impacted profitability. Through collaborative negotiations with our key partners, we were able to reach agreements that we believe are equitable and in the best interest of the company. This demonstrates our resolve to take decisive actions when necessary to improve organizational focus, accelerate our commercial impact and enhance longer-term profitability and cash generation. While in the near term, these decisions have come at a cost, we believe this to be the right course of action as we position the company for profitable growth.

Looking out over the balance of the year, we see opportunities, but there are also attendant risks that we need to manage. To date, macro and geopolitical developments, including the steep increase in diesel fuel costs and the Fed's recent monetary policy actions have not had a material impact on our business. If anything, we've seen a strengthening of end market demand that is expected to carry into 2027 as evidenced by recent commentary from several large OEM partners. As such, we are raising our full year revenue outlook for 2026.

At the same time, we now expect adjusted EBITDA to come in at the bottom end of our previous forecast given ongoing inflationary cost pressures, especially for memory chips and other electronic components which we expect to be more pronounced in the fourth quarter, a less favorable currency environment and the proactive efforts we took to address and resolve several legacy matters that were not envisioned in our original guidance. To be clear, we have made progress recovering or offsetting a portion of the higher material costs in recent months, and we do expect to benefit from additional mitigation actions in 2027. However, out of an abundance of caution, we believe it's prudent to manage expectations accordingly. Scott will discuss our revised 2026 outlook in greater detail later in the call.

In sum, we are successfully executing the strategic plan outlined earlier this year. Our efforts are yielding a sharper organizational focus, improved profitability and cash flow and a healthier capital structure to support our growth plans. The tangible results of this, including the fastest rate of quarterly revenue growth and strongest EBITDA performance in several years, were evident during the third quarter. While encouraged, we are also not satisfied. This is just a starting point of our journey. We see a much larger opportunity to create value in the years ahead, one that will confer significant benefits to all Stoneridge stakeholders.

Now let's turn to Slide 5 for a review of our end markets. Global commercial vehicle end markets strengthened during the third quarter with our weighted average OEM production up nearly 18% versus the prior year. Through the first 9 months of the year, the market has shown modest growth of 2% or slightly better than our initial expectation for a flat market for 2026. During the third quarter, we again outperformed with organic revenue growth of nearly 26% versus the prior year or 8 percentage points stronger than the rate of growth across our end markets. Through the first 9 months of the year, we have generated organic growth in excess of 9%, a 7 percentage point outperformance versus the market. We continue to anticipate supportive demand trends across our key commercial vehicle markets. Over the past few weeks, several of our largest OEM customers have publicly commented on strong order books and expectations for higher production and delivery levels in 2027.

In Europe, demand is anticipated to be stable with a potential for modest growth, while forecasts for North America point to a stronger recovery following the deeper cyclical downturn experienced in the market over the past 2 years. For 2027, North American OEM volume expectations range anywhere from mid-single digits to double-digit percentage growth versus 2026 levels. Given our growing exposure to the North American commercial truck market, we expect this to favorably influence our business over the next 12 months. IHS also recently updated its expectations for market growth as depicted in the chart on Slide 5. Based on the newly revised estimates, our weighted average OEM end markets are expected to grow by 5% year-over-year in 2026. This is slightly more favorable than the 3.8% rate of growth expected at the time of our second quarter call in early August.

For 2027, IHS anticipates incremental growth over 2026 of nearly 3%. While this is a decline from the 5.3% growth expectation just 3 months ago, we believe this reflects a combination of order timing ahead of the new EPA fuel efficiency regulations that go into effect in 2027 as well as downstream supplier capacity uncertainties.

In sum, although the macro and geopolitical environment will likely remain a source of uncertainty for the foreseeable future and inflationary pressure will continue to be a key risk factor into 2027, the combination of improving industry fundamentals and necessitated fleet replacement activity should underpin an improved demand environment over the next 12 months.

Turning to Slide 6. Our commitment to customers remains priority #1. Specifically, our focus on delivering outstanding value and collaborating with all of our partners in the advancement of next-generation technologies for safer and more efficient transportation is steadfast. In addition to broader market forces that are at our backs, namely the accelerating shift towards digital and connected solutions by major OEMs, our commercial aperture continues to widen with growing acceptance of our core technologies across a broader set of end markets and customers. As I mentioned earlier, during the third quarter, we secured significant additional orders for our existing vision systems that are expected to yield approximately $180 million in incremental revenue through 2028.

Recently, we also announced our collaboration with Kodiak AI, a leading provider of physical AI-powered autonomous driving technology for commercial vehicles. In addition to our MirrorEye system being integrated with Kodiak's technology on newly deployed vehicles, we are working with Kodiak to explore the integration of Stoneridge technologies into their autonomous vehicle platform and develop solutions that improve how vehicle data is processed. These new developments serve as further validation of OEMs' and operators' continuing prioritization of unique solutions that advance fleet safety and operating efficiency as well as the growing market acceptance of our range of vision and safety technologies, including MirrorEye.

Over the past 12 months, we have clearly demonstrated through a range of previously announced partnerships spanning commercial trucks, bus and coach and off-highway and industrial applications that the resonance of our product portfolio and the need for more intelligent safety and efficiency-enhancing solutions only continues to build in the marketplace. In turn, this gives us further confidence about our growth story. As mentioned earlier, MirrorEye set yet another quarter record with over $37 million in sales during the third quarter. This represents 48% year-over-year growth.

Importantly, whereas much of MirrorEye's growth in recent years has been driven by growing penetration and take rates with European customers, the improvement in the third quarter was more heavily influenced by the ramp-up of various OEM programs in North America, where MirrorEye's adoption is still very early. In addition to the revenue gains we are currently enjoying, as we extend the adoption curve, our focus on product quality, engineering optimization, supply chain and procurement efficiencies and a more scalable platform approach should ultimately yield tangible benefits in the form of stronger capacity utilization and a lower cost to serve. This will ultimately enable us to fully realize the value of our technology.

Now I will turn the call over to Scott for third quarter financial details and our updated 2026 outlook.

Thank you, Natalia. Our key financial metrics for the third quarter are summarized on Slide 8. As a reminder, our discussion of third quarter results are provided on an adjusted or non-GAAP basis, excluding the impact of the arbitration ruling. We believe this is useful in assessing the company's core operating performance and provides direct comparability versus the year ago period. All comparisons are depicted relative to the year ago period ended September 30. Third quarter adjusted revenue came in at $180 million. This represented growth of 30% versus last year.

On a core basis, which excludes a modest unfavorable impact from foreign currency translation and the recognition of $6 million of contract manufacturing revenue under the Mexico manufacturing agreement associated with the sale of Control Devices, third quarter sales grew by nearly 26%. The increase was primarily driven by the North American commercial vehicle businesses, supported by another record quarter of MirrorEye revenue and double-digit growth at Stoneridge Brazil. It's worth pointing out that the sequential step down between second and third quarter revenue that we typically experience, which is influenced by lower seasonal production levels across Europe, was not as pronounced this year given the relative outperformance of the North American business. As we look to cultivate greater adoption of our products with North American OEMs, we would expect a continuation of this smoothing effect between quarters.

Third quarter adjusted gross profit margin declined 382 basis points versus the year ago period to 19.9%. During the third quarter, we made progress on our continuous improvement initiatives aimed at optimizing material costs, generating overhead efficiencies and driving product quality improvement. However, these efforts were overshadowed by a combination of strategic inventory-related expenses, albeit at a lesser magnitude than experienced in the second quarter and the successful resolution of certain legacy warranty obligations. As Natalia mentioned earlier, we are taking decisive actions in the near term to position ourselves for sustainable profitability growth in the longer run. While these actions partially masked the underlying cost structure improvements during the third quarter, we believe they are the appropriate decisions as we look to advance our longer-term growth initiatives.

Third quarter adjusted operating income margin improved by 20 basis points to 0.4%. The combination of a higher revenue base and associated fixed cost leverage and benefits from our efficiency initiatives more than offset the decline in consolidated gross profit margin. As a percentage of adjusted sales, SG&A expense declined by 317 basis points to 13.1%. This was punctuated by a nearly 20% reduction in unallocated corporate costs versus the prior year period. To put a finer point on the progress we are making in resetting the cost structure, despite a $41 million year-over-year increase in sales during the quarter, SG&A expenses increased by just $1 million. Adjusted consolidated EBITDA came in at $7.3 million in the third quarter.

On a continuing operations basis, this marks Stoneridge's strongest quarterly adjusted EBITDA performance in over 2 years. As a percentage of sales, adjusted EBITDA margin expanded 34 basis points year-over-year to 4.1%. This was largely attributable to the quarterly revenue improvement and realized cost efficiencies described previously. In summary, despite certain transitional costs during the third quarter, we delivered strong revenue growth, improved profitability, strengthened operational cash flow and reduced debt outstanding. This demonstrates the tangible progress we are making in establishing a stronger, more profitable foundation for the long term.

Turning to Slide 9. Third quarter sales in our Electronics business came in at $158.6 million, an improvement of over 30% versus the prior year. Excluding a $1 million currency translation headwind and the impact of the Mexico manufacturing agreement, core segment growth was approximately 26% year-over-year. Segment level adjusted operating margin declined 217 basis points versus the year ago period. Benefits from fixed cost leverage on a higher revenue base, operational efficiencies and cost mitigation actions were more than offset by the discrete warranty and inventory actions mentioned earlier as well as higher expense for materials.

Our commitment to improving the cost structure remains a top priority. In addition to a near-term focus on mitigating inflationary cost pressures, longer-term initiatives are underway to address materials and overhead costs as well as the reduction of quality-related expenses. Stoneridge Brazil delivered another solid quarter as depicted on Slide 10. Third quarter sales reached a record $21.5 million, up 25% versus the prior year. Excluding a $1 million benefit from currency translation, revenue was up more than 19%. This speaks to the continued success we are enjoying in Brazil, stemming from a realignment around and investments in the OEM business. Brazil remains an attractive long-term growth market for Stoneridge. Third quarter adjusted operating income was approximately $2.5 million. As a percentage of sales, adjusted operating income was 11.5%. The 411 basis point year-over-year decline was driven by adverse product mix and overhead investments. These factors more than offset fixed cost leverage on a higher sales base.

I will next discuss the balance sheet and liquidity profile as detailed on Slide 11. As of September 30, 2026, we had approximately $63 million in cash on hand and total debt outstanding of just under $144 million. This compares to total cash of approximately $49 million and total indebtedness of $171 million at September 30, 2025. The nearly $42 million reduction in net debt reflects the deployment of proceeds from the sale of the Control Devices business in January and tighter control of working capital over the first 9 months of the year.

At the end of the third quarter, inventory on hand increased by $6 million versus the prior year as we made strategic investments in support of new OEM programs expected to ramp up in 2027. That said, inventory turns improved to 4.7 turns versus 3.6 turns in the year ago period, a roughly 30% improvement, and we generated a nearly $4 million increase in cash from operations versus the third quarter of 2025. Capital expenditures for the quarter amounted to just over $4 million. As previously disclosed, in April, we initiated a refinancing process to replace our existing credit facility, which matures in July 2027. Our top priority is maintaining a prudent capital structure that supports our near- and longer-term growth objectives. While we do not have any updates today, we have had constructive conversations with our banking partners, and we continue to work towards completion of the refinancing process.

Now turning to our updated 2026 guidance on Slide 12. Based on third quarter and year-to-date financial results and given our current visibility into the balance of the year, we are revising 2026 guidance. We now expect revenue in the range of $690 million to $700 million. At the midpoint of the range, this reflects a $37.5 million increase versus our prior guidance. In addition to stronger demand in the European and North American commercial vehicle businesses, which we discussed earlier in the call, the revision to our outlook reflects better-than-expected sales from Stoneridge Brazil, primarily driven by traction with local OEMs and the continued success and market expansion of our innovative safety and efficiency-enhancing technologies.

We now expect adjusted EBITDA to come in at the bottom end of our guidance range of $20 million to $25 million. We remain on track to deliver more than the targeted $5 million in structural cost savings in 2026 and due to our mitigation efforts, inflationary impacts through the first 9 months of the year have proven benign. That said, we do not expect the stronger revenue outlook, operational improvements and realized cost savings to fully offset the costs incurred to resolve legacy warranty and inventory matters over the past 6 months. Recall, these costs were not envisioned in prior guidance but are included in our year-to-date results.

As reflected in our updated guidance, we are modifying fourth quarter expectations given persisting cost inflation and a less favorable currency environment. As mentioned, we have successfully addressed inflationary pressures through the first 9 months of the year. Cost mitigation remains a priority for the entire Stoneridge team and further actions are underway. However, with the fourth quarter being a seasonally small production period for many of our OEM customers and given the inventory investments we are making to support several major OEM programs that will ramp during the first half of 2027, there is increased uncertainty whether we can fully realize additional inflationary recovery measures during the year. We have attempted to best encapsulate this risk in our updated outlook. At the midpoint of our updated full year adjusted revenue guidance range, the implied fourth quarter outlook still reflects over 20% year-over-year growth while achievement of the bottom end of our full year adjusted EBITDA guidance range would imply a roughly 60% increase in profitability versus the prior year period.

With that, I will turn it over to Natalia to provide an update on our progress against our key priorities.

Thank you, Scott. Now let's turn to Slide 13. To summarize, our unwavering focus on serving commercial partners with the highest quality innovative technical solutions is as strong as ever. We remain committed to enhancing shareholder value through the combination of continued market outperformance, improved profitability and operational cash flow generation. Our tangible progress on each of these fronts during the third quarter is a testament to the meaningful steps we are taking to improve execution while cultivating a culture of operational excellence, cost discipline and cross-functional collaboration across the organization.

First, our focus on advanced technology solutions and a strong customer service mindset continues to drive market outperformance. During the quarter, organic revenue growth exceeded our weighted average OEM end markets by 8 percentage points, driven by continued momentum in our core technology portfolio, including MirrorEye and Stoneridge Brazil. The strong relationships and deep integration that we have developed with our key customers over decades has yielded new business opportunities as discussed earlier on the call. Driven by our continued investments in technology and people and the robust backlog of differentiated innovative technologies, we believe we can outpace the rate of market growth by 2x to 3x over the long term.

Next, we are making progress against our excellence in execution initiatives. We are reinforcing advanced quality planning and execution across our product development processes with greater rigor, discipline and early indication and prevention of quality deficiencies. This is complemented by a stronger approach to quality from product launch through sourcing, manufacturing and field performance. By embedding quality earlier and managing it more systematically throughout the life cycle, we expect to improve product reliability to reduce the cost of poor quality, strengthen margins and support sustainable long-term performance. While third quarter gross margins were impaired by the resolution of certain legacy matters, we are seeing directional improvement in underlying cost of quality metrics and our structural cost initiatives helped drive a 34-basis-point improvement in adjusted EBITDA versus last year.

Finally, we continue to prioritize sustainable cash generation and a strong balance sheet. Our efforts to improve cash flow conversion through operational excellence and working capital discipline are already bringing positive results. Despite strategic working capital investment during the third quarter, cash from operations grew more than tenfold versus the prior year, while inventory turns improved nearly 30% and our net debt position improved by nearly $42 million versus a year ago. These accomplishments have significantly improved the capital structure and position the company to pursue incremental growth opportunities as they arise. Through consistent execution and by fostering a culture of accountability, creativity, collaboration and continuous improvement, we are positioning ourselves to achieve near- and medium-term financial objectives and putting the company on a path to more sustainable performance for years to come. And with that, operator, you can open the line for questions.

[Operator Instructions] Our first question will come from the line of Gary Prestopino with Barrington Research.

Congratulations. It looks like you're making some really great progress here. Natalie -- Natalia, I want to get a series of questions here. First of all, this warranty issue with Control Devices, this kind of popped up. This was an issue with the prior regime. First of all, is this a European-centric issue? Or was this a domestic issue with the arbitration?

Gary, thank you for the question and your comments earlier as well. Yes, so this issue -- no, we have been informing in our Qs and Ks basically since 2023 since Stoneridge got the claim from one of our previous customers. And the case was in Italy court basically managed. So that was in Italy.

Okay. So it was an Italian court. Okay. And in terms of what you -- I mean, without giving away the store here, I mean, you're taking more -- being more proactive on this whole warranty issue. Can you give us any idea of the magnitude of what you're up against here? I mean, is this something that could be ongoing for a couple of years as these things start creeping out of the system?

So we do not expect that continuing. So basically, those were a couple of long-standing legacy warranty matters where the customer claims developed over a few years. And basically, ultimately, in the third quarter, we reached the negotiated settlement that was overall positive for us, and we decided to settle. So the incremental impact is $3 million in the quarter. And as I said, I mean, obviously, we are focusing a lot, and we've been focusing a lot on strengthening our end-to-end quality processes, improving our product development processes. As always, we continuously dealing like every company with those kind of issues, but we do not expect following with any major incremental impacts in the next quarters.

I'm sorry, did you say there was a $3 million expended on warranty-related issues outside of this issue that was arbitrated in the quarter?

That's correct. $3 million incremental to our results on the settlement of those other warranty issues.

Okay, okay. So I mean -- and that was not backed out of adjusted EBITDA. That's in the adjusted EBITDA number, right?

Yes, Gary, that's correct.

Okay. That's good. I just want to get an idea of this. And then on to some -- just a couple of other questions here on positive things here. Great increase in orders with the existing vision system. Did you say that was in North America, Europe? And was it spread over several OEMs or just one OEM?

So Gary, this is a global business. And this is not MirrorEye. This is our -- another vision system, another camera system, which underlines also our progress on our suite of vision system technologies. At this stage, we are really binded with confidentiality. So we cannot disclose more information outside of the fact that this is a global business and in the OEM market.

You said it's not a MirrorEye, okay? So...

That's correct.

This is not going on Class 8 trucks. This is a new market. I'm trying to understand if it's not MirrorEye, it's an existing vision system, where exactly -- what's the application? Is it for buses, off-road? What's the application?

So Gary, I'm really sorry, but I cannot share the exact application. That's going across different vehicles, but I can say it's not MirrorEye. And again, we are really excited about that. As you know, this is additional revenue growth for us and obviously underlying our close relationships with broader OEM market.

Okay. That's fine. I do not have any pressure on that. I'm just trying to get an understanding. So with these incremental sales that are coming through, when does that start -- the sales start hitting the P&L in Q1 of '27?

Yes, we will start the ramp-up from the beginning of 2027 and then gradually ramp up the volumes. That's correct.

And then -- okay. Great. So that's positive. And then one last question, and I'll let somebody else jump in. Scott, why -- what's -- with trying to refinance the credit agreement, the rationale is, is it too restrictive or what is -- I realize you've got some -- a lot of time here to do so before it matures. But what's the rationale for that?

For the time frame?

No, just for trying to refinance it. I mean it's due when...

Yes. I'm sorry, Gary. Now I understand. Yes, so it expires in July of 2027. And so we kicked this off months ago to just have the process running so that we could get it done well before the deadline of July 1.

Okay. Okay. That's what I was trying to get at. And is there anything in this credit agreement that is fairly restrictive that you're trying to alleviate with the new credit agreement? Or is that something you can't comment on?

No. I think our existing bank group is supportive, but we obviously would like to secure something with a longer date into the future and not -- as you see on the balance sheet, this because it's within 12 months now, has now moved into a current liability for us. And so we would like to get that placed back into long-term debt once we secure the refinance.

We'll take a follow-up question from the line of Gary Prestopino with Barrington Research.

Yes. I just wanted to get a handle on what you're talking about in Q4. You've got a couple of things here that are affecting the EBITDA generation. I'm trying to put to the slide where it is. Let's just see if it's on -- let's look at Slide 4, inflationary cost pressure, unfavorable currency, actions to resolve legal matters. I mean, is -- rank order that, is the inflation really a bigger issue, unfavorable FX, there's nothing you could do about that, actions to resolve legacy matters. Just trying to get an idea of how much impact all those 3 issues you've cited are having on what could happen in Q4.

Gary, yes, thanks for your question. The biggest, I would say, overhang that we've been trying to work through in Q3 as well has been inflationary pressures, especially around memory. And so we continue to have conversations with our customers. The team has been very successful so far in gaining cooperation from our customers and helping us manage through the inflationary pressure in Q3, and we hope to have the same result in Q4, but it is a major issue, I think, across the industry. This isn't unique to us.

Our next question will come from the line of Wolf Joffe with EVR Research.

The last time I looked at some of the ACT Class 8 figures, it looked like North American production for tractors, I think, would be up about 18% in 2027. Again, I might not be up to date, but you guys are forecasting negative 4% for North America. So is it a reflection of the end customer or the mix of your customers? Or why would there be such a discrepancy in the growth rates?

Thank you very much for the question. So what we are showing is really the IHS production there, right? And we are giving every quarter the update on that. that is both the heavy-duty trucks and the medium duty, right, so 7 and 8 class. So I agree with you. Overall, what we are hearing from the customers, what we see from FTR or ACT, we see that the demand as it started to get stronger in the second half of 2026 should continue getting stronger in 2027. Therefore, we are showing here the IHS data.

However, we are always using the best market intelligence and our best projection when we are bringing our guidance and our plans. A couple of things here. So demand is there. That's absolutely correct. A little bit different between heavy-duty and medium duty. What I have seen also with ACT that heavy-duty is still projected to be higher and medium-duty production in North America actually is projected to get a little bit lower. It's more cost sensitive as well. And I think we will see, obviously, the situation overall is very dynamic in a way of fuel prices, interest rates, overall fleet profitability, but also supply constraints.

We will -- are there to see how the overall industry and the supply base will be able to keep up with those higher volumes in North America. And also, it's important to underline that operating older trucks just getting really expensive for the fleet. So we are overall optimistic that this stronger demand that we've seen in the second half of 2026 in North America will continue in 2027.

Okay. And then a long time ago, management had released a slide. This is back in 2025, I believe. And the slide had some 2027 targets on it showing call it, $715 million of revenue and about $45 million of EBITDA. What sort of growth in the top line would we need or maybe just what level of revenue? Well, let me rephrase. The slide projects $750 million of revenue, $45 million of EBITDA. Is that reachable in 2027? What actually makes sense now given the current environment?

Yes. Wolf, this is Scott. I would say great question. We're working through budgeted process right now, actually. And so now that we get through Q3 earnings, we'll be focused entirely on that the rest of the month here. And so we'll have more feedback around that in the next few months for you all in the next quarter's call. I think that obviously, the things that the market is dynamic. And since the slide that you're talking about has been put forth, obviously, we're dealing with a lot of inflationary pressure and currency and all kinds of things.

And so, given that the underlying -- there are underlying changes to the assumptions, we're going to have a fulsome update for everybody that hopefully can give you some guidance and comfort around how that growth materializes and what does it mean for EBITDA. But I think it's correct to say that Natalia and I are certainly not satisfied with the EBITDA margins that we're throwing off right now and that everything that we are doing is focused on how we increase that EBITDA margin in 2027 and beyond. And so I think that the idea that we're going to grow revenue and EBITDA is going to pick up in terms of percent of sales is absolutely correct. And that is everything that we are working on.

Do you have a sense for which variables were baked into those prior assumptions, which of those variables has changed the most?

Well, I mean, I don't think that the impact of, like, the Mexico manufacturing agreement is in there, but I'm certain that the biggest impact on that has been the inflationary environment that we're in and the material cost increases that we are trying to work through. But to be fair, I haven't spent a lot of time digging through the major assumptions that were used back a couple of years ago to put forth long-range assumptions and guidance.

Understood. And I do apologize for bringing up stuff that you were not responsible for. Really, barring all the onetime stuff, very nice performance this quarter.

This concludes the question-and-answer session. And I'll now turn the floor back over to Natalia Noblet for any additional or closing remarks.

Thank you, everyone, for joining the call. I know that your time is very important. And as always, we truly appreciate your willingness to engage with us. If you have any questions, please feel free to reach out directly through the Investor Resources section of our Investor Relations site. We look forward to updating you on our continued progress on our fourth quarter call.

This concludes the Stoneridge Third Quarter 2026 Earnings Call and Webcast. Please disconnect your line at this time, and have a wonderful day.

Thank you. Good day and welcome to the Stone Ridge Second Quarter 2026 Earnings Conference Call. participants will be in listen-only mode. Should you need assistance, please signal Conference Specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you have pressed star, then 1 on your touch-tone phone. To try your question, please press star, then 2. Please note, this event is being recorded. Now I turn the conference over to Mike Schwartz, Summary of Investor Relations.

Please go ahead.

Good morning, everyone, and thank you for joining us to discuss our second quarter 2026 results for the period ended June 30th, 2026. The release and accompanying presentation were filed with the SEC and are posted on our website at stoneridge.com in the investor section under presentations and events. Joining me on today's call are the two of you. are Natalia Noble, our President and Chief Executive Officer, and Scott Humphrey, our Chief Financial Officer. Before we begin, I would like to inform you that as a result of the sale of the control devices business segment on January 30, 2026, the company has applied the provisions of this continued operations accounting guidance. guidance and has retrospectively presented the financial results of the control devices segment as discontinued operations in the accompanying presentation for all periods presented. Additionally, in connection with the retrospective presentation of control devices as discontinued operations, prior period segment information has been recast to conform to current period presentation. More information on the basis of presentation is included in the Form 10-Q, which was filed with the Securities and Exchange Commission on August 5, 2026. During today's call, we will be referring to certain non-GAAP financial measures.

Please see slide two of the presentation for a more detailed description of these non-GAAP measures and the appendix for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. In addition, certain statements today may be forward-looking. 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 on page 3 of the presentation and in our Form 10-Q, which will be filed with the Securities and Exchange Commission under the heading Forward-Looking Statements. After Natalia and Scott have finished their formal remarks, we will then open the call to questions.

And with that, I will hand the call over to Natalia. Thank you, Mike, and good morning, everyone. We are encouraged by our progress in the second quarter, and we believe that initiatives to generate operational efficiencies and enhance profitability are beginning to materialize. In addition to strengthening operational performance, we continue to advance market penetration of our innovative safety and efficiency enhancing products and technologies. While understanding that this is a journey and not a sprint, I am proud of what we accomplished during the quarter. I want to personally thank the entire StoneReach team. Without your hard work and dedication, this significant progress towards achieving our objectives would not be possible.

Before we get started, I would like to extend a warm welcome to our new Chief Financial Officer, Scott Humphrey, who joined us eight weeks ago. Scott is a high caliber addition to the StoneRidge team. Next to being a seasoned public company executive, Scott's deep financial and strategic acumen, sound leadership, and focus on delivering profitable growth will be invaluable as we execute against our long-term operational and strategic priorities. priorities, optimize the capital structure, and pursue opportunities to maximize shareholder value. Later on, Scott will offer introductory remarks and provide greater detail on second quarter financial results and full year guidance. Let's now turn to slide four. Second quarter results came in ahead of our expectations. Our revenue, excluding the impact of currency and the Mexico manufacturing agreement related to the sale of the control devices business, grew by nearly 8%.

This was the fastest rate of organic growth in over two years. We continue to see signs of stabilization and modest improvement in our European and North American commercial vehicle markets, and our portfolio of products continues to gain traction with customers. Mirorai hit another sales record in the second quarter, and we recently announced another OEM business award, this time the largest program to date for the bus and coach segment, representing $42 million estimated lifetime revenue, with full commercialization expected in 2027. Actions which we have taken to improve productivity and realign our cost structure also contributed meaningfully during the second quarter. SG&A as a percentage of sales improved 182 basis points versus last year. EBITDA increased more than six-fold, representing the highest level in eight quarters. We We remain on track to reduce operating costs by $5 million this year.

Working capital discipline was also a highlight, with cash from operations totaling just over $12 million, a 38% improvement versus last year. Each of these achievements, which Scott and I will discuss in greater detail, serves as a testament to the vision and dedication of the entire StoneRidge team and gives us greater conviction that the successful execution of our strategic objectives will place the company on a firmer path to profitable growth. Finally, we are reaffirming the full year guidance previously communicated in May. As I stated earlier, we are seeing improved commercial vehicle demand in our largest markets and our year-to-date performance through June is encouraging. growing OEM adoption of our mirror ICMS technology, cost structure enhancement, and efforts to address inflationary pressures should serve as tailwinds to our business over the remainder of the year. However, we believe it prudent to balance these positives against macroeconomic and geopolitical uncertainty in our key regions. Put simply, we will continue to control what we can control, and we are committed to executing our long-term strategic plan as we navigate the challenging external environment. Now let's turn to slide five for a review of our end markets.

Our global commercial vehicle end markets performed largely as expected, with generally flattish trends throughout the first half of the year. During the second quarter, we again outperformed the market with organic revenue growth of nearly 8% versus the prior year. This meaningfully outpaced our weighted average OEM and market, which declined nearly 2% for the quarter. As mentioned on our first quarter earnings call, we are seeing the emergence of positive signs in our commercial vehicle markets. In fact, over the past few weeks, several of our largest OEM customers have publicly commented on the strengthening order books and plans to run production throughout the second half of 2026. In Europe, we are seeing normalization in demand and expect a transition to modest growth in 2026. Demand in North America, which has gone through a deeper cyclical downturn last year, appears to have bottomed and is now showing signs of recovery driven by a strengthening tracking market.

These dynamics should favorably impact our business over the balance of the year. These trends were recently confirmed by IHS, as you can see from the charts on slide 5. IHS forecasts now suggest that our weighted average OEM and markets will grow by 5.5% year-over-year in 2026. This compares to the 1.8% rate of growth expected at the time of our first quarter call in May. For 2027, IHS is now anticipating an additional 5.4% year-over-year growth in our OEM end markets. While this is down from the 10% growth expectations for 2027 just three months ago, On an absolute volume basis, the 2027 forecast is largely unchanged. In other words, the revision to the IHS forecast appears to be influenced in part by timing of orders and deliveries favoring 2026.

In sum, although macroeconomic and geopolitical headwinds continue to persist, were incrementally positive on commercial vehicle demand into the second half of the year. Turning to slide 6, our priority is delivering outstanding value to customers while collaborating with all of our partners to advance next-generation technologies for safer and more efficient transportation. As mentioned before, we have announced a new bus and coach program with a leading global commercial vehicle manufacturer. This latest program award is a strong signal of where the industry is headed and a broader transformation underway as OEMs accelerate the shift toward digitalization and next generation technologies in several market segments. Transit operators are looking for safer, smarter, and more efficient solutions, and Mirai continues to deliver on all fronts. Just as importantly, it reflects the strength of our customer relationships and the trust we've built to create a foundation for continuous collaboration and future program opportunities. This award is also the result of the successful launch of the MirrorEye MP2 system, the latest evolution of StoneRidge's MirrorEye technology platform, specifically engineered for buses and coaches.

The AirRI MP2 integrates advanced safety capabilities, including blind spot information system and moving off information system features, along with digital video out functionality for recording and analysis. Turning to slide 7. Demand for our mirror eye technology continues to accelerate, driven by growing market acceptance, the successful launch and ramp of North American programs, and continued commercial momentum across multiple vehicle segments. Next to the truck segment, our systems are present in more than 20 bus and coach programs, accompanied by our expansion into the agriculture of highway markets. This underscores the applicability of our technology and the strength of our relationships with leading OEMs. As mentioned earlier, Mirai set yet another quarterly record with $37 million in sales during the second quarter. This represents 10% growth compared to the first quarter of 2026 and 39% year over year driven largely by our European OEM programs with continued strength in market penetration and take rates. Complementing this growth is the continued ramp up of recently launched OEM programs in North America.

As we pass through the ramp-up phase, we are focused on engineering optimization that will allow us to benefit from platform approach while adding product features at the same time. With volume increase and maturity gain, we will also see higher capacity utilization and material cost improvement through supply chain optimization. By executing those key activities, we can fully realize the value of our technology. Now I will turn the call over to Scott for second quarter financial details and the 2026 outlook.

Thank you, Natalia. Before I dive into the financials, I would like to quickly express my gratitude to the entire Stone Ridge family for their support over my first two months. During this time, I've had a chance to meet many Stoneridge teammates and stakeholders. From my conversations, the themes are abundantly clear. This is a passionate and dedicated team focused on delivering value to our customers through developing innovative solutions, improving organizational efficiency, and striving to improve the quality of our products. striving to optimize execution. The current product portfolio and future roadmap are truly exciting and demonstrate StoneRidge's mission for delivering best-in-class safety and efficiency-enhancing technologies for our customers. I am confident that this team is well-positioned to tackle the opportunities ahead for StoneRidge as we look to accelerate growth and deliver on our key strategic priorities, which will improve overall profitability. Now to the numbers. Our key financial metrics for the second quarter are summarized on slide nine.

All comparisons are depicted relative to the year-ago period ended June 30. Second quarter revenue came in at $181 million. represented growth in excess of 15% versus last year on a core basis which excludes an approximate four million dollar benefit from favorable foreign currency translation and the recognition of seven million dollars of contract manufacturing revenue under the Mexico manufacturing agreement associated with the sale of the control devices business second quarter sales grew by nearly The increase was primarily driven by the North American commercial vehicle market, supported by another record quarter of Mirai revenue and double-digit growth at Stone Ridge, Brazil. Second quarter adjusted gross profit margin declined 277 basis points versus the year ago period to 20.3%. During the quarter, we continued to make progress on our continuous improvement programs aimed at generating material cost improvements and overhead efficiencies while driving product quality improvements. However, our efforts were overshadowed by a combination of higher material expense due to currency translation losses and discrete inventory-related costs as a result of a gradual shift of our mirror eye adoption in North America from retrofit solution towards factory-built product. in order to support our recent OEM launches. Lower sales of our Smart2 tachograph product in 2026, following the completion of last year's European regulatory retrofit campaign, also weighed on gross margin percentage during the quarter. Consuming constant currency, we anticipate that these items will have a lesser impact on profitability over the balance of the year.

Second quarter adjusted operating income margin improved by 100 basis points as the higher revenue base and benefits from our cost improvement program more than offset the decline in consolidated gross profit margin. As a percentage of sales, SG&A expense declined by 182 basis points to 14.3%. To put a finer point on the progress we are making in resetting our cost structure, despite a $24 million year-over-year increase in sales during the quarter, SG&A expenses were up by less than $400,000. Adjusted Consolidated EBITDA came in at $5.5 million in the second quarter. On a continuing operations basis, this marks StoneRidge's highest quarterly adjusted EBITDA in two years. As a percentage of sales, adjusted EBITDA margin expanded $251. basis points year over year to 3%. This was largely attributable to the strong quarterly revenue performance and realized cost efficiencies described previously.

In summary, the improved top and bottom line results during the second quarter give us increased confidence that the strategy Natalia has outlined and the actions taken to date should ultimately lead to a stronger and more profitable foundation for growth in the years ahead. Turning to slide 10, second quarter sales in our electronics business came in at $160.9 million, a nearly 13% improvement versus the prior year. excluding favorable currency translation and the impact of the aforementioned Mexico Manufacturing Agreement, core segment growth was 6% year-over-year. The mirror eye was a highlight, generating a quarterly record $37 million in revenue, or a 39% increase versus the prior year. Segment-level adjusted operating margin improved 12 basis points versus the year-ago period. The increase in sales combined with cost mitigation efforts and operational efficiencies neutralized the impacts of unfavorable mix, the currency-influenced increase in materials expense, and the inventory-related costs mentioned earlier. We remain committed to improving our cost structure through a variety of ongoing initiatives, such as the optimization of material and structural costs, recovery of inflationary cost increases, and reduction of quality-related expenses. Stone Ridge, Brazil delivered an outstanding quarter, as depicted on slide 11.

Second quarter sales reached a record $20.5 million. up 38% versus the prior year. Excluding a roughly $2 million benefit from currency translation, revenue was up nearly 26%. While the second quarter benefited from a temporary competitive supply dislocation in that market, these results speak to the broader traction our Brazilian business has witnessed due to our strategic actions to realign our product lineup and expand the opportunity set with new and existing OEM customers. Brazil remains an attractive long-term growth market for StoneRidge. Second quarter adjusted operating income was approximately $2.3 million. As a percentage of sales, adjusted operating income reached 11.2%. The 464 basis point year-over-year improvement was driven by record gross profit and improved fixed cost leverage across a higher sales base.

I will next discuss the balance sheet and liquidity profile as detailed on slide 12. As of June 30, 2026, we had approximately $72 million in cash on hand and total debt outstanding of $151 million. This compares to total cash of approximately $46 million and total indebtedness of $164 million as of June 30, 2026. 30, 2025. The $39 million reduction in net debt reflects the deployment of proceeds from the sale of the control devices business in January and tighter control of working capital during the first half of the year. At the end of the second quarter, we reduced inventory on hand by approximately $5 million and lowered the electronic segment days in inventory by 15 days year over year. Capital expenditures amounted to $4.6 million in the quarter. Based on our current guidance and most recent amendments to our existing credit facility, we expect to remain in compliance with our covenant ratios and have sufficient liquidity to meet ongoing operational and capital investment needs.

As previously disclosed, in April we initiated a refinancing process to replace our existing credit facility, which matures in July 2027. Our top priority is maintaining a prudent capital structure that supports our near and longer-term growth objectives. While we do not have updates today, We have had constructive conversations with our banking partners and are on schedule to complete the refinancing process by the end of November. Now turning to 2026 guidance on slide 13. As Natalia discussed earlier on the call, based on our second quarter and first half financial results and given current visibility into the balance of the year, we are reaffirming our full year 2026 outlook. Specifically, we continue to expect revenue in a range of $645 to $670 million and adjusted EBITDA in the range of $20 to $25 million. Our implied second half 2026 guidance continues to reflect year-over-year improvement in both revenue and EBITDA. the balance of 2026 is expected to be supported by stronger commercial vehicle production volume, increased adoption of our Mirai technology, and continued momentum in Brazil.

Both third and fourth quarter revenue is expected to be modestly lower than second quarter levels, largely reflective of normal seasonality in the business, while EBITDA should improve sequentially over the balance of the year, driven by operational and overhead efficiencies and inflationary cost recovery measures. We also anticipate that product mix and strategic inventory-related costs, like those experienced in the second quarter, will be less impactful going forward. normally commentary, directional or otherwise. However, several significant OEM programs, which are expected to ramp up in early 2027, will necessitate additional investment in working capital over the balance of this year. this could create some near-term variability in the cadence of cash generation relative to historical norms. With that, I will turn it over to Natalia to provide an update on our progress against our key priorities.

Thank you, Scott. Now let's turn to slide 14. To summarize, our unwavering focus on serving commercial partners with the highest quality innovative technical solutions is as strong as ever. We remain committed to enhancing shareholder values through the combination of continued market outperformance, improved profitability, and sustainable cash flow generation. Our tangible progress on each of these fronts during the second quarter is a testament to the meaningful steps we are taking to improve execution while cultivating a culture of operational excellence, co-discipline, and cross-functional collaboration across the organization. First, our focus on advanced technology solutions and a strong customer service mindset continues to drive market outperformance. During the second quarter, organic revenue growth exceeded our weighted average OEM end markets by nearly 10 percentage points, driven by execution in our core programs, including Mirorai, and continued momentum in the Brazil OEM business. strong relationships and deep integration that we have developed with our key customers over decades has yield new business opportunities like discussed earlier on the call driven by continuous investments in technology and people and a robust backlog of differentiated innovative technologies We believe we can outpace market growth by two to three times over the long term. Next, we are making progress against our execution initiatives.

This includes the reinforcement of strong consistent practices across our processes in effort to enhance operational efficiency and product reliability. We have also intensified our focus on end-to-end quality management across the entire product lifecycle, from design and launch through sourcing, manufacturing, and field performance. This should not only result in improved margins, but also provide a robust framework for sustainable long-term performance. While second quarter gross margins were impaired by several transitory items, We're seeing directional improvement in cost of quality metrics, and our structural cost initiatives helped drive a roughly 250 basis point improvement in adjusted EBITDA versus last year. Finally, we continue to prioritize sustainable cash generation and a strong balance sheet. efforts to improve cash flow conversion through operational excellence and working capital discipline are already bringing positive results. reduced inventory on hand by $5 million year over year, and decreased net debt by nearly $40 million over the past 12 months. These accomplishments have significantly improved the capital structure and positioned the company to pursue incremental growth opportunities as they arise. Through consistent execution and by fostering a culture of accountability, creativity, collaboration and continuous improvement, We are positioning ourselves to achieve near and medium term financial objectives and putting the company on a path to more sustainable performance for years to come.

And with that, operator, you can open the line for questions. Yes, thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If any time your question has been addressed and you would like to withdraw it, please press star then two. time we will pause momentarily to assemble the roster. And the first question comes from Gary Prestapino with Barrington Research.

Hi, good morning Natalie and Scott. There's good progress here on your objectives. Number of questions. First of all, In terms of MiraEye, you've got six OEM truck programs. I'm not really sure how many more OEMs there are out there, but could you maybe just talk about – how many more are out there that you're targeting, you know, for future uptake of the product?.

Yes, hi Gary, good morning. Thank you for your question. Yes, so you know, I mean, in North America, obviously, there are four key OEM for a truck class 8 production. They are obviously smaller but those are the key ones. and then in Europe would be four to five, okay? So obviously, you know, our activities are continuously going to have as much share of market as possible. But again, I would like to here focus on the fact that, as you see here, we have 20 plus bus and coach programs and this is continued and we are expanding to off-highway application as well with some good first results.

All right, is it fair to say that with with MIRAI now in the class 8 business because I assume from your answer you have a majority of what's out there, it really becomes a question of take rates on the product going forward that's going to drive growth. Is that a fair assumption?.

Absolutely right, absolutely right. In Europe, the maturity is higher. We've been also publicly talking about the take rates around 35 to 50 percent, depending on, obviously, the model of the vehicle. And in North America, we assume that around 5 to 15 percent, depending on the customer. obviously this will this will grow for sure this will go for sure it will it as always that the technology takes time to mature but this is going to grow okay.

Okay, that's fine, I just want to clear that up. And then in terms of your expansion off highway applications, you mentioned ag, What other markets are you looking at? It just seemed to me that, you know, with heavy construction, This would also be very applicable for sight lines on.

on the equipment. Yes, thank you, Gary. Absolutely right. Absolutely right. So this is also the beauty of this technology that is applicable to different segments. We do focus on our off-highway agriculture heavy equipment segments with MirrorEye, but also with Agri. of our vision products getting also you know good traction here so absolutely this is this is one of the of the key focus of our teams.

Okay, so your teams are out there actively marketing to these new verticals.

Absolutely right. We have dedicated teams for different customer segments, both in North America and in Europe, very close to the customers, promoting, building strong relationships with all those customers.

Okay, I'll let somebody else go then. I've got further questions. I'll get back in the queue.

Thank you. Once again, please press star and then zero if you have additional questions. This concludes our question and answer session. I would like to return the conference to Natalia Noblet for any closing comments.

Thank you everyone for joining the call. I know your time is very important and as always we truly appreciate your willingness to engage us today. Thank you again and we look forward to updating you on our progress next quarter.

Thank you. The conference is now concluded. Thank you for attending today's presentation. We now disconnect your lines.

Maybe next quarter we need to tell Gary he's the only one in Q&A. He can go as long as he wants. He has 20 questions if you'd like. Yes.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Welcome to the Stoneridge First Quarter 2026 Earnings Call. [Operator Instructions] Please note this conference is being recorded.

I would now like to turn the conference over to Kelly Harvey, Director of Investor Relations. Thank you and over to you.

Good morning, everyone, and thank you for joining us to discuss our first quarter 2026 results. The release and accompanying presentation was filed with the SEC and is posted on our website at stoneridge.com in the Investors section under Presentations and Events. Joining me on today's call are Natalia Noblet, our President and Chief Executive Officer; and Bob Hartman, our Interim Chief Financial Officer.

Before we begin, I would like to inform you that as a result of the sale of its Control Devices business segment on January 30, 2026, the company has applied the provisions of discontinued operations accounting guidance and has retrospectively presented the financial results of the Control Devices segment as discontinued operations in the accompanying presentation for all periods presented. Additionally, in connection with the retrospective presentation of Control Devices as discontinued operations, prior period segment information has been recast to conform to current period presentation.

More information on the basis of presentation will be included in the Form 10-Q, which will be filed with the Securities and Exchange Commission. During today's call, we will be referring to certain non-GAAP financial measures. Please see Slide 2 of the presentation for a more detailed description of these non-GAAP measures and the appendix for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. In addition, 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 on Page 3 of the presentation and in our Form 10-Q under the heading Forward-Looking Statements. After Natalia and Bob have finished their formal remarks, we will then open up the call to questions.

And with that, I will hand the call over to Natalia.

Thank you, Kelly, and good morning, everyone. It is a privilege to speak with you today in my first earnings call as President and CEO and at a time when our industry is being fundamentally transformed with continued shift to automation and connected vehicle technologies as well as focus on advanced safety and vehicle efficiency. Our product portfolio is directly aligned with this transformation and represents significant growth opportunities.

Now turning to the first quarter. Let me begin on Page 4. This quarter marks the next phase of our long-term strategy as we advance our key priorities to drive shareholder value. We made progress through disciplined execution, improved manufacturing and quality performance, net tariff-related recoveries and organization-wide cost control. More specifically, compared to the fourth quarter of prior year, first quarter adjusted gross margin expanded by 400 basis points and adjusted operating margin improved by 180 basis points. This resulted in adjusted EBITDA of $2 million, which exceeded our previous expectations of approximately breakeven EBITDA performance.

European commercial vehicle market is at late cycle normalization and transitioning to moderate growth while North American market remains at the bottom of the production cycle with signals of recovery. Although we see the first positive signals in these end markets, macroeconomic and geopolitical headwinds continue to persist. That said, our first quarter revenue grew by 9.2% compared to the fourth quarter of prior year. This resulted in market outperformance compared to our weighted average OEM end market, which declined by 9.1% over the same period.

As previously announced, MirrorEye set another quarterly sales record generating $33 million in sales, an increase of 11% compared to the fourth quarter of 2025. Similarly, Stoneridge Brazil OEM sales continue to grow as our local business accelerates resulting in first quarter sales growth of more than 54% and our off-highway sales improved compared to the fourth quarter as well. As previously mentioned, adjusted gross margin improved by 400 basis points compared to the fourth quarter.

This demonstrates progress on our excellence in execution initiatives and in particular, company-wide quality improvements, manufacturing productivity and the recent tariff-related recoveries, including agreements with customers and the benefit of the tariff refund process. We remain committed to driving structural cost reductions by streamlining our SG&A costs to more effectively support our company's current structure and are on track with our commitment to reduce costs by at least $5 million this year.

Our priority is delivering outstanding value to customers while collaborating with all of our partners to advance next-generation technologies for safer and more efficient transportation. We are excited to announce 2 major business awards totaling approximately $135 million of estimated lifetime revenue. First, we are announcing an award for an OEM integrated MirrorEye program with our fourth North American customer. We now have OEM programs with all 4 major Class 8 truck manufacturers in North America.

Second, we are announcing a next-generation electronic controls program for a global off-highway manufacturer in Europe representing the increasing demand for integrated intelligence systems. Both of these awards highlight our ability to deliver reliable, high-performance solutions for our customers and build on our already strong backlog of growth products. I will provide more details on these awards later on the call. Additionally, we are reaffirming our base full year 2026 guidance. However, we are adjusting revenue and operating guidance ranges for the incremental impact of contract manufacturing associated with the sale of Control Devices.

Bob will discuss this guidance update in more detail later on the call. Turning to Slide 5. As just mentioned, both the European and North American commercial vehicle end markets remain at low production levels. Europe went through a downturn, but significantly milder than North America and the market is expected to normalize this year. North America, however, went through a deep downcycle and now we see early signs of recovery in trucking demand and order intake growth. At the time of our fourth quarter call, IHS production forecasts were indicating growth of 7.1% for our weighted average OEM end market.

As you can see from the chart on Slide 5, updated IHS production forecasts have now been reduced and are now indicating that our weighted average OEM end market will grow by just 1.8%. These updated forecasts are now more in line with our initial full year 2026 guidance expectation. Although we see the first signs of recovery in these end markets especially for the second half of this year, inflationary pressure and geopolitical headwinds continue to persist.

Turning to Page 6. MirrorEye continues to gain momentum driven by increasing market acceptance as well as the continued ramp-up of recently launched programs in North America. At the same time, we are executing on new business opportunities with key strategic OEM customers as evidenced by our new program announcement with the fourth major OEM in North America. As already mentioned, first quarter MirrorEye sales set yet another quarterly record with $33 million.

This represents 11% growth compared to the fourth quarter of 2025 and 32% year-over-year driven largely by our European OEM programs with continued strength in market penetration and take rates supported by our customers' focused marketing of this best-in-class innovative technology. Complementing this growth is the continued ramp-up of recently launched OEM programs in North America. While program ramp-ups remain in the early stages, we are seeing increased order strength and continue to receive positive feedback from the market.

As we pass through the ramp-up phase, we are focused on engineering optimization that will allow us to benefit from platform approach while adding product features at the same time. With volume increase and maturity gain, we will also see higher capacity utilization and material cost improvement through supply chain optimization. By executing those key activities, we can fully realize the value of our technology. In addition to strong commercial performance and as previously announced, Stoneridge has now surpassed 150,000 MirrorEye systems produced globally marking a major milestone in the systems life cycle.

This achievement reflects the growing confidence of OEM partners and fleet operators as well as Stoneridge's ability to scale production while maintaining the highest standards of quality and reliability. Reaching 150,000 systems is more than a production milestone. It's a testament to the trust our customers place in MirrorEye every day. As adoption accelerates, we remain focused on continuous innovation and production efficiency. Building on our momentum and success of the MirrorEye platform, we are excited to announce that we have been awarded the OEM integrated CMS program with yet another major North American Class 8 truck manufacturer.

As announced last year, we began offering our standard version as an option on the current heavy-duty truck model. Through continued strength of this customer relationship and the trust we have built to create a foundation for continuous collaboration, we were awarded the custom program based on our next-generation camera monitoring system. This program is expected to launch in 2028 with estimated lifetime revenue of approximately $70 million and estimated peak annual revenue of approximately $20 million.

We now have MirrorEye programs with 4 major OEMs in North America resulting in significant market share. MirrorEye and our strategy to create long-term growth for the platform is paying off with additional business awards and expansion across the global OEMs. We are deploying the resources necessary to optimize this growth platform and create long-term value for our shareholders.

Turning to Slide 7. In addition to MirrorEye, we continue to win new programs in our other key product categories. As part of our strategy to expand our electronic control business, we secured a business award for a next-generation control program with a leading global off-highway vehicle manufacturer in Europe. Replacing our current generation control, this program will deliver upgraded products for the main electronic unit on several construction equipment platforms, including wheel loaders, articulated haulers and excavators.

The program is expected to launch in the first quarter of 2028 and is projected to generate total lifetime revenue of approximately $65 million with estimated peak annual revenue of approximately $15 million. This replacement business with a long-standing strategic customer reflects our ability to consistently deliver exceptional customer service and reliable high-performance solutions to our customers. As the commercial vehicles are moving towards software-defined vehicles architecture, we are prepared to enable this transformation with our scalable ECU platform products.

We expect this award to continue to position us for future business wins. Stoneridge remains focused on consistently delivering innovative next-generation solutions that meet our customers' evolving needs.

And with that, I will turn the call over to Bob for the financial update.

Thank you, Natalia. Page 9 summarizes our key financial metrics for the first quarter of 2026 compared to the fourth quarter. Sales in the first quarter were $160.8 million, which were relatively consistent with our prior expectations. First quarter revenue grew by 9.2% compared with the fourth quarter driven by quarterly record sales for MirrorEye as well as higher sales in the Brazilian OEM business and off-highway end markets. This growth was partially offset by continued pressure in the commercial vehicle end markets.

During the quarter, we also recognized $3.8 million of revenue from contract manufacturing related to the Mexico supply agreement associated with the sale of Control Devices. Driven by execution of key company initiatives, margins continued to expand in the first quarter. Continuous improvement in manufacturing performance, including company-wide efforts to reduce quality-related costs as well as favorable net tariff-related recoveries, contributed to the 400 basis point improvement in adjusted gross margin over the fourth quarter of last year.

As a result of our continued efforts to remediate tariff-related costs incurred, we recognized a favorable net tariff benefit during the quarter resulting from both customer reimbursement agreements and IEEPA tariff refunds. First quarter adjusted operating income improved by 180 basis points relative to the fourth quarter of 2025. This was primarily driven by the gross margin improvement partially offset by higher SG&A due in part to the normalization of incentive-based compensation and higher D&D primarily driven by lower customer reimbursements.

As Natalia mentioned earlier on the call, we remain committed to the $5 million structural cost reduction target this year. First quarter adjusted EBITDA was $2 million, which was above our previous expectations of approximately breakeven performance. Excluding nonoperating income and expenses primarily related to the foreign currency impact on intercompany balances, first quarter adjusted EBITDA expanded by 170 basis points compared with the fourth quarter. In summary, during the quarter, our top line and margin expansion demonstrated solid progress towards our long-term goals.

Turning to Slide 10. As Natalia mentioned earlier on in the call, we are adjusting our full year 2026 guidance ranges to reflect the incremental impact of contract manufacturing revenue expected to be recognized this year from the Mexico supply agreement related to the sale of Control Devices. While the estimated benefit of this agreement was previously included in our adjusted EBITDA guidance as nonoperating other income net, we are updating full year revenue and operating margin guidance ranges to align with the revised revenue recognition treatment.

As such, we are updating our full year revenue guidance by $20 million. This results in full year revenue guidance of $645 million to $670 million and adjusted operating margin of approximately breakeven to 0.5%. Adjusted EBITDA guidance remains unchanged at $20 million to $25 million resulting in 3.1% to 3.7% of sales. That said, our base guidance remains unchanged supported by our solid progress to start the year. While commercial vehicle production volume forecasts are continuing to improve, macroeconomic and geopolitical volatility continues to persist.

We remain confident in our initial outlook and the meaningful progress we are making across our key initiatives. Furthermore, we also remain focused on driving organizational efficiencies and have already taken actions to reduce structural cost to better align our cost base with the company's current scale, which will position us to deliver sustainable long-term performance. As it relates to the cadence of our guidance, we are expecting second quarter revenue to be slightly above the first quarter.

We are expecting EBITDA to continue to improve in the second half of the year aligning with expected revenue growth and the ramp-up of benefits from material and structural cost improvements. This expected cadence would result in improved EBITDA in the second half of the year compared with the first half. In summary, we are still expecting revenue growth, continuous improvement in our operating performance and structural cost reductions to drive EBITDA expansion in 2026.

Page 11 summarizes our key financial metrics specific to Electronics. First quarter sales of $144.9 million were 8.7% higher than sales in the fourth quarter. Stoneridge-specific growth factors continued to offset production volume headwinds. More specifically, MirrorEye set another record for quarterly sales growing to $33 million or 11% relative to the fourth quarter of 2025. Furthermore, our sales in the European and North American off-highway end markets increased compared with the fourth quarter driven by stronger market adoption of our products.

This growth was partially offset by lower Smart 2 tachograph sales in Europe as expected due to the completion of the regulatory retrofit campaign. Also included in first quarter sales was $3.8 million of contract manufacturing revenue from the Mexico supply agreement related to the sale of the Control Devices segment. First quarter adjusted operating margin expanded by approximately 260 basis points compared with the fourth quarter of the prior year driven by higher gross margin as a result of manufacturing performance improvements, reduced quality-related costs and the favorable impact of net tariff recoveries.

The impact of contract manufacturing under the Mexico supply agreement, which began in the first quarter of 2026, was incremental to the fourth quarter. This was partially offset by higher SG&A driven by normalized incentive compensation and higher D&D costs primarily driven by lower customer reimbursements. We remain confident that Stoneridge-specific growth drivers, including MirrorEye, will drive market outperformance going forward. We will continue to focus our efforts on material cost and manufacturing performance including quality-related cost improvements to build a more efficient scalable operation that consistently delivers high quality products and results.

Page 12 summarizes our key financial metrics specific to Stoneridge Brazil. Stoneridge Brazil's first quarter sales totaled $18.1 million, which represents a $1.6 million or 9.4% growth relative to the fourth quarter of last year. This increase was driven by higher local OEM sales, which expanded 54% compared with the fourth quarter. We remain focused on expanding our local OEM business to grow our presence in Brazil and unlock opportunities with our global customers. First quarter adjusted operating income of $1.7 million or 9.5% of sales improved by 140 basis points compared with fourth quarter 2025 primarily driven by fixed cost leverage on higher sales and lower SG&A costs due to lower incentive compensation.

This was offset by unfavorable sales mix caused by a lower proportion of service fee revenue. We continue to shift our portfolio in Brazil to more closely align with our global growth initiatives and further expand our local OEM programs to support our global customers such as our second quarter launch of an audio product for a global automotive OEM. Brazil remains a critical engineering center where we utilize their local capabilities to cost effectively support our global business.

Turning to Page 13. In the first quarter, net debt improved by approximately $42 million compared to the fourth quarter as the proceeds from the sale of Control Devices were used to pay down our debt balances. We remain focused on driving strong cash flow conversion through both disciplined working capital management and capital expenditure oversight. As a result of these efforts, we reduced inventory balances by approximately $16 million year-over-year while continuing to scrutinize capital expenditures. As disclosed last quarter, we completed an amendment of our current credit facility to extend the maturity date to July 1, 2027, to allow ample time to refinance.

In April, we initiated this refinancing process to replace our existing credit facility with a capital structure that will more align with the long-term structure of the company and support future growth opportunities. We are targeting completion of the refinancing process by November of this year. Finally, based on our current EBITDA guidance and our amended covenant ratios, we expect to remain in compliance with all of our covenant ratios and have sufficient liquidity to navigate continuing volatility.

With that, I will turn it over to Natalia to provide an update on our progress against our key priorities.

Thank you, Bob. Turning to Slide 14. To summarize. In the first quarter, we advanced our key strategic priorities driven by our focus on technology-led products, excellence in execution and the strong performance culture enabling meaningful progress across shareholder value of market outperformance, margin expansion and cash flow conversion. First, our focus on advanced technology solutions continues to drive market outperformance. Our top line growth exceeded our weighted average OEM end markets by more than 15% driven by execution in our core programs, including MirrorEye, the Brazilian OEM business and off-highway products.

Furthermore, our strong customer intimacy and deep customer integration resulted in the new business awards I outlined earlier on the call. Driven by our robust backlog and differentiated innovative technologies, we expect to drive market outperformance of 2x to 3x over the long term. Second, driven by our focus on excellence in execution, we made meaningful progress towards improving margins and advancing long-term sustainable performance. We continue to reinforce strong consistent practices across our processes to enhance operational efficiency and product reliability, which in return have driven modestly lower quality-related costs compared to the fourth quarter primarily thanks to lower warranty-related costs.

As a result, first quarter gross margin expanded by 400 basis points compared to the fourth quarter of prior year. In addition to margin performance, we are focused on cash flow conversion through disciplined working capital improvement and capital allocation. We continue to prioritize cash generation and a strong balance sheet through operating performance, inventory reduction and strict capital spending. As Bob already mentioned, we have reduced our year-over-year inventory balances through working capital initiatives and have significantly reduced our net debt compared to year-end through the use of proceeds of the sale of Control Devices.

These actions have strengthened our balance sheet and strengthened our financial position going forward. As a team, we are also mobilized to mitigate arising inflationary pressures especially in semiconductor space and volume uncertainty due to the current market and geopolitical situation. By fostering a culture of accountability, creativity, collaboration and continuous improvement; we are focused to execute our plan for this and next years to come.

And with that, I will turn the call over to questions.

[Operator Instructions] As we have no questions, I would now like to turn the conference over back to Ms. Natalia Noblet for closing remarks.

Thank you for joining us for the call. I know your time is very important. And as always, we truly appreciate your willingness to engage us today. While the external environment remains dynamic with ongoing inflationary and geopolitical risks, we are focused on what we can control. We are executing with discipline, strengthening our operations and focusing to mitigate risks. We remain committed to delivering consistent performance, improving results and creating sustainable value for our shareholders. Thank you again and we look forward to updating you on our progress next quarter.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, everyone, and welcome to the Stoneridge, Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please also note today's event is being recorded. At this time, I would like to turn the floor over to 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 2025 results. The release and accompanying presentation was filed with the SEC and is posted on our website at stoneridge.com in the Investors section under Presentations and Events. Joining me on today's call are Jim Zizelman, our President and Chief Executive Officer; and Matt Horvath, our Chief Financial Officer. Also on today's call are Natalia Noblet, our President of Stoneridge Electronics and incoming Chief Executive Officer; and Bob Hartman, our Chief Accounting Officer, who will be stepping into the role of Interim Chief Financial Officer on April 1.

During today's call, we will be referring to certain non-GAAP financial measures. Please see Slide 2 of the presentation for a more detailed description of these non-GAAP measures and the appendix for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. In addition, 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 on Page 3 of the presentation and in our most recently filed Form 8-K and the 2025 Form 10-K, which will be filed in the next few business days with the Securities and Exchange Commission under the heading Forward-Looking Statements.

After our speakers have finished their formal remarks, we will then open up the call to questions. And with that, I will hand the call over to Jim.

Thank you, Kelly, and good morning, everyone. Let me begin on Page 4. In 2025, our focused growth strategy, continuous improvements on material and quality-related costs and rigorous structural cost control enabled us to successfully navigate another year marked by very challenging macroeconomic conditions. We are proud of our ability to continuously outperform our end markets even in a significantly challenged production environment while also limiting the impact on our bottom line. Our outperformance was primarily driven by continued momentum with MirrorEye, resulting in sales of over $110 million or approximately 70% growth compared to the prior year. In addition to strong performance this year, our strategy to grow the MirrorEye platform continues to pay off with additional business awards and expansion across many of our global OEMs.

Our focus on long-term growth, enabled by our advanced technology offerings drove significant new business awards in 2025. New business awards announced this year for Electronics and Stoneridge Brazil totaled approximately $830 million in estimated lifetime revenue. This included the largest business award in Stoneridge history for a global OEM MirrorEye program extension and the largest OEM program award in Stoneridge Brazil's history as well as several other significant programs for secondary displays, the SMART 2 tachograph and other electronic control products.

In 2025, we limited the impact of significant end market headwinds by reducing material costs by 80 basis points, reducing quality-related costs by $6.6 million and driving continued inventory reductions to support positive cash flow performance. Our focus on cash performance and inventory management resulted in positive free cash flow of approximately $19 million, driven by a significant improvement in inventory balances of $18.7 million. Earlier this year, we announced that we completed the sale of our Control Devices segment for a base purchase price of $59 million, reflecting an important milestone for the company's long-term strategy. As a result of this sale, Stoneridge will now focus its resources on our highest growth, highest return businesses and reduce overall organizational complexity, leading to a clear focused strategy for the company. Additionally, this transaction strengthens our balance sheet as proceeds from the sale will be used to pay down debt and reduce interest expense burden.

As part of this next chapter for Stoneridge, we are thrilled to announce that Natalia Noblet, our current President of Stoneridge Electronics, has been promoted to President and Chief Executive Officer effective April 1. Natalia will continue focusing on the strategic vision of the company by advancing the rigor and discipline we have built into our daily execution over the last several years to drive long-term sustainable performance. Later on the call, I will more formally introduce Natalia, and she will provide her perspective on the deeply embedded strategy for Stoneridge and our unshakable commitment to long-term value creation for our stakeholders.

We are proud of our accomplishments in 2025. Yet again, we successfully navigated a year of macroeconomic pressures and maintained operational discipline and focus. With the expected favorable market tailwinds ahead, a revitalized company following the divestiture of Control Devices, sustained momentum from our growth products driving continued outperformance and keen monitoring of potential headwinds such as geopolitical volatility, we are quite optimistic about the years to come.

Page 5 covers our fourth quarter financial performance and summarizes our key financial metrics for the full year 2025 compared to the prior year. While we continue to make significant progress across our key priorities in 2025, fourth quarter results did underperform our prior expectations. The Control Devices segment, which was subsequently divested in January 2026, underperformed by approximately $2 million, driven primarily by the unfavorable impact of FX and incremental tariffs. Similarly, tariffs impacted the remaining business by an incremental $1.2 million in the quarter relative to our prior expectations. While we expect to recover a significant portion, if not all, of these incremental costs, there are timing differences between when the tariffs are incurred and when the recovery is realized. We have shown historically strong performance in recouping these tariff-related costs and expect to continue to do so with those incurred at the end of the year.

Finally, during the fourth quarter, we incurred incremental quality-related costs of approximately $3.3 million relative to our prior expectations. As evidenced by our full year quality cost reduction of $6.6 million, our relentless focus on continuous improvement has been effective. That stated, we have continued to face challenges with certain legacy warranty issues culminating with settlements with key customers to bring them to conclusion. While this drove incremental costs in the quarter, it also allows us to move on from these historical issues and focus on building stronger relationships with these customers to drive growth in the future. This is why it is imperative that we remain committed to improve quality processes early in the product development cycle to prevent quality issues with long tails such as the ones we dealt with this quarter.

Now shifting to our full year performance. There is no question that 2025 presented some challenges for the broader transportation industry as production volumes declined significantly compared to the prior year and fell well below our initial expectations. Even with significantly reduced production volumes, we outperformed our weighted average OEM end markets by 150 basis points in 2025. This market outperformance was driven primarily by the substantial growth in MirrorEye sales as our OEM programs continue to mature, take rates continue to increase in Europe and new programs launched with Daimler and Volvo in North America. This resulted in MirrorEye OEM revenue growth of 84% compared to the prior year. We continue to be encouraged by the overwhelming positive response to our MirrorEye technology from our customers and their customers alike.

Later on the call, we will discuss how this strong market acceptance is expected to continue to drive substantial growth over the long term. Adjusted operating margin was significantly impacted by the decline in sales and the underlying macroeconomic pressures, including tariff-related headwinds and significantly reduced production at certain customers. However, our actions to improve material costs, manufacturing performance and quality-related costs partially mitigated this impact. Our focused efforts to reduce material-related costs resulted in an 80 basis point improvement relative to the prior year. In addition, and as indicated earlier, quality-related costs improved by $6.6 million, contributing an additional 50 basis points to operating performance as we continue to focus on built-in quality, responsiveness and a proactive process to address any historical quality issues.

Excluding other nonoperating expense of $3.6 million, primarily related to adverse foreign currency impacts, full year adjusted EBITDA was $28.6 million or 3.3% of sales. This resulted in a 60 basis point decline compared to the prior year, which reflects our success in limiting the impact of the significantly reduced production volumes faced during the year. We achieved this by our strict focus on improved operational performance, which drove a decremental contribution margin of just 14.2% versus our historical average of 25% to 30%. Finally, as I mentioned previously, our focus on cash and inventory management drove positive adjusted free cash flow of approximately $19 million. Lower contribution margin was offset by the significant improvement in our inventory balances, which declined by $18.7 million this year. Overall, despite continued and significant challenges in our end markets, we were able to outperform our weighted average end markets, significantly improve our operational performance and drive cash performance in 2025.

Turning to Page 6. Just a few weeks ago, I announced that I will be retiring effective May 20 of this year. As part of Stoneridge's long-term thoughtful succession planning strategy, the Board has prioritized leadership continuity and a smooth transition to support the company's next phase of growth. That said, I was pleased to announce that Natalia Noblet, our current President of Electronics, has been appointed as incoming President and CEO and member of the Board of Directors. I will remain as President and Chief Executive Officer through March 31. On April 1, Natalia will assume the role of President and Chief Executive Officer, and I will remain on the Board of Directors and transition into a strategic adviser role to support the transition and key stakeholder relationships through May 20. I will also be a Board nominee for election at our next annual meeting to provide continuity and support for the company.

Natalia Noblet is the right leader for this company. For nearly 2 years, Natalia has led the Electronics segment with focus and discipline, making this a natural and well-prepared transition. Natalia is a highly experienced global leader with deep roots in the commercial vehicle industry. She consistently delivers on our commitment and operational excellence while strengthening meaningful relationships with our customers. During her tenure, Natalia led the segment in securing several significant new business awards, including the largest program in company history. Her customer connections and commitment to excellence and execution demonstrate her ability to drive growth, strengthen competitive positioning and deliver measurable results. Over the course of her career, she's held various senior leadership roles within global transportation technology companies, including ZF and WABCO, where she led complex multiregional businesses with full profit and loss responsibility.

Her broad cross-functional leadership experience and proven ability to drive performance make her a natural choice to lead Stoneridge through its well-planned evolution. Natalia's appointment marks an exciting new chapter for the company. Over the next few months, we will continue to work very closely together to ensure a seamless, well-organized transfer of responsibilities. I am confident that under her leadership, Stoneridge will continue to accelerate its drive forward. Before I conclude, I'd like to take a moment to say thank you. Serving as the CEO of this company has truly been an honor. I'm incredibly proud of what we've built together, our focus, our rigor and our discipline to drive operational excellence and the establishment of a strong performance culture. To our employees, our customers, our shareholders and our other partners, thank you for your trust and your commitment. I am confident the improvements we've made are built into the company DNA, positioning it for sustainable long-term growth well beyond my tenure. Now I am proud to turn the call over to Natalia to walk us through Stoneridge's refined company strategy and position. Natalia, floor is yours.

Good morning, everyone, and thank you, Jim. I am fortunate enough to have already spent nearly 2 years with Stoneridge as President of the Electronics division and as a member of the executive staff, where I have contributed to shaping the company's next phase of disciplined, sustainable growth. I look forward to working closely with the Board of Directors, our senior leadership team and our talented dedicated global teams as we continue to execute on a strong long-term strategy focused on sustainable, profitable growth.

Now turning to Page 7. Stoneridge's strength is rooted in our global footprint with strong operations in Europe, North America and Brazil, each positioned for significant growth over the long term. Earlier this year, Stoneridge took a significant step in its long-term strategic vision by completing the sale of the Control Devices division. As Jim just mentioned, this transaction allows us to focus resources on our highest growth, highest return businesses and reduce overall organizational complexity, leading to a clear focused strategy for the company. We will continue to utilize our global footprint to serve our customers. Our strong global presence enables us to remain a preferred global supplier of industry-leading technologies to the world's leading commercial and off-highway vehicle manufacturers.

Furthermore, we will continue to leverage our global engineering footprint and technology expertise. Our global engineering capabilities remain focused and robust, aligning our technologies with key industry trends, including safety and vehicle efficiency. Brazil remains a critical engineering center that augments our global teams located in Europe and North America, and our dedicated engineering partners in India strengthen our capabilities to meet the evolving needs of our global customers. We'll continue investing in and scaling our cost-advantaged engineering presence to deepen customer partnerships. Overall, Stoneridge will continue to drive global growth and invest in the resources required to advance our capabilities within a more cost-efficient structure.

Turning to Page 8. Our portfolio is focused on advanced technologies and electronic solutions, primarily serving the global commercial vehicle and off-highway end markets. Over the past several years, the commercial vehicle industry has been undergoing a fundamental transformation with more automation and connected vehicle technologies focused on advanced safety and vehicle efficiency. Our product portfolio related to vision and safety, connectivity, vehicle intelligence and electronic controls is directly aligned with this transformation and represents significant growth opportunities.

Beginning with our vision and safety systems, we are a global leader in camera monitor and vision systems in the truck, bus and off-highway end markets. Our award-winning industry-changing MirrorEye technology replaces traditional rear and side view mirrors with external digital cameras and digital displays inside the cab of the vehicle. The best-in-class technology offers innovative features and functionality that enables the fleets to reduce operational costs while enhancing safety for everyone on the road. Our technology sets us apart from the competitors. Next to the fact that it is a significant growth driver, MirrorEye provides us with the opportunity to not only expand on our current products, but also enables a pathway to new technologies and capabilities. This includes connected trailer and 360-degree surround view suite of technologies. With focused resource deployment, we expect to further accelerate these opportunities.

Our vehicle intelligence and electronic control products include digital driver information systems and secondary displays, primarily for the commercial vehicle end market. These fully configurable displays allow customer differentiation and flexibility. They are the main source of data for a driver in the vehicle and will enable increased in-vehicle connectivity and customized solutions for future technology packages, including trailer connectivity and 360-degree surround view technologies I just mentioned. This category also includes our electronic control units that range from basic controls to highly engineered system-based products. Electronic control units will be at the center of the consolidation of existing products into complex electronic systems. Stoneridge is well positioned to take advantage of this consolidation. Furthermore, we recently announced Stoneridge Brazil's largest program in its history for an OEM infotainment controller. Through our continued delivery of high-quality products and focus on customer support, we continue to win in this market.

Finally, our connectivity portfolio includes our telematics and tachograph products as well as our digital services. We also offer end-to-end tracking solutions for logistics, cargo security and fleet management in Brazil. Our connectivity products provide streamlined solutions to efficiently monitor individual drivers and fleets, providing readily accessible data on their vehicles, allowing them to ensure compliance with legal requirements. Decades of design and manufacturing, coupled with our insight and experience allows us to remain a leading supplier of connectivity products. Our products occupy a significant amount of real estate inside the cockpit of the vehicle. As such, we plan to further integrate these complex electronic systems into a large system offering.

This will bring advanced technology to our customers to help differentiate their vehicles, improve vehicle safety and efficiency and provide opportunities for long-term profitable growth for the company. Our customers are choosing to work with us for our technology leadership and our proximity and flexibility. We are not just delivering products, systems and services, we are improving safety on the roads and reducing emissions, improving overall efficiency of the vehicles and enabling better driver comfort. Our strong product portfolio has built a substantial and growing backlog of awarded programs, and we expect to continue this momentum in the coming years.

Turning to Slide 9. As President and CEO, I will continue the strong focus on excellence in execution to sharpen our strategy and drive financial performance. As the President of our Electronics division, I played an integral role in establishing our strategy focused on sustainable long-term value creation. Therefore, our key drivers for sustainable performance remain the same: drive market outperformance, margin expansion and cash flow conversion to create long-term value for shareholders, customers and employees. To accomplish this, we must continue to deliver a strong customer value proposition and differentiation. First, we'll continue to deliver advanced technology solutions that solve critical challenges and help our customers achieve their long-term goals, whether it's improving efficiency, enhancing safety or increasing driver comfort, supported by our strong backlog of awarded business and deep customer integration, our robust technology road map will continue to create opportunities with both existing and new products to the market. As such, we expect to continue to drive market outperformance of 2 to 3x over the long term. Later in the call, I will provide further perspective on top line growth expectation through discussion of our long-term targets.

Second, we are focused on excellence in execution in everything we do. This starts with consistent delivery of our promised outcomes, whether it's to our customers, our employees or other stakeholders, we must drive disciplined execution to meet the expectations. In turn, this allows us to build trust and confidence of our customers and other stakeholders. We'll continue to embed rigor and discipline in all our processes to drive operational efficiency and continuous improvement. By investing in quality-related processes and resources, we not only improve product reliability and performance for our customers, but also reduce internal quality costs. At the same time, our robust pipeline of material and manufacturing cost reduction initiatives through smarter engineering and more efficient supply chains enhances cost efficiency. Together, these efforts lower quality, manufacturing and material-related costs, drive margin expansion and support sustainable growth. As part of this overarching driver, the executive team and I are committed to organizational cost efficiencies by streamlining corporate costs to better support our company in this current structure.

Finally, when passion, processes and priorities are aligned, a strong performance culture emerges, one that consistently drives long-term value. By fostering a culture of accountability, creativity, collaboration and continuous improvement, we drive outcomes that matter most to our customers and business. With the empowering leadership, our talent aligned with core technology strategy, a global footprint, providing flexibility and proximity, we can bring faster innovation and problem-solving strategies to better support our customers. By combining our operational levers, we will convert our strategy into measurable outcomes. We want our customers to see tangible results, our teams to feel motivated and aligned and our stakeholders to benefit from sustainable long-term value.

Later on the call, we'll provide further detail on how we will drive long-term shareholder value through market outperformance, margin expansion and cash flow conversion, both in the current year and over the long term. I am excited about the next stage of our strategy and am committed to executing on the long-term plan that Stoneridge has in place. And with that, I will turn the call over to Matt.

Thank you, Natalia. And again, congratulations on your new role. Page 11 summarizes our key financial metrics specific to Electronics and Stoneridge Brazil. For Electronics, full year sales of $551 million outperformed our weighted average OEM end markets by approximately 430 basis points. This market outperformance was driven by MirrorEye sales, which totaled $111 million in 2025, resulting in growth of $45 million or 69% compared to the prior year. This includes increasing take rates in Europe and the ramp-up of new programs for Daimler and Volvo in North America. Additionally, MirrorEye bus revenue grew by approximately 34% as our latest generation camera systems have received extremely positive market feedback. We expect continued expansion of MirrorEye as our end markets improve and our recently launched programs continue to mature.

Electronics adjusted operating income declined by 140 basis points, primarily driven by lower contribution from sales. While we were able to offset a portion of our tariff-related expenses, our adjusted operating income was also impacted by incremental tariff-related expenses of approximately $2 million. This was partially offset by material cost improvement of approximately 120 basis points and lower quality-related costs of $3.7 million compared to 2024 for the Electronics segment. Stoneridge Brazil full year sales growth of $15 million or approximately 30% was primarily driven by incremental OEM sales as our Brazilian OEM business continues to accelerate. OEM sales in Brazil set a record at $26.7 million, which approximately doubled compared to the prior year. We expect OEM sales in Brazil to continue to expand as new programs launch and we continue to win local OEM business. Full year adjusted operating income improved by $4.6 million or 660 basis points compared to the prior year, primarily driven by increased contribution from incremental sales.

As we have previously announced, this will be my final earnings call as I have accepted role outside the company. It's been a privilege to serve in this role, and I'm proud of what we've accomplished. With that, I would like to turn the call over to Bob Hartman, our Chief Accounting Officer, who will serve as the Interim Chief Financial Officer upon my resignation from the company effective March 31. Bob has over 27 years of experience at Stoneridge, including various leadership roles within Stoneridge's accounting, finance and internal audit functions. I am confident that Bob's leadership and extensive knowledge of the business, combined with the strength of our finance team, will continue to position Stoneridge for long-term success.

Thank you, Matt. I am looking forward to stepping into the role of Interim CFO, and I am confident that this team will continue to drive long-term value for our stakeholders as we transition to a more focused, leaner global company.

Turning to Slide 12. As mentioned earlier on the call, the commercial vehicle end markets created significant headwinds during 2025. This is highlighted by an almost 7% decline in our weighted average OEM end markets in 2025 compared to our initial expectations of approximately flat end market conditions. That said, in 2026, our end markets are expected to begin to recover. More specifically, the European commercial vehicle market is expected to show stabilization with potential for moderate growth after subdued demand over the last 2 years. Similarly, in North America, we expect that soft freight demand and continued capital spending discipline will persist, resulting in relatively flat first half revenues. However, we are beginning to see increasing order strength from our customers and third-party production forecasts have improved for the second half of the year.

Additionally, with EPA 2027 regulations becoming clearer, we expect a prebuy effect as the year progresses in our North American commercial vehicle market. As a result, North American OEM production is forecast to improve by 9.8% this year, while European production is forecasted to improve by 6%, resulting in expected full year 2026 weighted average end market growth of 7.1%. For 2027, current third-party production forecast suggest 6.6% growth for our weighted average OEM end markets. While we are seeing moderate improvement in production levels in the beginning of 2026, we are more importantly also receiving increasingly positive indications from customers that would align with third-party forecast, particularly in the second half of the year.

That said, turning to Slide 13. We are taking a relatively conservative approach to our revenue expectations for the year as we are assuming OEM end markets will remain flat. While third-party forecasts have indicated potential upside to this expectation, we believe continued geopolitical volatility warrants some level of conservatism. We are expecting yet another year of strong growth for our MirrorEye products. In total, we expect MirrorEye to grow by approximately $50 million to at least $160 million, which translates to approximately 45% growth compared to 2025. Of the $160 million in sales forecasted for MirrorEye, we expect approximately $140 million in OEM sales or approximately 45% growth relative to 2025. We expect continued strong improvement in take rates this year as recently launched programs continue to mature and strong customer feedback drives further adoption in both Europe and North America.

Our MirrorEye OEM programs continue to gain positive momentum from our customers' committed marketing campaigns that highlights the substantial benefits of our system, including improved safety, fuel economy and driver comfort. We are also expecting significant growth in our MirrorEye bus programs due to strong market feedback on our latest camera system. After 2 years of strong SMART 2 tachograph aftermarket sales driven by incremental regulatory requirements, we are expecting a sales decline of approximately $12 million in 2026 relative to the prior year. Overall, SMART 2 will still contribute significantly to sales in 2026 with OEM programs expecting to be flat year-over-year. As highlighted by our recent award announced in the second quarter, our SMART 2 tachograph continues to win new business in Europe. We will work with our current customers as well as prospective customers to drive continued OEM growth in this segment.

Finally, we expect the customer price reductions and continued pressures in our aftermarket and other end markets to substantially offset foreign currency tailwinds, tariff-related reimbursements and continued growth in our off-highway end markets. However, similar to our OEM end markets, recovery in off-highway vehicle production could drive upside to our guidance. In summary, based on our midpoint guidance, we are expecting revenue growth of approximately 4.2% in 2026, primarily driven by continued MirrorEye growth as our weighted average OEM end markets are assumed to be flat.

Slide 14 outlines our expectations for 2026 EBITDA in detail. We expect the revenue growth of $26 million to contribute approximately $6.5 million of EBITDA growth based on the low end of our historical contribution margin of 25% to 30% as the SMART 2 tachograph business generally drove a higher margin, and we are expecting lower sales from that product this year. As Natalia discussed earlier on the call, we are committed to driving organizational efficiencies by streamlining our corporate costs to more effectively support our company's current structure. This year, we expect a benefit of at least $5 million from these structural cost reductions. In 2027, we expect to realize additional savings as we complete our obligations under the transition services agreements from the sale of control devices.

As our markets recover and overall company performance continues to improve, we expect that our incentive compensation programs will return to target levels in 2026. This increase, in addition to merit-based wage increases is expected to drive a $6.7 million headwind year-over-year. As Natalia and Jim also mentioned earlier in the call, we remain focused on improving operating and manufacturing performance, including reducing quality-related and material costs to drive gross margin improvement. We have incorporated some incremental warranty costs in our guidance for this year as we address the few remaining legacy issues that Jim mentioned earlier on the call. Overall, we expect that our continued focus on quality during the product development process will drive fundamental improvement in the long-term quality of our product portfolio.

In summary, we are expecting revenue growth, continuous improvement in our operating performance and structural cost reductions to drive EBITDA improvement in 2026 to our midpoint EBITDA guidance of $22.5 million. As it relates to the cadence of our guidance, we are expecting a relatively muted first quarter as production volumes remain lower to start the year, resulting in approximately breakeven EBITDA in the first quarter. This assumes first quarter revenue to be slightly below the fourth quarter of 2025. Following the first quarter, we are expecting improving volumes and structural cost benefits to drive improved EBITDA in the second quarter and beyond. We are expecting EBITDA to continue to improve in the second half of the year aligned with continued revenue growth and the ramp-up of benefits from structural cost improvements. This expected cadence would result in significant EBITDA improvement in the second half of the year compared to the first half.

Turning to Page 15. As Matt mentioned earlier on the call, we continue to manage cash efficiently even as production volumes remain significantly lower than originally expected in 2025, driven primarily by inventory reductions and capital expenditure management. In 2026, we will continue to prioritize efficient cash generation as we remain focused on optimizing inventory levels to reduce working capital levels. Additionally, we will maintain disciplined oversight of our capital expenditures. Last week, we completed an amendment of our current credit facility to extend the maturity date to July 1, 2027, to allow ample time to refinance our existing credit facility and align our long-term capital structure with the structure of the company after the sale of Control Devices. Based on our current EBITDA guidance and our amended covenant ratios, we expect to remain in compliance with all of our covenant ratios and have sufficient liquidity to navigate continuing volatility. Based on our 2026 guidance, we expect a compliance ratio between 3 and 3.5x by the end of the year. With that, I will turn it back over to Natalia for detail regarding our medium- to long-term targets.

Thank you, both. Slide 17 lays out the drivers of our medium- and long-term financial targets. First, as a reminder, our weighted average end markets are expected to improve by 6.6% from 2026 to 2027, which would drive approximately $42 million of incremental revenue in 2027. In addition to a strong market, we are expecting continued expansion of our MirrorEye programs, driven primarily by the continued ramp-up of our OEM programs and improved customer take rates in both North America and Europe. Based on the third-party market forecast and our expectations for MirrorEye by 2027, we currently estimate revenue of at least $750 million in 2027, which would represent approximately 12% growth versus our midpoint expectation for 2026. We continue to focus on market outperformance and believe that incremental opportunities in both our Brazilian OEM business as well as our off-highway business could drive upside to these expectations.

Looking beyond 2027, we are expecting continued strong growth in our key product categories. In addition to market growth, we expect continued expansion in our MirrorEye programs as they mature. Similarly, we are expecting our other products to outpace market growth, including the continued adoption of camera-based safety systems in the off-highway market as well as the expansion of our connected trailer and 360-degree surround view technologies as we continue to build on our existing system and capabilities. In turn, we expect these growth drivers to result in revenue of $850 million to $1 billion by 2030, representing a 5-year compound annual growth rate of 6.8% to 10.3%. We expect that revenue growth will drive significant earnings expansion as well.

Based on our historical and expected contribution margin, we expect that our growth will improve EBITDA to at least $44 million in 2027 based on the end market growth and continued momentum with our MirrorEye programs. We'll have the ability to outperform this contribution-based target as we will continue to execute on our pipeline of material cost improvement activities, quality improvement initiatives and structural cost reductions. Similarly, based on our long-term revenue targets, we expect EBITDA growth aligned with the midpoint of our historical contribution margins of 25% to 30%. Based only on contribution from incremental revenue, we are targeting EBITDA of approximately $80 million to $120 million in 2030. Again, we will rely on our robust pipeline of material cost improvement activities and the continued focus on long-term excellence in overall execution to drive to and beyond these targets.

Stoneridge is well positioned to significantly outpace our underlying end markets even as they are forecasted to recover over the next several years and provide a tailwind to overall growth. Our industry-leading product portfolio focused on our vision and safety, connectivity and vehicle intelligence and controls products is expected to drive significant growth forward as we build on recent momentum, particularly with our MirrorEye platform. We expect that this growth will drive meaningful earnings expansion that will be amplified by excellence in execution as we continue to build on the recent success of reducing material costs, improving our quality processes and utilizing a lean global structure to optimize performance.

Turning to Page 18. In summary, with favorable market tailwinds ahead, a revitalized company following the divestiture of Control Devices, and sustained momentum from our growth products driving continued market outperformance while monitoring potential headwinds such as the geopolitical volatility, we are quite optimistic about the years to come. Under Jim's leadership, we built a strong foundation and now with our simplified company structure and focused strategy, we will continue to drive strong performance going forward. We will continue to focus on excellence in execution to drive significant earnings expansion and as a result, strong shareholder returns, both in the short and long term. Stoneridge remains well positioned to outpace our weighted average end markets, significantly expand our earnings and drive long-term shareholder value.

With that, I will open the call to questions.

And our first question today comes from Gary Prestopino from Barrington Research.

Several questions here. First of all, I think I heard you say that there's going to be legacy warranty costs related to the Control Devices business this year and possibly, I don't know for how long really. But that would assume that you did not -- when you sold the business, those warranty costs were not part of the sale and transferred to the new owners of the business. Is that correct?

Gary, actually, no, when we refer to legacy warranty questions, those were legacy warranty question for issues within our electronics products themselves. Any warranty related to Control Devices was passed with the business to the new buyer.

Okay. All right. I guess some other questions here. I just want to refer back to one of the slides where you broke out your sales footprint, okay -- your 3 markets, I think -- I believe you talked about here, and I'm talking about -- I'm referring to Slide 8, at least on my computer. You've got connectivity, vision and safety and intelligence and electronic controls. Can you give us an idea of what percentage of the revenues between electronics and Brazil make up those 3 markets?

Gary, it's Matt. Generally, yes, so you'll see 2 different breakouts. One on Slide 7 there, where you'll see revenue by region and end market. We don't break out specifically by product category. As we talked about, the Brazilian OEM business is growing pretty significantly. So you're seeing some pretty strong growth across a couple of those product categories. In Brazil, for example, the connectivity devices that we call out on Slide 8 has the track and trace business and digital services. A large portion of that is Brazil, of course. So I would say we don't break out specifically, but the connectivity business is certainly more global than the other businesses, but we are seeing some -- as we talked about OEM sales doubling in Brazil, we are seeing some increased penetration of some of those other product categories in Brazil.

And we would also say, Matt, that Gary's question about Europe versus North America, these are global customers, right? So we really do consider them as a singular customer across the globe. The purchasing teams are operating that way. And so the only real split we would say is Brazil currently about 15% of the business. Electronics business globally is 85%. That's the way -- and that's the way we deal with our customers on it as well.

Okay. So if we look at the numbers for this past year, your MirrorEye sales were up dramatically. So there had to be a dramatic downturn in the electronics business in some of these other areas. That's really a correct assumption? I mean I have to go through and work through the numbers, but it seems like if your MirrorEye sales were up $111 million, but your overall sales were down, where are you seeing the most impact across these 3 areas then?

Gary, it's Natalia. So yes, I mean, obviously, the MirrorEye platform was representing a big increase in the sales. Overall, when you look at the vehicle production and especially in North America region, but not only. So in other -- our products that we are really linking with the vehicle production, this is where the biggest downside is coming from.

So looking at commercial vehicle volumes, right, there were some months in year 2025 that set all-time record lows for actual orders placed in the commercial vehicle space. That's how weak that sector got during the course of the year. And fortunately, towards the end of the year, right, Natalia, we saw a nice uptick there in December, and we expect a lot more of that coming forward. And so do the third-party prognosticators, the ACT and IHS, they're starting to show a recovery, especially in North America on the commercial vehicle side.

Right. I've seen the first 2 months of the year that's been pretty strong. And I guess that was a lead into the next question. I mean, how are your -- how has your sales force in the market and trying to sell MirrorEye. What have they been experiencing here for the first 2 months of the year, given that truck production looks like it's starting to move up, at least I saw the North American numbers. I didn't see European.

Right. So indeed, we see first very positive signals from the -- yes, the third-party companies that are showing the orders of the trucks, Class 8 in North America, but also looking at Europe. We start seeing also first increases -- slight increases in the orders also from our customers, primarily in the second half of the year. Now we are also obviously very cautious of the overall geopolitical situation and monitoring that very, very closely. But indeed, the first positive signals are out there.

Okay. And then just one quick question, and I'll jump off. Let me understand something here with your business, especially on the telematics with everything that you're doing. You're basically selling product that allows for this telematics to happen. Are you also the backbone on the connected service side through a network and/or is your -- the products that you have, are they agnostic and able to work with any network?

Yes. So thank you for that. Indeed, I mean, especially in Brazil, but not only, right, with our track and trace business, we are quite successful in the digital services. So this is indeed the recurring revenue and the business that is completely different, let's say, from the hardware or hardware with embedded software. We do also have a certain portfolio of digital services for our link with our tachograph products as well as MirrorEye products. So -- but that is the area that we are also growing. So the strongest market here for us is Brazil at this point.

And I'm showing no additional questions at this time. I'd like to turn the floor back over to Natalia Noblet for closing remarks.

Thank you, everyone, for joining us for the call. I know your time is very important. And as always, we truly appreciate your willingness to engage with us today. We have built a strong foundation that will allow us to drive significant earnings expansion as we grow. We'll continue to deliver on our commitments by focusing on our advanced technology and excellence in execution, delivered by our talented and passionate team. We expect that our performance, along with our unique mix of industry-changing product platforms will continue to drive strong shareholder value. Thank you.

And with that, ladies and gentlemen, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.

Good morning, everyone, and welcome to the Stoneridge Business Update Webcast and Conference Call. My name is Jamie, and I will be your conference facilitator. [Operator Instructions] Please also note that the meeting today is being recorded for replay purposes.

I would now like to turn the floor over to Kelly Harvey, Stoneridge's Director of Investor Relations. Please go ahead, Ms. Harvey.

Good morning, everyone, and thank you for joining us on Stoneridge's Business Update Call regarding the sale of the Control Devices segment. Today's presentation and the press release issued this morning was filed with the SEC and is posted on our website at stoneridge.com in the Investors section under Presentations and Events. 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 today's presentation includes forward-looking statements about our expectations for Stoneridge's future performance. 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 on Page 2 of the presentation and in the press release or most recent Form 10-K, Form 10-Q and other materials we 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 Slide 3 of the presentation for a more detailed description of these non-GAAP measures.

And with that, I will hand the call over to Jim.

Thank you, Kelly. Good morning, everyone, and thank you for being with us on a relatively short notice.

Let me begin on Page 4. This morning, we are pleased to announce that we have completed our review of strategic alternatives resulting in the sale of the Control Devices segment. On January 30, we completed the sale of our Control Devices segment to Center Rock Capital Partners, a private equity investment firm for a base purchase price of $59 million. This translates to roughly 5x the expected 2025 adjusted EBITDA for Control Devices. The total consideration will include adjustments for delivered working capital as of the date of the transaction as necessary.

The agreement includes the sale of the Lexington, Ohio and Suzhou, China manufacturing facilities to Center Rock. Stoneridge will retain the Juarez, Mexico facility to support continued growth in the North American Electronics business. In order to ensure a smooth transition of ownership, we have also entered into a transition services agreement and supply agreements in Mexico and China. Stoneridge will supply parts from the Juarez facility as Center Rock prepares to manufacture independently thereafter.

Similarly, Center Rock will supply electronics parts to Stoneridge from its Suzhou, China facility as we transition our products out of that facility. Finally, Stoneridge will support Center Rock with transition services, including IT, finance and HR support for as long as 1 year during the transition period.

As I outlined in August, when we first announced our strategic review, we are seeing record-breaking business wins in several of our core growth platforms in both Electronics and in Stoneridge Brazil. This transaction will allow us to focus resources on our highest growth, highest return businesses and reduce overall organizational complexity, leading to a clear focused strategy for the company. Additionally, we intend to use the net sale proceeds to reduce our debt and related interest expense, creating immediate value for shareholders.

Similarly, we believe the sale of Control Devices will allow that business to have dedicated ownership to focus on its specific needs, invest more deeply and facilitate new growth avenues for its employees and customers. Control Devices has a proud history within Stoneridge. And over the past decade, we've made significant strides to evolve its technology portfolio, improve its operational processes and enhance its market positions. We wish the Control Devices team continued success as they continue to grow the business. We are excited about this next stage of our long-term strategy. We believe this will create significant immediate and long-term value for shareholders and position us for sustainable success.

Now turning to Page 5. Stoneridge's remaining portfolio will be focused on advanced technologies and electronic solutions, primarily for global Commercial Vehicle and Off-highway end markets. We will continue to utilize our global footprint to serve our global customers with manufacturing in North America, South America and Europe. Stoneridge will continue to serve 3 primary product categories: vision and safety, connectivity and vehicle intelligence and electronic controls, each with their own significant growth opportunities. We expect continued expansion of our vision and safety systems, including MirrorEye and adjacent products and advanced technologies through the maturity of our existing products and the introduction of new products to the market, including our connected trailer and surround view suite of technologies.

As discussed on our recent earnings calls, MirrorEye continues to expand across the world through the ramp-up of existing programs, increasing take rates and record new business awards. As the dominant leader in camera monitor systems in the commercial vehicle space globally, we have significant opportunity to not only expand on our current products and technologies, but also introduce new technologies and capabilities to advance our systems. With focused resource deployment, we expect to further accelerate these opportunities. When coupled with our full suite of products and technologies, this allows us to expand our capabilities to focus on the cockpit of the future and domain integration.

Between MirrorEye, our fully digital driver information systems, our secondary displays and our Tachograph and other connectivity devices, we develop and supply the products that drivers and fleets use to interact with the vehicle and vice versa. This will allow us to continue to integrate these complex electronic systems as a full cockpit domain and bring advanced technology to our customers to help differentiate their vehicles, improve vehicle safety and efficiency and provide opportunities for long-term profitable growth for the company.

Similarly, with our global footprint, we will be able to continue to leverage these capabilities to expand in Brazil for the South American market. As we have announced previously, we are seeing record OEM awards in Brazil, and we'll continue to grow our business there by leveraging our global relationships and industry-leading technologies. In addition, by continuing to rotate our global engineering footprint to take advantage of a more cost-effective structure, Stoneridge Brazil has become a critical engineering center for our business. And as a result, we will continue to drive global growth and invest in the resources required to advance our capabilities within a more cost-efficient structure.

As we continue to invest in these capabilities, we have generated a robust technology road map that will both enhance and expand our existing products and bring new products and technologies to the market. We expect this to drive growth that significantly outpaces our weighted average end markets, resulting in strong shareholder returns.

Now turning to Page 6. After 3 years as CEO, I am proud of what we have accomplished. As I have stated several times on this call, we are excited about this next stage in our long-term strategy. And as such, our key focus areas remain the same. We must continue to execute on our key priorities to drive long-term value for shareholders. First and foremost, as I have discussed previously, we are focused on new product development, continued momentum with our existing products and technologies and continued expansion of our products into more substantial platforms that will drive long-term sustainable growth.

In turn, we expect that these opportunities will drive significant growth over the next 5 years that will enable us to exceed our weighted average end markets by at least 2 to 3x, resulting in a 5-year compound annual growth rate of 8% to 12% through 2030. We remain focused on gross margin expansion through increased resources allocated to quality-related costs and processes. We have a robust pipeline of material cost reduction opportunities, both within the engineering of our products as well as within our supply chains, including reduced supplier complexity that we expect will accelerate with this transaction. We expect this to reduce quality-related costs and further improve material-related costs, driving gross margin expansion as we continue to grow.

We also remain focused on our operating cost structure. This transaction streamlines the remaining organization and redefines our structural cost requirements. We will continue to evaluate and optimize our organizational structure, leveraging our global footprint to maximize our capabilities and output. With a clear focus on the remaining business, we expect to be able to reduce organizational complexity and streamline our global operating structure to accelerate our existing margin expansion initiatives.

Finally, we are focused on a strong balance sheet. As discussed earlier in the call, net transaction proceeds will be utilized to pay down our existing debt. With a clear strategic plan in place and now streamlined business operations, we expect to amend our existing credit facility by the time we file our fourth quarter results in early March to give ourselves the time needed to refinance our revolving credit facility and put a capital structure in place aligned with the remaining business and our future expectations for growth. As is typical, we will provide our 2026 guidance and update our long-term targets aligned with our current business on our fourth quarter call, which will be held on Thursday, March 12.

In closing, we believe this transaction will not only create immediate value for shareholders, but will help accelerate the future opportunities for the company. With a clear strategy, strong product portfolio, focused resource deployment and streamlined operations, Stoneridge remains well positioned to drive long-term shareholder value. Control Devices has a proud history within Stoneridge. And over the past decade, we've made significant strides to evolve its technology portfolio, improve its operational processes and enhance its market positions.

I want to personally wish that team continued success as they continue to grow their business. And with that, I'll turn the call over for questions.

[Operator Instructions] Our first question today comes from Gary Prestopino from Barrington Research.

Congratulations on getting the deal done. I have several questions. First of all, you're getting $59 million. Is there any tax implications on the sale of this business that would reduce the net proceeds dramatically?

Gary, thanks for the question. Nothing -- no, nothing that would be dramatic. I mean there's -- depending on the jurisdiction of the entity that's sold, there's a little bit of tax here and there, but nothing significant, no.

Okay. So the bulk of whatever is after tax? Or is it the $59 million goes directly to pay down the debt on your balance sheet. Is that -- can we assume that?

Yes, the bulk of that would -- that's right, Gary. Yes.

Okay. And then in the sale, you didn't push any debt down in the sale to Capital Rock Partners. They just bought the business without any attached debt, right?

That's correct, yes.

Okay. So with the sale, you're keeping the Juarez, Mexico facility. And can you just remind me what -- beyond what you were doing in Control Devices, what else are you producing in Mexico at the Juarez facility? I assume there's got to be something for the Electronics segment, but I just -- I'm not too clear on that.

There's a number of products there, Gary. The 2 primary ones for electronics are the digital instrumentation systems, the instrumentation clusters for commercial vehicles as well as our North American MirrorEye product is produced in that factory.

Okay. Great. And then lastly, and I'll jump off. With the sale of this business, and I don't know if you can answer this right here and now. But if I look at 2024, your unallocated corporate was about $33 million. How much does that number get reduced on an absolute term from the sale of this business if it gets reduced at all?

Yes. So Gary, obviously, we can't talk too much about forward expectations given that we haven't given guidance yet for this fiscal year. But obviously, with the ability to streamline some of our operations here, there is certainly the opportunity to do that. And I would expect that we'll talk quite a bit more about that on our call in early March.

Yes. Okay. That's what I figured. All right, thank you very much and congratulations again.

And ladies and gentlemen, with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to Jim Zizelman for closing comments.

Well, thanks again for joining us on this morning's call on such short notice. We couldn't be more excited about the opportunities that this transaction creates for the company. With a clear strategy, strong product portfolio, focused resource deployment and streamlined operations, Stoneridge remains very well positioned to drive long-term shareholder value. Thanks again, everyone.

And with that, ladies and gentlemen, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.

Good morning, and welcome to the Stoneridge, Inc. Third Quarter 2025 Results Conference Call. [Operator Instructions] Please note that this event is being recorded.

I would now like to turn the conference over to Kelly Harvey, Director of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us to discuss our third quarter 2025 results. The release and accompanying presentation was filed with the SEC and is posted on our website at stoneridge.com in the Investors section under Presentations and Events. Joining me on today's call are Jim Zizelman, our President and Chief Executive Officer; and Matt Horvath, our Chief Financial Officer.

During today's call, we will be referring to certain non-GAAP financial measures. Please see Slide 2 of the presentation for a more detailed description of these non-GAAP measures, and the appendix for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures.

In addition, 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 on Page 3 of the presentation and in our Form 10-Q, which will be filed with the Securities and Exchange Commission, under the heading Forward-looking Statements.

After Jim and Matt have finished their formal remarks, we will then open up the call to questions. And with that, I will hand the call over to Jim.

Thanks, Kelly, and good morning, everyone. Let me begin on Page 4. In the third quarter, we made good progress across all our key operational initiatives, resulting in expanded operating margin. In addition, we continue to build on our already strong backlog by announcing an incremental $185 million of program awards and expansions, including a new award for MirrorEye and several for Control Devices. Excluding nonoperating foreign currency expenses of $2.4 million, adjusted EBITDA was $11.7 million, which represents a $3.6 million improvement over the prior quarter, driving an adjusted EBITDA margin of 5.6%, representing a 200 basis point improvement.

We continue to focus on maximizing performance through manufacturing and operating efficiencies, improvements in material and quality-related costs and prudent cost control aligned with current market dynamics. For example, our continued commitment to built-in quality and our proactive approach to addressing and resolving quality-related issues has driven a year-to-date quality-related cost improvement of approximately $5.3 million relative to the prior year. We expect to sustain and build on this momentum as our new products launch and ramp up over the next several years.

During the quarter, we were able to outpace our weighted average underlying end markets by 110 basis points through continued strong MirrorEye sales as our European programs remain strong, and our new North American launches continue to ramp up. Even with production volume headwinds across our major commercial vehicle markets, MirrorEye sales have increased by 78% year-to-date relative to last year.

In Europe, we are seeing continued strong take rates as the system expands across several vehicle platforms and as customers equip MirrorEye as standard on certain truck models, as we have previously announced. In North America, the feedback on our OEM system continues to be very favorable from both our OEM customers and the fleets. And as such, we are now expecting improved take rates relative to our prior expectations as the launches mature.

As an example of the continued momentum we are seeing across the globe, later in the call, I will be providing more detail on yet another new business win for MirrorEye on a heavy-duty truck platform with an additional OEM customer. With this award, our system has been selected by this customer as the preferred solution amongst all competitors, paving the way for future global opportunities with this OEM.

We are seeing growth across all our key products and are announcing several awards in Control Devices aligned with the evolving industry trends favoring more hybrid vehicle technologies. This includes our second leak detection module award for hybrid applications and several program extensions for our park lock actuator programs with Ford. Our focus on long-term growth, enabled by advanced technologies and alignment with industry megatrends, is driving new business awards and strong performance for our key technologies and products across all of our segments.

And as a final point, and as a follow-up to our announcement made on the last earnings call, the review of strategic alternatives for Control Devices is still in process. We will provide a further update on this process when it is appropriate to do so.

Page 5 summarizes our key financial metrics for the third quarter of 2025 compared to the second quarter. In the third quarter, we outpaced our underlying weighted average end markets by approximately 110 basis points, driven by Stoneridge-specific growth drivers. Third quarter sales declined by 7.8% compared to the second quarter as ongoing macroeconomic pressures continue to weigh on our top line performance. This sales decline was primarily driven by reduced customer production volumes in our key commercial vehicle end markets. According to the most recent third-party production forecasts, North American commercial vehicle production fell by approximately 21% quarter-to-quarter.

Similarly, in Europe, commercial vehicle production declined by approximately 9%, reflecting both market conditions and normal seasonality in the third quarter. Stronger sales in the North American passenger vehicle end markets and increased sales in China helped to partially offset the headwinds faced.

Driven by continued strong progression on key company initiatives, our core operational performance remained resilient against the external market headwinds we faced during the quarter. We continue to focus on material cost improvement actions, continuous improvement in manufacturing performance and company-wide efforts on reducing quality-related costs. Our focus on built-in quality, responsiveness and proactive processes to address quality issues has resulted in $5.3 million of improvement in quality-related costs year-to-date relative to last year. Similarly, material costs improved by 200 basis points in the quarter. And as a result, third quarter operating margin improved by 100 basis points despite an overall decline in revenue.

Third quarter adjusted EBITDA of $9.3 million or 4.4% of sales represented a $4.7 million improvement or a 240 basis point margin expansion relative to the prior quarter. Excluding the unfavorable impact of $2.4 million of nonoperating foreign currency expense, third quarter adjusted EBITDA improved to $11.7 million or 5.6% of sales, representing a $3.6 million improvement or a 200 basis point margin expansion relative to the prior quarter. And although we expect continued volatility in our end markets, we will continue to focus on the factors that we can control, to drive both margin expansion and make progress across our key initiatives this quarter and build a stronger, more resilient foundation for future earnings growth.

Turning to Page 6. MirrorEye continues to gain momentum, driven by increasing market acceptance and the ramp-up of recently launched programs in North America. At the same time, we are executing on new business opportunities with key strategic OEM customers, as evidenced last quarter by our announcement of the largest ever business award in Stoneridge history related to a MirrorEye extension.

Building on that momentum this quarter, Stoneridge has been awarded yet another MirrorEye OEM program with an additional truck manufacturer. This MirrorEye award represents another program that will contribute to our substantial growth, with approximately $55 million of estimated lifetime revenue, with an initial take rate assumption of 25% to 30%. We expect this program to launch in the first quarter of 2028. Furthermore, we expect that this award will open new doors for us around the world with this new OEM partner and expand MirrorEye's availability across our global platforms.

MirrorEye sales continue to ramp up quite strongly, resulting in year-to-date MirrorEye revenue growth of 78% over the same period of 2024. Despite continued market pressures on production volumes, customer take rates in Europe continue to be strong as our system remains standard equipment on several heavy-duty truck models and is offered as an option on many others.

In North America, our 2 recently launched OEM programs continue to ramp up, and feedback from our customers and the fleets remain extremely positive. So much so that we are already expecting higher take rates than originally planned as the programs continue to ramp. Additionally, as announced previously, the final prominent North American OEM began offering MirrorEye as an option on several heavy-duty truck models, making MirrorEye available with every single major North American OEM.

MirrorEye and our strategy to create long-term growth for the platform is paying off with additional business awards and expansion across the global OEMs. We are deploying the resources necessary to optimize this growth platform and create long-term value for our shareholders.

Now turning to Page 7. I'm excited to announce several new business wins for Control Devices for our advanced technologies and products. As our customers continue to refine their vehicle propulsion strategies and control systems, we continue to refine our products and technologies to expand in tandem with our customers.

We are excited to announce yet another award for our leak detection module on a hybrid vehicle platform with a Chinese vehicle manufacturer. As a recently introduced product technology, the LDM is a new technology designed to improve evaporative emission system performance in both hybrid and internal combustion engine-based vehicles. This award highlights the growing demand for this technology and positions Control Devices as a global supplier to new OEMs and new vehicle platforms across multiple geographies. With an anticipated start of production in the second quarter of 2026, this second award for our LDM product highlights Control Devices' continued opportunities amid the global hybrid vehicle expansion.

Similarly, as a leading provider of high-performance actuation solutions, our reputation is built on rigorous quality standards and lasting partnerships with our customers. This led to several park lock actuator program extensions and expansions awarded by Ford this quarter, with a total lifetime value of approximately $130 million and peak annual revenue of approximately $38 million. Originally set to end in 2026, these programs now extend through 2031 and include both hybrid and electric vehicle programs, such as Ford's Maverick, Transit, Kuga, Mach-E and F-150 Lightning. We are proud to support Ford as they invest in platforms that will drive future growth.

Control Devices continues to focus on bringing system-based solutions and innovative technologies to each of our end markets and customer applications. With a focus on drivetrain agnostic technologies, we remain well positioned to drive new business awards as the market continues to evolve.

With that, I'll turn it over to Matt for additional detail on our financial performance in this quarter and a discussion on the expectations for the remainder of the year. Matt?

Thanks, Jim. Turning to Page 9. Sales in the third quarter were $210 million, which were lower than our previous expectations as macroeconomic pressures persisted, negatively impacting top line performance. Sales underperformance was primarily driven by lower customer production volumes in the commercial vehicle end markets, most notably in North America, where heavy truck OEMs continue to announce cuts to their 2025 outlook. This decline was partially offset by incremental demand in Control Devices.

Third quarter adjusted operating income was $2.4 million, resulting in a 100 basis point improvement in adjusted operating margin relative to the second quarter of this year. Third quarter adjusted EBITDA was $9.3 million or 4.4% of sales. Excluding nonoperating, noncash foreign currency expense of $2.4 million related to intercompany balances, our third quarter adjusted EBITDA was $11.7 million or 5.6% of sales.

Operating performance benefited from improved material costs and reduced operating costs, partially offset by the impact of lower sales volume. Similarly, we have continued to focus on reducing quality-related costs, resulting in a $5.3 million reduction year-to-date relative to the same period last year. We continue to focus on improving the fundamental performance of the business. We are confident that these actions will drive earnings expansion as we continue to launch new programs and expand on our existing products and technologies.

Page 10 summarizes our key financial metrics specific to Control Devices. Control Devices third quarter sales of $72.5 million increased by 1.9% relative to the second quarter, primarily due to higher sales in the North American passenger vehicle end market, partially offset by lower passenger vehicle sales in China. Third quarter adjusted operating income was $1.5 million or 2.1% of sales, a 190 basis point decline relative to the second quarter. This decline was primarily due to higher overhead costs, including incremental costs related to tariffs. Although we have mitigated the overwhelming majority of incremental costs related to tariffs, we are still sharing a small percentage with our customers, primarily due to strategic customer agreements. These factors were partially offset by lower operating spend and favorable direct material costs.

Although the North American passenger vehicle market has somewhat improved, there is the potential for production volume volatility in the fourth quarter as uncertainty remains related to tariff policies and the corresponding potential impact on demand. Additionally, supply chain constraints, including the recent fire and aluminum supplier in North America, as well as potential electronic component disruptions related to Nexperia, have impacted and may continue to impact several of our customers' production.

We will continue to monitor the potential impacts of supply chain challenges and global trade policies to ensure we can react efficiently and effectively to any changes in the macroeconomic environment. We will continue to focus on the things we can control, including advanced and new product development, commercial expansion and improvement in material cost and manufacturing performance to drive margin expansion going forward.

Page 11 summarizes our key financial metrics specific to Electronics. Third quarter sales of $128 million were impacted by continued production volume reductions in our key commercial vehicle end markets. As Jim mentioned earlier on the call, North American commercial vehicle production fell by approximately 21% quarter-to-quarter, whereas European commercial vehicle production declined by approximately 9%, reflecting both market conditions and normal third quarter seasonality due to planned summer shutdowns.

Third quarter adjusted operating margin of 5.3% expanded by approximately 250 basis points relative to the second quarter, primarily driven by favorable material costs, improved quality-related costs of almost $1 million and reduced operating costs. We expect continued downward pressure in the commercial vehicle end markets for the remainder of the year.

As we've discussed previously, we expect that MirrorEye revenue growth will continue to partially offset these market declines through the ramp-up of recently launched OEM programs, increasing take rates and continued expansion in our aftermarket applications. Electronics remains well positioned to weather macroeconomic headwinds, while improving operating performance in anticipation of significant future growth based on our strong backlog of awarded programs.

Page 12 summarizes our key financial metrics, specific to Stoneridge Brazil. Stoneridge Brazil's third quarter sales totaled $18.9 million, which represents an increase of $3.6 million or 23.5% growth relative to the second quarter. This increase was driven by higher local OEM sales, which expanded by approximately 22% relative to the second quarter. Third quarter operating profit improved by $1.7 million or 790 basis points relative to the second quarter, primarily driven by the impact of higher sales. We expect stable revenue and margins in 2025 as we continue to expand our portfolio in Brazil to align with our global growth initiatives and further expand our local OEM programs. Furthermore, Brazil remains a critical engineering center, which we will continue to utilize and grow to cost-effectively support our global business.

Turning to Slide 13. We are updating our full year revenue guidance to reflect lower production volume expectations, primarily in the North American and European commercial vehicle end markets. Third-party production volume forecasts and our own customer communications and data, reflect the ongoing impacts of a volatile trade environment and reduced truck demand. Many of our key customers have cited weakened demand, coupled with market and tariff uncertainty as they've reduced Class 8 vehicle production expectations for the remainder of the year.

More specifically, IHS is now forecasting an incremental 5.3% decline in production for our weighted average end markets, which would translate to a $46 million headwind. That said, we expect that MirrorEye and other Stoneridge-specific growth drivers will offset some of the macroeconomic headwinds that we face. As such, we are offsetting the majority of the forecasted production decline and guiding to the low end of the previously provided full year revenue range of $860 million to $870 million, which represents a midpoint reduction of only $10 million or approximately 1.1%.

As it relates to adjusted EBITDA, we are updating our guidance range to $30 million to $32 million, which represents a midpoint reduction of $5 million. This adjustment reflects the $2.4 million of nonoperating foreign currency expense that we incurred in the third quarter, as we've previously discussed, as well as approximately $3 million driven by contribution margin on lower expected revenue. We will continue to improve the fundamental performance of the business and focus on the variables within our control. Most importantly, we are continuing to build a foundation for strong incremental earnings as we continue to grow and continue to outperform the market.

Turning to Page 14. We have continued to focus on cash performance and a strong balance sheet through strong operating performance, inventory reduction and prudent capital spending. In the last 12 months, we have reduced our inventory balance by $31 million, while year-to-date adjusted free cash flow has improved by $4.3 million or approximately 36% relative to last year. We will continue to focus on improving working capital and efficient capital spending to optimize our cash performance as we continue to grow.

As it relates to our current credit facility, our maturity date is now within 1 year of our third quarter filing date. Due to the ongoing strategic review process related to Control Devices, we are waiting to refinance our credit facility to ensure we align the capital structure with the overall long-term structure of the company. Additionally, we are incurring incremental costs with third-party advisers as we evaluate strategic alternatives, which are not all adjustable per the terms of our existing credit facility. We have amended our existing credit facility to extend our interest coverage ratio relief by maintaining the same ratio as this quarter, or 2.5x, through the first quarter of next year.

Should we sell Control Devices, the proceeds would be used to reduce debt and significantly improve our overall leverage ratios. Should we complete our review without a sale of the segment, we would expect to refinance the credit facility by the time we file our fourth quarter results early next year. As such, we expect to remain in compliance with all of our covenant ratios. Either through a sale of Control Devices or a refinancing of our existing credit facility, we expect to continue to have the capital and liquidity necessary to continue to invest in the business, drive growth and expand earnings going forward.

With that, I will hand the call back over to Jim for his closing remarks.

Thanks, Matt. Turning to Page 15. In summary, our third quarter performance highlights our continued progress across our key initiatives. As evidenced by the progress made so far this year, this team is laser-focused on executing on our key priorities to drive strong growth, continued margin expansion and an improved balance sheet. We will continue to focus on overall operating cost improvement and operational execution to drive strong contribution margin and focus on inventory reduction to improve our cash position and reduce our leverage profile.

We will continue to focus on addressing the things that we can control and reacting efficiently and effectively to conditions that are not in our direct control. We remain focused on building a strong foundation for continued earnings expansion as we capitalize on our impressive portfolio of advanced technologies. This is highlighted this quarter by additional business award announcements, totaling at least $185 million in lifetime revenue, including a MirrorEye award with a new customer, a second leak detection module program and a significant extension and expansion of our existing park lock actuator programs.

Stoneridge remains well positioned to continue to outperform our underlying end markets and drive margin expansion resulting in long-term customer value creation. Together, we are shaping a stronger, more focused and more successful Stoneridge.

And with that, I'll open the call to questions.

[Operator Instructions] There are currently no questions. I'll turn the call back to Jim for any closing remarks.

Well, thank you, everyone, for joining us for the call. I know your time is very important. And as always, we truly appreciate your willingness to engage us.

We are operating with an unrelenting focus on our key priorities, driving significant earnings expansions as we grow, and today's announcements regarding additional business bookings exemplify the clear effectiveness of our approach. We will continue to deliver on our commitments by focusing on quality improvements and material and manufacturing cost reductions, all while maintaining a clear focus on market dynamics and any necessary mitigating actions.

In addition, we are laser-focused on our long-term strategy, driving increased shareholder value. And in support of that, we are continuing our review of strategic alternatives for our Control Devices business. We expect that our performance, along with our unique mix of industry-changing product platforms as well as our consideration of strategic alternatives for Control Devices, will continue to drive strong shareholder value. Thank you very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.