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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended
March 31, 2024
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number:
001-13337
STONERIDGE, INC
(Exact name of registrant as specified in its charter)
Ohio 34-1598949
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
39675 MacKenzie Drive, Suite 400 48377
,
Novi
,
Michigan
(Address of principal executive offices) (Zip Code)
(
248
)
489-9300
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Shares SRI New York Stock Exchange
, without par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
x
Yes
o
No
Indicate by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T ((s)232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit such files).
x
Yes
o
No
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See definition of "large accelerated filer,"
"accelerated filer," "smaller reporting company" and "emerging growth company"
in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer Non-accelerated filer
o x o
Smaller reporting company Emerging growth company
o o
If an emerging growth company, indicate by checkmark if the registrant has
elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section
13(a) of the Exchange Act.
o
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Act).
o
Yes
x
No
The number of Common Shares, without par value, outstanding as of April 26,
2024 was
27,671,231
.
-------------------------------------------------------------------------------
Table of Contents
STONERIDGE, INC. AND SUBSIDIARIES
INDEX Page
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of 4
March 31, 2024
(Unaudited) and December 31, 202
3
Condensed Consolidated Statements of 5
Operations (Unaudited) for the Three
Months Ended
March 31
, 202
4
and 202
3
Condensed Consolidated Statements of 6
Comprehensive Loss (Unaudited) for the Three
Months Ended
March 31
, 202
4
and 202
3
Condensed Consolidated Statements 7
of Cash Flows (Unaudited) for the
Three
Months Ended
March 31
, 202
4
and 202
3
Condensed Consolidated Statements of 8
Shareholders' Equity (Unaudited) for the Three
Months Ended
March 31
, 202
4
and 202
3
Notes to Condensed Consolidated Financial Statements (Unaudited) 9
Item 2. Management's Discussion and Analysis of 22
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative 29
Disclosures About Market Risk
Item 4. Controls and Procedures 29
PART II-OTHER INFORMATION
Item 1. Legal Proceedings 30
Item 1A. Risk Factors 30
Item 2. Unregistered Sales of Equity 30
Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities 30
Item 4. Mine Safety Disclosures 30
Item 5. Other Information 30
Item 6. Exhibits 31
Signatures 32
2
-------------------------------------------------------------------------------
Table of Contents
Forward-Looking Statements
Portions of this report on Form 10-Q contain "forward-looking statements"
under the Private Securities Litigation Reform Act of 1995. These statements
appear in a number of places in this report and may include statements
regarding the intent, belief or current expectations of the Company, with
respect to, among other things, our (i) future product and facility expansion,
(ii) acquisition strategy, (iii) investments and new product development, (iv)
growth opportunities related to awarded business and (v) operational
expectations. Forward-looking statements may be identified by the words
"will," "may," "should," "designed to," "believes," "plans," "projects,"
"intends," "expects," "estimates," "anticipates," "continue," and similar
words and expressions. The forward-looking statements are subject to risks and
uncertainties that could cause actual events or results to differ materially
from those expressed in or implied by the statements. Important factors that
could cause actual results to differ materially from those in the
forward-looking statements include, among other factors:
.
the ability of our suppliers to supply us with parts and components at
competitive prices on a timely basis, including the impact of potential
tariffs and trade considerations on their operations and output;
.
fluctuations in the cost and availability of key materials (including
semiconductors, printed circuit boards, resin, aluminum, steel and copper) and
components and our ability to offset cost increases through negotiated price
increases with our customers or other cost reduction actions, as necessary;
.
global economic trends, competition and geopolitical risks, including impacts
from ongoing or potential global conflicts and any related sanctions and other
measures, or an escalation of sanctions, tariffs or other trade tensions
between the U.S. and other countries;
.
our ability to achieve cost reductions that offset or exceed customer-mandated
selling price reductions;
.
the reduced purchases, loss or bankruptcy of a major customer or supplier;
.
the costs and timing of business realignment, facility closures or similar
actions;
.
a significant change in automotive, commercial, off-highway or agricultural
vehicle production;
.
competitive market conditions and resulting effects on sales and pricing;
.
foreign currency fluctuations and our ability to manage those impacts;
.
customer acceptance of new products;
.
our ability to successfully launch/produce products for awarded business;
.
adverse changes in laws, government regulations or market conditions affecting
our products, our suppliers, or our customers' products;
.
our ability to protect our intellectual property and successfully defend
against assertions made against us;
.
liabilities arising from warranty claims, product recall or field actions,
product liability and legal proceedings to which we are or may become a party,
or the impact of product recall or field actions on our customers;
.
labor disruptions at our facilities, or at any of our significant customers or
suppliers;
.
business disruptions due to natural disasters or other disasters outside of
our control;
.
the amount of our indebtedness and the restrictive covenants contained in the
agreements governing our indebtedness, including our revolving Credit Facility;
.
capital availability or costs, including changes in interest rates;
.
the failure to achieve the successful integration of any acquired company or
business;
.
risks related to a failure of our information technology systems and networks,
and risks associated with current and emerging technology threats and damage
from computer viruses, unauthorized access, cyber-attack and other similar
disruptions; and
.
the items described in Part I, Item IA ("Risk Factors") in the Company's 2023
Form 10-K
.
The forward-looking statements contained herein represent our estimates only
as of the date of this filing and should not be relied upon as representing
our estimates as of any subsequent date. While we may elect to update these
forward-looking statements at some point in the future, we specifically
disclaim any obligation to do so, whether to reflect actual results, changes
in assumptions, changes in other factors affecting such forward-looking
statements or otherwise.
3
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Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
STONERIDGE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands) March 31, December 31,
2024 2023
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 48,440 $ 40,841
Accounts receivable, less reserves of $ 170,296 166,545
932
and $
1,058
, respectively
Inventories, net 179,891 187,758
Prepaid expenses and other current assets 32,716 34,246
Total current assets 431,343 429,390
Long-term assets:
Property, plant and equipment, net 106,170 110,126
Intangible assets, net 45,270 47,314
Goodwill 34,488 35,295
Operating lease right-of-use asset 9,552 10,795
Investments and other long-term assets, net 48,589 46,980
Total long-term assets 244,069 250,510
Total assets $ 675,412 $ 679,900
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of debt $ 2,077 $ 2,113
Accounts payable 109,222 111,925
Accrued expenses and other current liabilities 68,947 64,203
Total current liabilities 180,246 178,241
Long-term liabilities:
Revolving credit facility 194,420 189,346
Deferred income taxes 6,849 7,224
Operating lease long-term liability 6,594 7,684
Other long-term liabilities 10,047 9,688
Total long-term liabilities 217,910 213,942
Shareholders' equity:
Preferred Shares, without par value, - -
5,000
shares authorized,
none
issued
Common Shares, without par value, - -
60,000
shares authorized,
28,966
and
28,966
shares issued and
27,667
and
27,549
shares outstanding at March 31, 2024 and December 31, 2023, respectively, with no stated value
Additional paid-in capital 223,856 227,340
Common Shares held in treasury, ( (
1,299 39,386 43,344
and ) )
1,417
shares at March 31, 2024 and December 31, 2023, respectively, at cost
Retained earnings 190,383 196,509
Accumulated other comprehensive loss ( (
97,597 92,788
) )
Total shareholders' equity 277,256 287,717
Total liabilities and shareholders' equity $ 675,412 $ 679,900
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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STONERIDGE, INC
.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
March 31,
(in thousands, except per share data) 2024 2023
Net sales $ 239,157 $ 241,325
Costs and expenses:
Cost of goods sold 190,800 198,523
Selling, general and administrative 30,423 29,863
Design and development 17,603 16,968
Operating income (loss) 331 (
4,029
)
Interest expense, net 3,634 2,746
Equity in loss of investee 277 171
Other expense, net 2,036 1,148
Loss before income taxes ( (
5,616 8,094
) )
Provision (benefit) for income taxes 510 (
708
)
Net loss $ ( $ (
6,126 7,386
) )
Loss per share:
Basic $ ( $ (
0.22 0.27
) )
Diluted $ ( $ (
0.22 0.27
) )
Weighted-average shares outstanding:
Basic 27,529 27,349
Diluted 27,529 27,349
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
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STONERIDGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
Three months ended
March 31,
(in thousands) 2024 2023
Net loss $ ( $ (
6,126 7,386
) )
Other comprehensive (loss) income, net of tax:
Foreign currency translation ( 4,072
4,879
)
Unrealized gain (loss) on derivatives 70 (
(1) 232
)
Other comprehensive (loss) income, net of tax ( 3,840
4,809
)
Comprehensive loss $ ( $ (
10,935 3,546
) )
(1) Net of tax expense (benefit) of $
19
and $(
62
) for the three months ended March 31, 2024 and 2023, respectively.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
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STONERIDGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended March 31, (in thousands) 2024 2023
OPERATING ACTIVITIES:
Net loss $ ( $ (
6,126 7,386
) )
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
Depreciation 6,601 6,573
Amortization, including accretion and write-off of deferred financing costs 2,164 1,946
Deferred income taxes ( (
2,279 2,536
) )
Loss of equity method investee 277 171
Loss (gain) on sale of fixed assets 266 (
886
)
Share-based compensation expense 1,092 69
Excess tax deficiency related to share-based compensation expense 230 34
Changes in operating assets and liabilities:
Accounts receivable, net ( (
6,676 16,833
) )
Inventories, net 3,699 (
15,228
)
Prepaid expenses and other assets 1,377 1,943
Accounts payable ( 21,264
709
)
Accrued expenses and other liabilities 9,193 1,687
Net cash provided by (used for) operating activities 9,109 (
9,182
)
INVESTING ACTIVITIES:
Capital expenditures, including intangibles ( (
5,795 10,110
) )
Proceeds from sale of fixed assets 81 1,355
Net cash used for investing activities ( (
5,714 8,755
) )
FINANCING ACTIVITIES:
Revolving credit facility borrowings 30,500 8,000
Revolving credit facility payments ( (
24,500 8,568
) )
Proceeds from issuance of debt 7,798 8,148
Repayments of debt ( (
7,790 8,475
) )
Repurchase of Common Shares to satisfy employee tax withholding ( (
620 1,224
) )
Net cash provided by (used for) financing activities 5,388 (
2,119
)
Effect of exchange rate changes on cash and cash equivalents ( 423
1,184
)
Net change in cash and cash equivalents 7,599 (
19,633
)
Cash and cash equivalents at beginning of period 40,841 54,798
Cash and cash equivalents at end of period $ 48,440 $ 35,165
Supplemental disclosure of cash flow information:
Cash paid for interest, net $ 4,194 $ 2,494
Cash paid for income taxes, net $ 2,653 $ 2,611
The accompanying notes are an integral part of these condensed consolidated
financial statements.
7
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STONERIDGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(in thousands) Number of Number of Additional Common Retained Accumulated Total
Common treasury paid-in Shares held earnings other shareholders'
Shares shares capital in treasury comprehensive equity
outstanding loss
BALANCE 27,341 1,625 $ 232,758 $ ( $ 201,692 $ ( $ 280,942
50,366 103,142
) )
Net loss - - - - ( - (
7,386 7,386
) )
Unrealized loss on - - - - - ( (
derivatives, net 232 232
) )
Currency translation - - - - - 4,072 4,072
adjustments
Issuance of 234 ( - - - - -
Common Shares 234
)
Repurchased Common ( 62 - 5,649 - - 5,649
Shares for treasury, net 62
)
Share-based - - ( - - - (
compensation, net 6,802 6,802
) )
BALANCE MARCH 27,513 1,453 $ 225,956 $ ( $ 194,306 $ ( $ 276,243
31, 2023 44,717 99,302
) )
BALANCE DECEMBER 27,549 1,417 $ 227,340 $ ( $ 196,509 $ ( $ 287,717
31, 2023 43,344 92,788
) )
Net loss - - - - ( - (
6,126 6,126
) )
Unrealized gain on - - - - - 70 70
derivatives, net
Currency translation - - - - - ( (
adjustments 4,879 4,879
) )
Issuance of 154 ( - - - - -
Common Shares 154
)
Repurchased Common ( 36 - 3,958 - - 3,958
Shares for treasury, net 36
)
Share-based - - ( - - - (
compensation, net 3,484 3,484
) )
BALANCE MARCH 27,667 1,299 $ 223,856 $ ( $ 190,383 $ ( $ 277,256
31, 2024 39,386 97,597
) )
The accompanying notes are an integral part of these condensed consolidated
financial statements.
8
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STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
(1)
Basis of Presentation
The accompanying condensed consolidated financial statements have been
prepared by Stoneridge, Inc. (the "Company") without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission (the "SEC").
The information furnished in the condensed consolidated financial statements
includes normal recurring adjustments and reflects all adjustments, which are,
in the opinion of management, necessary for a fair presentation of such
financial statements. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with U.S. generally
accepted accounting principles ("U.S. GAAP") have been condensed or omitted
pursuant to the SEC's rules and regulations. The results of operations for the
three months ended March 31, 2024 are not necessarily indicative of the
results to be expected for the full year. These unaudited condensed
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and the notes thereto included in
the Company's 2023
Form 10-K
.
Reclassifications
Certain prior period amounts have been reclassified to conform to their 2024
presentation in the condensed consolidated financial statements.
(2)
Recently Issued Accounting Standards
Accounting Standards Not Yet Adopted
In November 2023, the FASB issued ASU No. 2023-07, "Segment Reporting (Topic
280) - Improvements to Reportable Segment Disclosures", which expands annual
and interim disclosure requirements for reportable segments, primarily through
enhanced disclosures about significant segment expenses. The updated standard
is effective for annual periods beginning in fiscal 2025 and interim periods
beginning in the first quarter of fiscal 2026. Early adoption is permitted. We
are currently evaluating the impact that the updated standard will have on our
financial statement disclosures.
In December 2023, the FASB issued ASU No. 2023-09, "Income Taxes (Topic 740) -
Improvements to Income Tax Disclosures," which requires companies to disclose,
on an annual basis, specific categories in the effective tax rate
reconciliation and provide additional information for reconciling items that
meet a quantitative threshold. In addition, companies are required to disclose
additional information about income taxes paid. The standard is effective for
fiscal years beginning after December 15, 2024, with early adoption permitted.
The standard is to be adopted on a prospective basis; however, retrospective
application is permitted. We are currently evaluating the impact on our annual
consolidated financial statement disclosures.
(3)
Revenue
Revenue is recognized when obligations under the terms of a contract with our
customer are satisfied; generally this occurs with the transfer of control of
our products and services, which is usually when the parts are shipped or
delivered to the customer's premises. Revenue is measured as the amount of
consideration we expect to receive in exchange for transferring goods or
providing services. The transaction price will include estimates of variable
consideration to the extent it is probable that a significant reversal of
revenue recognized will not occur. Incidental items that are not significant
in the context of the contract are recognized as expense. The expected costs
associated with our base warranties continue to be recognized as expense when
the products are sold. Customer returns only occur if products do not meet the
specifications of the contract and are not connected to any repurchase
obligations of the Company.
The Company does not have any financing components or significant payment
terms as payment occurs shortly after the point of sale. Taxes assessed by a
governmental authority that are both imposed on and concurrent with a specific
revenue-producing transaction that are collected by the Company from a
customer are excluded from revenue. Amounts billed to customers related to
shipping and handling costs are included in net sales in the condensed
consolidated statements of operations. Shipping and handling costs associated
with outbound freight after control over a product is transferred to the
customer are accounted for as a fulfillment cost and are included in cost of
sales.
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STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
Revenue by Reportable Segment
Control Devices.
Our Control Devices segment designs and manufactures products that monitor,
measure or activate specific functions within a vehicle. This segment includes
product lines such as actuators, sensors, switches and connectors. We sell
these products principally to the automotive market in the North American and
Asia Pacific regions. To a lesser extent, we also sell these products to the
commercial vehicle and agricultural markets in the North American and Asia
Pacific regions. Our customers included in these markets primarily consist of
original equipment manufacturers ("OEM") and companies supplying components
directly to the OEMs ("Tier 1 supplier").
Electronics.
Our Electronics segment designs and manufactures driver information systems,
vision and safety systems, connectivity and compliance products and electronic
control units. These products are sold principally to the commercial vehicle
market primarily through our OEM and aftermarket channels in the European,
North American and Asia Pacific regions. The vision and safety systems are
sold principally to the commercial vehicle and off-highway vehicle markets in
the European and North American regions.
Stoneridge Brazil.
Our Stoneridge Brazil segment primarily serves the South American region and
specializes in the design, manufacture and sale of vehicle tracking devices
and monitoring services, vehicle security alarms and convenience accessories,
in-vehicle audio and infotainment devices, driver information systems and
telematics solutions. Stoneridge Brazil sells its products through the
aftermarket distribution channel, to factory authorized dealer installers,
also referred to as original equipment services and directly to OEMs. In
addition, monitoring services and tracking devices are sold directly to
corporate customers and individual consumers.
The following tables disaggregate our revenue by reportable segment and
geographical location
(1)
for the three months ended March 31, 2024 and 2023:
Control Devices Electronics Stoneridge Brazil Consolidated
Three months 2024 2023 2024 2023 2024 2023 2024 2023
ended
March 31,
Net Sales:
North $ 65,822 $ 75,681 $ 52,294 $ 48,045 $ - $ - $ 118,116 $ 123,726
America
South America - - - - 12,216 14,256 12,216 14,256
Europe - - 96,374 87,246 - - 96,374 87,246
Asia Pacific 11,336 10,261 1,115 5,836 - - 12,451 16,097
Total $ 77,158 $ 85,942 $ 149,783 $ 141,127 $ 12,216 $ 14,256 $ 239,157 $ 241,325
net
sales
_______________________
(1)
Company sales based on geographic location are where the sale originates not
where the customer is located.
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STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
Performance Obligations
For OEM and Tier 1 supplier customers, the Company typically enters into
contracts to provide serial production parts that consist of a set of
documents including, but not limited to, an award letter, master purchase
agreement and master terms and conditions. For each production product, the
Company enters into separate purchase orders that contain the product
specifications and an agreed-upon price. The performance obligation does not
exist until a customer release is received for a specific number of parts. The
majority of the parts sold to OEM and Tier 1 supplier customers are customized
to the specific customer, with the exception of camera monitoring systems
("CMS") sold through our aftermarket channel that are common across all
customers. The transaction price is equal to the contracted price per part and
there is no expectation of material variable consideration in the transaction
price. For most customer contracts, the Company does not have an enforceable
right to payment at any time prior to when the parts are shipped or delivered
to the customer; therefore, the Company recognizes revenue at the point in
time it satisfies a performance obligation by transferring control of a part
to the customer. Certain customer contracts contain an enforceable right to
payment if the customer terminates the contract for convenience and therefore
are recognized over time using the cost to complete input method.
Our aftermarket products are focused on meeting the demand for safety,
compliance and entertainment applications. Including products, accessories and
replacement parts and are sold primarily to aftermarket distributors in our
South American and European markets, as well as direct to aftermarket
customers in North America. Aftermarket products have one type of performance
obligation which is the delivery of aftermarket parts and spare parts. For
aftermarket customers, the Company typically has standard terms and conditions
for all customers. In addition, aftermarket products have alternative use as
they can be sold to multiple customers. Revenue for aftermarket part
production contracts is recognized at a point in time when the control of the
parts transfers to the customer which is based on the shipping terms.
Aftermarket contracts may include variable consideration related to discounts
and rebates which is included in the transaction price upon recognizing the
product revenue.
A small portion of the Company's sales are comprised of monitoring services
that include both monitoring devices and fees to individual, corporate, fleet
and cargo customers in our Stoneridge Brazil segment. These monitoring service
contracts are generally not capable of being distinct and are accounted for as
a single performance obligation. We recognize revenue for our monitoring
products and services contracts over the life of the contract. There is no
variable consideration associated with these contracts. The Company has the
right to consideration from a customer in the amount that corresponds directly
with the value to the customer of the Company's performance to date.
Therefore, the Company recognizes revenue over time using the practical
expedient ASC 606-10-55-18 in the amount the Company has a "right to invoice"
rather than selecting an output or input method.
Contract Balances
The Company had
no
material contract assets, contract liabilities or capitalized contract
acquisition costs as of March 31, 2024 and December 31, 2023.
(4)
Inventories
Inventories are valued at the lower of cost (using either the first-in,
first-out ("FIFO") or average cost methods) or net realizable value. The
Company evaluates and adjusts as necessary its excess and obsolescence reserve
on a quarterly basis. Excess inventories are quantities of items that exceed
anticipated sales or usage for a reasonable period. The Company has guidelines
for calculating provisions for excess inventories based on the number of
months of inventories on hand compared to anticipated sales or usage.
Management uses its judgment to forecast sales or usage and to determine what
constitutes a reasonable period. Inventory cost includes material, labor and
overhead.
Inventories consist of the following:
March 31, December 31,
2024 2023
Raw materials $ 135,150 $ 142,744
Work-in-progress 9,843 11,907
Finished goods 34,898 33,107
Total inventories, net $ 179,891 $ 187,758
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STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
Inventory valued using the FIFO method was $
168,094
and $
176,033
at March 31, 2024 and December 31, 2023, respectively. Inventory valued using
the average cost method was $
11,797
and $
11,725
at March 31, 2024 and December 31, 2023, respectively.
(5)
Financial Instruments and Fair Value Measurements
Financial Instruments
A financial instrument is cash or a contract that imposes an obligation to
deliver or conveys a right to receive cash or another financial instrument.
The carrying values of cash and cash equivalents, accounts receivable and
accounts payable are considered to be representative of fair value because of
the short maturity of these instruments. The fair value of debt approximates
the carrying value of debt, due to the variable interest rate on our Credit
Facility and the maturity of the remaining outstanding debt.
Derivative Instruments and Hedging Activities
On March 31, 2024, the Company had open Mexican peso-denominated foreign
currency forward contracts. The Company used foreign currency forward
contracts solely for hedging and not for speculative purposes during 2024 and
2023. Management believes that its use of these instruments to reduce risk is
in the Company's best interest. The counterparties to these financial
instruments are financial institutions with investment grade credit ratings.
Foreign Currency Exchange Rate Risk
Foreign currency transactions are remeasured into the functional currency
using translation rates in effect at the time of the transaction with the
resulting adjustments included on the condensed consolidated statements of
operations within other expense, net. These foreign currency transaction
losses, including the impact of hedging activities, were $
1,944
and $
1,102
for the three months ended March 31, 2024 and 2023, respectively.
The Company conducts business internationally and, therefore, is exposed to
foreign currency exchange rate risk. The Company uses derivative financial
instruments as cash flow hedges and used net investment hedges to manage its
exposure to fluctuations in foreign currency exchange rates by reducing the
effect of such fluctuations on foreign currency denominated intercompany
transactions, inventory purchases and other foreign currency exposures.
Cash Flow Hedges
The Company entered into foreign currency forward contracts to hedge the
Mexican peso currency in 2024 and 2023. These forward contracts were executed
to hedge forecasted transactions and have been accounted for as cash flow
hedges. As such, gains and losses on derivatives qualifying as cash flow
hedges are recorded in accumulated other comprehensive loss, to the extent
that hedges are effective, until the underlying transactions are recognized in
earnings. Unrealized amounts in accumulated other comprehensive loss fluctuate
based on changes in the fair value of hedge derivative contracts at each
reporting period. The cash flow hedges were highly effective. The
effectiveness of the transactions was measured using regression analysis and
forecasted future purchases of the currency.
In certain instances, the foreign currency forward contracts may not qualify
for hedge accounting or are not designated as hedges and, therefore, are
marked-to-market with gains and losses recognized in the Company's condensed
consolidated statements of operations as a component of other expense, net.
During 2023 and 2022, all of the Company's foreign currency forward contracts
were designated as cash flow hedges.
The Company's foreign currency forward contracts offset a portion of the gains
and losses on the underlying foreign currency denominated transactions as
follows:
Mexican peso-denominated Foreign Currency Forward Contracts - Cash Flow Hedges
The Company holds Mexican peso-denominated foreign currency forward contracts
with a notional amount at March 31, 2024 of $
16,878
which expire ratably on a monthly basis from
April 2024 to December 2024
. The notional amounts at December 31, 2023 related to Mexican peso-denominated
foreign currency forward contracts was $
26,613
.
The Company evaluated the effectiveness of the Mexican peso and U.S.
dollar-denominated forward contracts held as of March 31, 2024 and concluded
that the hedges were highly effective.
12
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STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
Interest Rate Risk
Interest Rate Risk - Cash Flow Hedge
On February 18, 2020, the Company entered into a floating-to-fixed interest
rate swap agreement (the "Swap") with a notional amount of $
50,000
to hedge its exposure to interest payment fluctuations on a portion of its
Credit Facility borrowings. The Swap matured on March 10, 2023. The Swap was
designated as a cash flow hedge of the variable interest rate obligation under
the Company's
Fourth Amended and Restated Credit Agreement, as amended,
(the "Fourth Amended and Restated Credit Agreement"). Accordingly, the change
in fair value of the Swap was recognized in accumulated other comprehensive
loss. The Swap agreement required monthly settlements on the same days that the
Fourth Amended and Restated Credit Agreement
interest payments were due and had a maturity date of March 10, 2023, which
was prior to the
Fourth Amended and Restated Credit Agreement
maturity date of June 5, 2024. Under the Swap terms, the Company paid a fixed
interest rate and received a floating interest rate based on the one-month
LIBOR, with a floor. The critical terms of the Swap were aligned with the
terms of the
Fourth Amended and Restated Credit Agreement
, resulting in no hedge ineffectiveness. The difference between amounts to be
received and paid under the Swap were recognized as a component of interest
expense, net on the consolidated statements of operations. The Swap
settlements reduced interest expense, net by $
290
for the three months ended March 31, 2023.
The notional amounts and fair values of derivative instruments in the
condensed consolidated balance sheets were as follows:
Notional amounts Prepaid expenses
(A) and other current assets
March 31, December 31, March 31, December 31,
2024 2023 2024 2023
Derivatives designated as hedging instruments:
Cash flow hedges:
Forward currency contracts $ 16,878 $ 26,613 $ 1,947 $ 1,858
_____________________________
(A)
Notional amounts represent the gross contract of the derivatives outstanding
in U.S. dollars.
Gross amounts recorded for the cash flow hedges in other comprehensive loss
and in net loss for the three months ended March 31 were as follows:
Gain recorded in other Gain reclassified from
comprehensive loss other comprehensive
loss into net loss
(A)
2024 2023 2024 2023
Derivatives designated as cash flow hedges:
Forward currency contracts $ 654 $ - $ 743 $ -
Interest rate swap $ - $ ( $ - $ 290
4
)
_____________________________
(A) Gains reclassified from other comprehensive loss into net loss recognized in selling, general and
administrative expenses ("SG&A") in the Company's condensed consolidated statements of operations were $
117
and $
0
for the three months ended March 31, 2024 and 2023, respectively. Gains reclassified from other comprehensive loss into net
loss recognized in cost of goods sold ("COGS") in the Company's condensed consolidated statements of operations were $
537
and $
0
for the three months ended March 31, 2024 and 2023, respectively. Gains reclassified from other comprehensive loss into
net loss recognized in interest expense, net in the Company's condensed consolidated statements of operations were
$
0
and $
290
for the three months ended March 31, 2024 and 2023, respectively.
13
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STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
Cash flows from derivatives used to manage foreign currency exchange and
interest rate risks are classified as operating activities within the
condensed consolidated statements of cash flows.
Fair Value Measurements
Certain assets and liabilities held by the Company are measured at fair value
on a recurring basis and are categorized using the three levels of the fair
value hierarchy based on the reliability of the inputs used. Fair values
estimated using Level 1 inputs consist of quoted prices in active markets for
identical assets or liabilities that the Company has the ability to access at
the measurement date. Fair values estimated using Level 2 inputs, other than
quoted prices, are observable for the asset or liability, either directly or
indirectly and include among other things, quoted prices for similar assets or
liabilities in markets that are active or inactive as well as inputs other
than quoted prices that are observable. For forward currency and cross-currency
contracts, inputs include forward foreign currency exchange rates. For the
interest rate swap, inputs included LIBOR. Fair values estimated using Level 3
inputs consist of significant unobservable inputs.
The following table presents our assets and liabilities that are measured at
fair value on a recurring basis and are categorized using the three levels of
the fair value hierarchy based on the reliability of inputs used.
March 31, December 31,
2024 2023
Fair values estimated using
Fair Level 1 Level 2 Level 3 Fair
value inputs inputs inputs value
Financial assets carried at fair value:
Forward currency contracts $ 1,947 $ - $ 1,947 $ - $ 1,858
Total financial assets carried at fair value $ 1,947 $ - $ 1,947 $ - $ 1,858
There were no transfers in or out of Level 3 from other levels in the fair
value hierarchy for the three months ended March 31, 2024.
(6)
Share-Based Compensation
Compensation expense for share-based compensation arrangements, which is
recognized in the condensed consolidated statements of operations as a
component of SG&A expense, was $
1,092
and $
69
for the three months ended March 31, 2024 and 2023, respectively. The three
months ended March 31, 2023 included income from the forfeiture of certain
grants associated with employee resignations.
(7)
Debt
Debt consisted of the following at March 31, 2024 and December 31, 2023:
March 31, December 31, Interest rates at March 31, 2024 Maturity
2024 2023
Revolving Credit Facility
Revolving Credit Facility $ 194,420 $ 189,346 8.01 % November 2026
Debt
Sweden short-term credit line - -
Suzhou short-term credit line 2,077 2,113 3.25 % August 2024
Total debt 2,077 2,113
Less: current portion ( (
2,077 2,113
) )
Total long-term debt, net $ - $ -
14
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STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
Revolving Credit Facility
On June 5, 2019, the Company entered into the Fourth Amended and Restated
Credit Agreement. The Fourth Amended and Restated Credit Agreement provided
for a $
300,000
senior secured revolving credit facility.
As a result of entering into the Fourth Amended and Restated Credit Agreement
and related amendments, the Company capitalized
$
332
of deferred financing costs during the year ended December 31, 2023.
On November 2, 2023, the Company entered into the Fifth Amended and Restated
Credit Agreement (the "Credit Facility"). The Credit Facility provides for a $
275,000
senior secured revolving credit facility and it replaced and superseded the
Fourth Amended and Restated Credit Agreement. The Credit Facility has an
accordion feature which allows the Company to increase the availability by up
to $
150,000
upon the satisfaction of certain conditions, including the consent of lenders
providing the increase in commitments and also includes a letter of credit
subfacility, swing line subfacility and multicurrency subfacility. The Credit
Facility has a termination date of November 2, 2026. Borrowings under the
Credit Facility bear interest at either the Base Rate or the SOFR rate, at the
Company's option, plus the applicable margin as set forth in the Credit
Facility. The Credit Facility contains certain financial covenants that
require the Company to maintain less than a maximum leverage ratio and more
than a minimum interest coverage ratio.
As a result of entering into the Fifth Amended and Restated Credit Agreement,
the Company capitalized $
1,915
of deferred financing costs and wrote off $
309
of previously recorded deferred financing costs during the year ended December
31, 2023.
The Credit Facility contains customary affirmative covenants and representations
. The Credit Facility also contains customary negative covenants, which, among
other things, are subject to certain exceptions, including restrictions on (i)
indebtedness, (ii) liens, (iii) liquidations, mergers, consolidations and
acquisitions, (iv) disposition of assets or subsidiaries, (v) affiliate
transactions, (vi) continuation of or change in business, (vii) restricted
payments, (viii) restrictions in agreements on dividends, intercompany loans
and granting liens on the collateral, (ix) loans and investments and (x)
changes in organizational documents and fiscal year. The Credit Facility
contains customary events of default, subject to customary thresholds and
exceptions, including, among other things, (i) non-payment of principal and
non-payment of interest and fees, (ii) a material inaccuracy of a
representation or warranty at the time made, (iii) a failure to comply with
any covenant, subject to customary grace periods in the case of certain
affirmative covenants, (iv) cross default of other debt, final judgments and
other adverse orders in excess of $
30,000
, (v) any loan document shall cease to be a legal, valid and binding
agreement, (vi) certain uninsured losses or proceedings against assets with a
value in excess of $
30,000
, (vii) ERISA events, (viii) a change of control, or (ix) bankruptcy or
insolvency proceedings.
Borrowings outstanding on the Credit Facility were $
194,420
and $
189,346
at March 31, 2024 and December 31, 2023, respectively.
The Company was in compliance with all Credit Facility covenants at March 31,
2024 and December 31, 2023.
The Company also has outstanding letters of credit of
$
1,586
at both March 31, 2024 and December 31, 2023.
Debt
The Company's wholly owned subsidiary located in Stockholm, Sweden (the
"Stockholm subsidiary"), has an overdraft credit line that allows overdrafts
on the subsidiary's bank account up to a daily maximum level of
20,000
Swedish krona, or $
1,878
and $
1,987
, at March 31, 2024 and December 31, 2023, respectively. At March 31, 2024 and
December 31, 2023, there were
no
borrowings outstanding on this overdraft credit line. During the three months
ended March 31, 2024, the subsidiary borrowed and repaid
80,988
Swedish krona, or $
7,604
. The Stockholm subsidiary has pledged certain of its assets as collateral in
order to obtain a guarantee of certain of the Stockholm subsidiary's
obligations to third parties.
15
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STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
The Company's wholly owned subsidiary located in Suzhou, China (the "Suzhou
subsidiary"), has lines of credit (the "Suzhou credit line") that allow up to
a maximum borrowing level of
20,000
Chinese yuan, or $
2,770
and $
2,818
at March 31, 2024 and December 31, 2023, respectively. At March 31, 2024 and
December 31, 2023 there was $
2,077
and $
2,113
, respectively, in borrowings outstanding on the Suzhou credit line with a
weighted-average interest rate of
3.25
%. The Suzhou credit line was included on the condensed consolidated balance
sheet within current portion of debt. In addition, the Suzhou subsidiary has a
bank acceptance draft line of credit which facilitates the extension of trade
payable payment terms by
180
days. The bank acceptance draft line of credit allows up to a maximum
borrowing level of
60,000
Chinese yuan, or $
8,310
and $
8,453
at March 31, 2024 and December 31, 2023, respectively. There was $
2,149
and $
2,387
utilized on the Suzhou bank acceptance draft line of credit at March 31, 2024
and December 31, 2023, respectively. The Suzhou bank acceptance draft line of
credit is included on the condensed consolidated balance sheet within accounts
payable.
(8)
Loss Per Share
Basic loss per share was computed by dividing net loss by the weighted-average
number of Common Shares outstanding for each respective period. Diluted loss
per share was calculated by dividing net income by the weighted-average of all
potentially dilutive Common Shares that were outstanding during the periods
presented. However, for all periods in which the Company recognized a net
loss, the Company did not recognize the effect of the potential dilutive
securities as their inclusion would be anti-dilutive. Potential dilutive
shares of
298,592
and
292,860
for the three months ended March 31, 2024 and 2023, respectively, were
excluded from diluted loss per share because the effect would be anti-dilutive.
Weighted-average Common Shares outstanding used in calculating basic and
diluted earnings per share were as follows:
Three months ended
March 31,
2024 2023
Basic weighted-average Common Shares outstanding 27,528,831 27,349,357
Effect of dilutive shares - -
Diluted weighted-average Common Shares outstanding 27,528,831 27,349,357
There were
660,124
and
521,304
performance-based right to receive Common Shares outstanding at March 31, 2024
and 2023, respectively. The right to receive Common Shares are included in the
computation of diluted earnings per share based on the number of Common Shares
that would be issuable if the end of the quarter were the end of the
performance period.
(9)
Accumulated Other Comprehensive (Loss) Income
Changes in accumulated other comprehensive (loss) income for the three months
ended March 31, 2024 and 2023 were as follows:
Foreign Unrealized Total
currency gain (loss)
translation on derivatives
Balance at January 1, 2024 $ ( $ 1,468 $ (
94,256 92,788
) )
Other comprehensive (loss) income before reclassifications ( 587 (
4,879 4,292
) )
Amounts reclassified from accumulated other comprehensive loss - ( (
517 517
) )
Net other comprehensive (loss) income, net of tax ( 70 (
4,879 4,809
) )
Balance at March 31, 2024 $ ( $ 1,538 $ (
99,135 97,597
) )
Balance at January 1, 2023 $ ( $ 232 $ (
103,374 103,142
) )
Other comprehensive income (loss) before reclassifications 4,072 ( 4,069
3
)
Amounts reclassified from accumulated other comprehensive loss - ( (
229 229
) )
Net other comprehensive income (loss), net of tax 4,072 ( 3,840
232
)
Balance at March 31, 2023 $ ( $ - $ (
99,302 99,302
) )
16
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STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
(10)
Commitments and Contingencies
From time to time, we are subject to various legal actions and claims
incidental to our business, including those arising out of breach of
contracts, product warranties, product liability, patent infringement,
regulatory matters and employment-related matters. The Company establishes
accruals for matters which it believes that losses are probable and can be
reasonably estimated. Although it is not possible to predict with certainty
the outcome of these matters, the Company is of the opinion that the ultimate
resolution of these matters will not have a material adverse effect on its
consolidated results of operations or financial position.
As a result of environmental studies performed at the Company's former
facility located in Sarasota, Florida, the Company became aware of soil and
groundwater contamination at the site. The Company engaged an environmental
engineering consultant to assess the level of contamination and to develop a
remediation and monitoring plan for the site. Soil remediation at the site was
completed during the year ended December 31, 2010. A remedial action plan was
approved by the Florida Department of Environmental Protection and groundwater
remediation began in the fourth quarter of 2015. During the three months ended
March 31, 2024 and 2023, the Company did
not
recognize any expense related to groundwater remediation. At March 31, 2024
and December 31, 2023, the Company accrued $
142
and $
143
, respectively, related to expected future remediation costs. At March 31,
2024 and December 31, 2023, $
142
and $
136
, respectively, were recorded as a component of accrued expenses and other
current liabilities in the condensed consolidated balance sheets while the
remaining amount as of December 31, 2023 was recorded as a component of other
long-term liabilities. Costs associated with the recorded liability will be
incurred to complete the groundwater remediation and monitoring. The recorded
liability is based on assumptions in the remedial action plan as well as
estimates for future remediation activities. Although the Company sold the
Sarasota facility and related property in December 2011, the liability to
remediate the site contamination remains the responsibility of the Company.
Due to the ongoing site remediation, the Company is currently required to
maintain a $
1,489
letter of credit for the benefit of the buyer.
The Company's Stoneridge Brazil subsidiary has civil, labor and other tax
contingencies (excluding income tax) for which the likelihood of loss is
deemed to be reasonably possible, but not probable, by the Company's legal
advisors in Brazil. As a result, no provision has been recorded with respect
to these contingencies, which amounted to R$
40,755
($
8,158
) and R$
41,681
($
8,609
) at March 31, 2024 and December 31, 2023, respectively. An unfavorable
outcome on these contingencies could result in significant cost to the Company
and adversely affect its results of operations and cash flows.
On August 12, 2020, the Brazilian Administrative Counsel for Economic Defense
("CADE") issued a ruling against Stoneridge Brazil for abuse of dominance and
market foreclosure through its prior use of exclusivity provisions in
agreements with its distributors. The CADE tribunal imposed a R$
7,995
($
1,600
) fine which is included in the reasonably possible contingencies noted above.
The Company continues to challenge this ruling in Brazilian federal court to
reverse this decision by the CADE tribunal.
Long Term Supply Commitment
In 2022, the Company entered into a long term supply agreement, as amended,
with a supplier for the purchase of certain electronic semiconductor
components through December 31, 2027. Pursuant to the agreement, the Company
paid capacity deposits of $
1,000
in December 2022 and June 2023, respectively. The capacity deposits are
recognized in prepaid and other current assets on our condensed consolidated
balance sheet. This long term supply agreement requires the Company to
purchase minimum annual volumes while requiring the supplier to sell these
components at a fixed price. The Company purchased $
196
and $
665
of these components during the three months ended March 31, 2024 and 2023,
respectively. The Company is required to purchase $
3,914
, $
10,764
, $
10,764
and $
3,914
of these components in each of the years 2024 through 2027, respectively.
17
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STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
Product Warranty and Recall
Amounts accrued for product warranty and recall claims are established based
on the Company's best estimate of the amounts necessary to settle existing and
future claims on products sold as of the balance sheet dates. These accruals
are based on several factors including past experience, production changes,
industry developments and various other considerations. Our estimate is based
on historical trends of units sold and claim payment amounts, combined with
our current understanding of the status of existing claims, forecasts of the
resolution of existing claims, expected future claims on products sold and
commercial discussions with our customers. The key factors in our estimate are
the warranty period and the customer source. The Company can provide no
assurances that it will not experience material claims or that it will not
incur significant costs to defend or settle such claims beyond the amounts
accrued. The current portion of the product warranty and recall reserve is
included as a component of accrued expenses and other current liabilities on
the condensed consolidated balance sheets. Product warranty and recall reserve
included $
7,414
and $
7,228
of a long-term liability at March 31, 2024 and December 31, 2023,
respectively, which is included as a component of other long-term liabilities
on the condensed consolidated balance sheets.
During the second quarter of 2023, the Company received a demand for
arbitration from one of our customers seeking recovery for warranty claims
related to past sales of PM sensor products, a product line we exited in 2019.
In March 2024, pursuant to the arbitration process, the customer submitted a
formal statement of claim notification for
29,340
euro ($
31,557
) as of March 31, 2024. Based on our review of the technical merits and
specific claims as well as prior discussions with the customer, we believe
these claims lack merit and are significantly overstated. While no assurances
can be made as to the ultimate outcome of this matter, or any other future
claims, we do not currently believe a material loss is probable.
The following provides a reconciliation of changes in product warranty and
recall reserve liability:
Three months ended March 31, 2024 2023
Product warranty and recall reserve at beginning of period $ 21,610 $ 13,477
Accruals for warranties established during period 5,398 4,329
Aggregate changes in pre-existing liabilities due to claim developments 283 141
Settlements made during the period ( (
3,217 2,025
) )
Foreign currency translation ( 66
692
)
Product warranty and recall reserve at end of period $ 23,382 $ 15,988
(11)
Business Realignment and Restructuring
The Company regularly evaluates the performance of its businesses and cost
structures, including personnel, and makes necessary changes thereto in order
to optimize its results. The Company also evaluates the required skill sets of
its personnel and periodically makes strategic changes. As a consequence of
these actions, the Company incurs severance related costs that are referred to
as business realignment charges.
Business realignment charges incurred by reportable segment were as follows:
Three months ended
March 31,
2024 2023
Electronics - 309
(A)
Unallocated Corporate - 953
(B)
Total business realignment charges $ - $ 1,262
_____________________________________
(A) Severance costs for the three months ended March 31, 2023 related to COGS and SG&A were $
175
and $
134
, respectively.
(B) Employee separation related costs for the three months ended March 31, 2023 related to SG&A were $
953
.
18
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STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
Business realignment charges incurred, classified by statement of operations
line item were as follows:
Three months ended
March 31,
2024 2023
Cost of goods sold $ - $ 175
Selling, general and administrative - 1,087
Total business realignment charges $ - $ 1,262
(12)
Income Taxes
For interim tax reporting, we estimate our annual effective tax rate and apply
it to our year to date ordinary income. Tax jurisdictions with a projected or
year to date loss for which a benefit cannot be realized are excluded.
For the three months ended March 31, 2024, income tax expense of $
510
was attributable to the mix of earnings among tax jurisdictions as well as
U.S. taxes on foreign earnings, offset by tax losses for which no benefit is
recognized due to valuation allowances in certain jurisdictions and tax
credits and incentives. The effective tax rate of (
9.1
)% varies from the statutory rate primarily due to U.S. taxes on foreign
earnings offset by the impact of tax losses for which no benefit is recognized
due to valuation allowances in certain jurisdictions and tax credits and
incentives.
For the three months ended March 31, 2023, income tax benefit of $(
708
) was attributable to the mix of earnings among tax jurisdictions as well as
tax losses for which no benefit is recognized due to valuation allowances in
certain jurisdictions. The effective tax rate of
8.7
% varies from the statutory rate primarily due to U.S. taxes on foreign
earnings and non-deductible expenses offset by the impact of tax losses for
which no benefit is recognized due to valuation allowances in certain
jurisdictions and tax credits and incentives.
The OECD (Organisation for Economic Co-operation and Development) implemented
a 15% global corporate minimum tax (Pillar Two) to ensure that large
multinational enterprises pay a minimum level of tax in the countries they
operate. During 2023, many countries took steps to incorporate Pillar Two into
their domestic laws. In 2024, we do not expect a material change to our income
tax provision in connection with Pillar Two. As additional jurisdictions
implement this legislation, our effective tax rate and cash tax payments could
increase in future years.
(13)
Segment Reporting
Operating segments are defined as components of an enterprise that are
evaluated regularly by the Company's chief operating decision maker in
deciding how to allocate resources and in assessing performance. The Company's
chief operating decision maker is the Chief Executive Officer.
The Company has
three
reportable segments, Control Devices, Electronics and Stoneridge Brazil, which
also represent its operating segments. The Control Devices reportable segment
produces actuators, sensors, switches and connectors. The Electronics
reportable segment produces driver information systems, vision and safety
systems, connectivity and compliance products and electronic control units.
The Stoneridge Brazil reportable segment designs and manufactures vehicle
tracking devices and monitoring services, vehicle security alarms and
convenience accessories, in-vehicle audio and infotainment devices, driver
information systems and telematics solutions.
The accounting policies of the Company's reportable segments are the same as
those described in Note 2, "Summary of Significant Accounting Policies" of the
Company's 2023
Form 10-K
. The Company's management evaluates the performance of its reportable
segments based primarily on revenues from external customers, capital
expenditures and operating income. Inter-segment sales are accounted for on
terms similar to those to third parties and are eliminated upon consolidation.
The financial information presented below is for our
three
reportable operating segments and includes adjustments for unallocated
corporate costs and intercompany eliminations, where applicable. Such costs
and eliminations do not meet the requirements for being classified as an
operating segment. Corporate costs include various support functions, such as
accounting/finance, executive administration, human resources, information
technology and legal.
19
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STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
A summary of financial information by reportable segment is as follows:
Three months ended
March 31,
2024 2023
Net Sales:
Control Devices $ 77,158 $ 85,942
Inter-segment sales 831 734
Control Devices net sales 77,989 86,676
Electronics 149,783 141,127
Inter-segment sales 6,341 8,516
Electronics net sales 156,124 149,643
Stoneridge Brazil 12,216 14,256
Inter-segment sales - -
Stoneridge Brazil net sales 12,216 14,256
Eliminations ( (
7,172 9,250
) )
Total net sales $ 239,157 $ 241,325
Operating Income (Loss):
Control Devices $ 2,164 $ 2,087
Electronics 7,089 1,400
Stoneridge Brazil 204 1,343
Unallocated Corporate ( (
(A) 9,126 8,859
) )
Total operating income (loss) $ 331 $ (
4,029
)
Depreciation and Amortization:
Control Devices $ 2,863 $ 3,174
Electronics 3,861 3,464
Stoneridge Brazil 1,276 1,085
Unallocated Corporate 584 602
Total depreciation and amortization $ 8,584 $ 8,325
(B)
Interest Expense (Income), net:
Control Devices $ - $ 18
Electronics 603 485
Stoneridge Brazil ( (
370 270
) )
Unallocated Corporate 3,401 2,513
Total interest expense, net $ 3,634 $ 2,746
Capital Expenditures:
Control Devices $ 1,517 $ 1,956
Electronics 1,377 6,207
Stoneridge Brazil 940 636
Unallocated Corporate 434 112
(C)
Total capital expenditures $ 4,268 $ 8,911
20
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STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
March 31, December 31,
2024 2023
Total Assets:
Control Devices $ 156,424 $ 159,612
Electronics 407,326 404,994
Stoneridge Brazil 59,782 66,318
Corporate 422,257 419,469
(C)
Eliminations ( (
370,377 370,493
) )
Total assets $ 675,412 $ 679,900
The following tables present net sales and long-term assets for each of the
geographic areas in which the Company operates:
Three months ended
March 31,
2024 2023
Net Sales:
North America $ 118,116 $ 123,726
South America 12,216 14,256
Europe and Other 108,825 103,343
Total net sales $ 239,157 $ 241,325
March 31, December 31,
2024 2023
Long-term Assets:
North America $ 93,228 $ 92,419
South America 31,253 32,679
Europe and Other 119,588 125,412
Total long-term assets $ 244,069 $ 250,510
__________________________________________________________
(A)
Unallocated Corporate expenses include, among other items, accounting/finance,
human resources, information technology and legal costs as well as share-based
compensation.
(B)
These amounts represent depreciation and amortization on property, plant and
equipment and certain intangible assets.
(C)
Assets located at Corporate consist primarily of cash, intercompany loan
receivables, fixed assets for the corporate headquarter building, leased
assets, information technology assets, equity investments and investments in
subsidiaries.
(14)
Investments
In December 2018, the Company entered into an agreement to make a $
10,000
investment in a fund ("Autotech Fund II") managed by Autotech Ventures
("Autotech"), a venture capital firm focused on ground transportation
technology which is accounted for under the equity method of accounting. The
Company's $
10,000
investment in the Autotech Fund II will be contributed over the expected
ten-year
life of the fund. The Company has contributed $
8,400
to the Autotech Fund II as of March 31, 2024. The Company did not contribute
to or receive distributions from Autotech Fund II during the three months
ended March 31, 2024 or 2023. The Company has a
6.6
% interest in Autotech Fund II. The Company recognized losses of $
277
and $
171
during the three months ended March 31, 2024 and 2023, respectively. The
Autotech Fund II investment recorded in investments and other long-term assets
in the condensed consolidated balance sheets was $
8,195
and $
8,472
as of March 31, 2024 and December 31, 2023, respectively.
21
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Table of Contents
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
We are a global designer and manufacturer of highly engineered electrical and
electronic systems, components and modules primarily for the automotive,
commercial, off-highway and agricultural vehicle markets.
The following discussion and analysis should be read in conjunction with the
condensed consolidated financial statements and notes related thereto and
other financial information included elsewhere herein.
Segments
We are organized by products produced and markets served. Under this
structure, our operations have been reported using the following segments:
Control Devices.
This segment includes results of operations that manufacture actuators,
sensors, switches and connectors.
Electronics.
This segment includes results of operations from the production of driver
information systems, vision and safety systems, connectivity and compliance
products and electronic control units.
Stoneridge Brazil.
This segment includes results of operations that design and manufacture
vehicle tracking devices and monitoring services, vehicle security alarms and
convenience accessories, in-vehicle audio and infotainment devices, driver
information systems and telematics solutions.
First Quarter Overview
During the first quarter of 2024, we benefited from increased volumes in both
our North American and European commercial vehicle markets, compared to the
prior year quarter, due to improvements in end market demand and the continued
ramp-up of recently launched programs including for our MirrorEye(R) camera
monitoring system and our SE 5000 Smart 2 tachograph.
The Company had net loss of $6.1 million, or $(0.22) per diluted share, for
the three months ended March 31, 2024.
Net loss for the quarter ended March 31, 2024 improved by $1.3 million, or
$0.05 per diluted share, from net loss of $7.4 million, or $(0.27) per diluted
share, for the three months ended March 31, 2023. Net loss improved due to
contribution from higher sales partially offset by increased selling, general
and administrative expenses ("SG&A") and design and development ("D&D")
spending, higher interest costs, the incremental unfavorable impact of
non-operating foreign currency losses and an increase in the provision for
income taxes. Net sales decreased by $2.2 million, or 0.9%, primarily from
lower volumes in our North American automotive market for Control Devices and
lower required electronic component spot buy purchases in our Electronics
segment, partially offset by higher volumes in our Electronics segment
commercial vehicle market.
Our Control Devices segment net sales decreased by 10.2% compared to the first
quarter of 2023 primarily as a result of decreases in our North American
automotive market. The decrease in our North American automotive market was
primarily due to the expected wind down of end-of-life programs and reduced
demand for electric vehicles impacting actuation product revenue during the
quarter. These decreases were offset by increases in our China commercial
vehicle and automotive markets.
Segment gross margin as a percentage of sales increased due to favorable mix
resulting in lower direct material costs. Segment operating income increased
due to higher gross margin and slightly lower D&D and SG&A spending, partially
offset by the gain on sale of disposed assets recognized in the first quarter
of 2023.
Our Electronics segment net sales increased by 6.1% compared to the first
quarter of 2023 primarily due to higher sales volumes in our European and
North American commercial vehicle markets, including our recently launched SE
5000 Smart 2 tachograph, as well as an increase in our North American
off-highway vehicle market. These increases were offset by relatively less
spot buy purchases, which are material purchases reimbursed by customers and
recorded as both revenue and offsetting material cost. As such, spot buy
purchases do not impact gross profit. In addition, we experienced lower sales
volumes in our European off-highway vehicle market. Segment gross margin as a
percent of sales increased primarily due to higher contribution from higher
sales levels, a reduction in material purchase variances, including the effect
of foreign currency, and the impact of lower required electronic component
spot buy purchases offset by an increase in overhead costs. Operating income
for the segment increased compared to the first quarter of 2023 primarily due
to higher gross margin offset by higher SG&A and D&D spending, including
support for new product launches.
Our Stoneridge Brazil segment net sales decreased by 14.3% compared to the
first quarter of 2023 primarily due to lower sales in local OEM products, as a
result of one-time revenue opportunities recognized in the first quarter of
2023 which were not expected to recur in 2024. Operating income decreased due
to lower gross margin from lower sales contribution.
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In the first quarter of 2024, SG&A expenses increased by $0.6 million compared
to the first quarter of 2023 primarily due to the 2023 gain on sale of fixed
assets of $0.8 million.
In the first quarter of 2024, D&D costs increased by $0.6 million compared to
the prior year first quarter due to incremental engineering spending primarily
related to product launches and lower customer reimbursements offset by
increased capitalized software development costs.
At March 31, 2024 and December 31, 2023, we had cash and cash equivalents
balances of $48.4 million and $40.8 million, respectively, and we had $194.4
million and $189.3 million, respectively, in borrowings outstanding on our
Credit Facility. The 2024 increase in cash and cash equivalents was mostly due
to cash generated from operating activities, including the reduction of
inventory levels.
Outlook
The Company believes that focusing on products that address industry
megatrends has had and will continue to have a positive effect on both our
top-line growth and underlying margins. For example, the Company is aligned
with platforms likely to perform well against overall market dynamics
including light-trucks, SUVs and crossover vehicles and our continued focus on
safety, vehicle intelligence and connectivity based products, such as the
recent release of our next generation tachograph in Europe as well as current
and future launches of our MirrorEye programs in North America and Europe for
both OEM and aftermarket applications.
Material and production cost inflation has begun to moderate, however we
expect continued cost inflation to persist throughout 2024 which will continue
to put pressure on margins. In order to minimize the impact of these
incremental costs, we have taken several actions, including negotiating price
increases and cost recoveries with our customers. Additionally, we continued
to focus on improving manufacturing performance and optimizing our global cost
structure to both reduce costs and improve operational efficiency. We expect
these actions will benefit our current and future financial performance.
Based on IHS Market production forecasts, the North American automotive market
is expected to increase from 15.6 million units in 2023 to 16.0 million units
in 2024 as this market continues to recover from economic headwinds. In our
Control Devices segment, we expect lower than previously anticipated growth
rates for sales of products used in electric vehicle platforms due to reduced
production expectations with some of our key customers. We continue to focus
on improved manufacturing execution, supply chain strategy, material cost
improvement actions and enterprise-wide cost improvement plans and will
continue to react to changes in our end-markets as needed to maintain and
improve our margins. During 2024, our Control Devices segment has incurred
$0.7 million of support costs for a troubled supplier. We expect these costs
to moderate for the remainder of 2024. We will continue to focus on growing
our core product portfolio aligned with industry megatrends by investing in
our actuation and system-level sensor products as we anticipate greater
opportunities as powertrains become increasingly electrified and efficient.
In 2024, our European and North American commercial vehicle end market volumes
are forecasted to decrease 10.5% and 7.6%, respectively. We expect our
Electronics' segment sales to outperform forecasted changes in production
volumes due to strong demand for our existing products and the ramp-up of
recently launched programs, including our next generation tachograph product
in Europe for both OEM and aftermarket applications and our first North
American OEM MirrorEye program, as well as expected program launches,
including our next OEM MirrorEye program launch in Europe in 2024. Based on
European regulatory requirements and the competitive landscape for our
tachograph product, we expect significant growth over the next several years.
We continue to work with all of our OEM customers, their dealer networks and
the fleets to drive MirrorEye adoption. We expect continued growth as we
launch new OEM programs, increase take rates for existing OEM programs and
continue to expand our fleet activities. Recovery from customers related to
spot buys of materials purchased by the Company on behalf of those customers,
which is recognized as revenue and material costs, increased net sales by
$14.6 million
for the full year 2023. As a result of supply chains normalizing and material
availability improving, the Company did not incur any spot buy material
purchases in the first quarter 2024 and does not expect to incur additional
spot buy material purchases.
In 2024, we expect net D&D spend to increase modestly driven by spend for the
development of next generation products as we expect new product launch
related spend to decrease in the second half of 2024. As a result of reduced
launch activities we expect lower customer reimbursements and capitalization
of software development costs. We continue to evaluate and optimize our
engineering footprint to enhance capabilities and capacity for the most
efficient return on our engineering spend.
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In April 2024, the International Monetary Fund forecasted the Brazil gross
domestic product to grow 2.2
% in 2024.
We expect our served market channels to remain relatively stable in 2024 based
on current market conditions. Stoneridge Brazil will focus on continuing to
grow our OEM capabilities in-region to better support our global customers.
This focus will provide opportunities for future growth and provide a platform
to continue to rotate our local portfolio to more closely align with our
global business.
We remain focused on improving cash generation and the reduction of debt
through efficient operating performance and targeted actions to reduce net
working capital, particularly our inventory levels, as the impacts from
product launches and material availability normalizes.
We expect higher interest expense in 2024 driven by higher outstanding
balances on our Credit Facility.
Our future effective tax rate depends on various factors, such as changes in
tax laws, regulations, accounting principles and our jurisdictional mix of
earnings. We monitor these factors and the impact on our effective tax rate.
Other Matters
A significant portion of our sales are outside of the United States. These
sales are generated by our non-U.S. based operations, and therefore, movements
in foreign currency exchange rates can have a significant effect on our
results of operations, which are presented in U.S. dollars. A significant
portion of our raw materials purchased by our Electronics and Stoneridge
Brazil segments are denominated in U.S. dollars, and therefore movements in
foreign currency exchange rates can also have a significant effect on our
results of operations. The U.S. Dollar strengthened against the euro, Swedish
krona, Chinese yuan, Brazilian real and Argentine peso in 2024 and the
Argentine peso in 2023, unfavorably impacting our reported results.
We regularly evaluate the performance of our businesses and their cost
structures, including personnel, and make necessary changes thereto in order
to optimize our results. We also evaluate the required skill sets of our
personnel and periodically make strategic changes. As a consequence of these
actions, we incur severance and resignation related costs that we refer to as
business realignment charges. No business realignment costs were incurred
during the three months ended March 31, 2024. Business realignment costs of
$1.3 million were incurred during the three months ended March 31, 2023.
Because of the competitive nature of the markets we serve, we face pricing
pressures from our customers in the ordinary course of business. In response
to these pricing pressures we have been able to effectively manage our
production costs by the combination of lowering certain costs and limiting the
increase of others, the net impact of which to date has not been material.
However, if we are unable to effectively manage production costs in the future
to mitigate future pricing pressures, our results of operations would be
adversely affected.
Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023
Condensed consolidated statements of operations as a percentage of net sales
are presented in the following table (in thousands):
Three months ended March 31, 2024 2023 Dollar
increase
(decrease)
Net sales $ 239,157 100.0 % $ 241,325 100.0 % $ (2,168)
Costs and expenses:
Cost of goods sold 190,800 79.8 198,523 82.3 (7,723)
Selling, general and administrative 30,423 12.7 29,863 12.4 560
Design and development 17,603 7.4 16,968 7.0 635
Operating income (loss) 331 0.1 (4,029) (1.7) 4,360
Interest expense, net 3,634 1.5 2,746 1.1 888
Equity in loss of investee 277 0.1 171 0.1 106
Other expense, net 2,036 0.9 1,148 0.5 888
Loss before income taxes (5,616) (2.3) (8,094) (3.4) 2,478
Provision (benefit) for income taxes 510 0.2 (708) (0.3) 1,218
Net loss $ (6,126) (2.6) % $ (7,386) (3.1) % $ 1,260
24
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Net Sales.
Net sales for our reportable segments, excluding inter-segment sales, are
summarized in the following table (in thousands):
Three months ended March 31, 2024 2023 Dollar Percent
increase increase
Control Devices $ 77,158 32.3 % $ 85,942 35.6 % $ (8,784) (10.2) %
Electronics 149,783 62.6 141,127 58.5 8,656 6.1 %
Stoneridge Brazil 12,216 5.1 14,256 5.9 (2,040) (14.3) %
Total net sales $ 239,157 100.0 % $ 241,325 100.0 % $ (2,168) (0.9) %
Our Control Devices segment net sales decreased $8.8 million due to a decrease
in our North American automotive market of $12.6 million. The decrease in our
North American automotive market was primarily due to the expected wind down
of end-of-life programs and reduced demand for electric vehicles impacting
actuation product revenue during the quarter. These decreases were offset by
increases in our China commercial vehicle and automotive markets of $0.9
million and $0.6 million, respectively, as well as an increase in other
markets of $3.0 million. In addition, first quarter of 2024 net sales were
adversely impacted by an increase in unfavorable foreign currency translation
of $0.5 million.
Our Electronics segment net sales increased $8.7 million due to higher
production volumes in our European and North American commercial vehicle
markets of $11.8 million and $5.0 million, respectively, including sales
related to the launch of a next generation tachograph for our European
markets, as well as an increase in our North American off-highway vehicle
market of $1.5 million. These increases were offset by the impact of lower
required electronic component spot buy purchases of
$9.1
million in the first quarter of 2024 compared to the first quarter of 2023. In
addition, we experienced lower sales volumes in our European off-highway
vehicle markets of $1.1 million and a net reduction in pricing actions of $1.1
million. First quarter of 2024 net sales were favorably impacted by euro and
Swedish krona foreign currency translation of $0.6 million compared to the
prior year quarter.
Our Stoneridge Brazil segment net sales decreased $2.0 million due to lower
sales in local OEM products as well as slightly lower sales in the monitoring
service and aftermarket products. This decrease was offset by favorable
foreign currency translation and slightly
higher sales demand for our other product lines
.
Net sales by geographic location are summarized in the following table (in
thousands):
Three months ended March 31, 2024 2023 Dollar Percent
increase increase
North America $ 118,116 49.4 % $ 123,726 51.3 % $ (5,610) (4.5) %
South America 12,216 5.1 14,256 5.9 (2,040) (14.3) %
Europe and Other 108,825 45.5 103,343 42.8 5,482 5.3 %
Total net sales $ 239,157 100.0 % $ 241,325 100.0 % $ (2,168) (0.9) %
The decrease in North American net sales was mostly attributable to a decrease
in sales volume in our automotive and agricultural markets of $12.5 million
and $1.1 million, respectively, and a decrease in negotiated price increases
of $1.9 million as well as decreased customer recoveries of electronic
component spot buys of $1.5 million. These decreases were offset by higher
sales in our commercial vehicle and off-highway markets of $6.9 million and
$4.5 million, respectively.
The decrease in net sales in South America was primarily due to lower sales in
local OEM products as well as slightly lower sales in the monitoring service
and aftermarket products. This decrease was offset by favorable foreign
currency translation and slightly
higher sales demand for our other product lines
.
The increase in net sales in Europe and Other was due to an increase in our
European commercial vehicle and automotive markets of $11.9 million and $1.8
million, respectively, as wells as increases in our China commercial vehicle
and automotive markets of $1.2 million and $0.6 million, respectively. These
increases were offset by decreased customer recoveries of electronic component
spot buys of $7.4 million, decreases in our European off-highway market of
$1.1 million and a decrease in negotiated price increases of $1.3 million.
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Cost of Goods Sold and Gross Margin
.
Cost of goods sold decreased compared to the first quarter of 2023 and our
gross margin increased from 17.7% in the first quarter of 2023 to 20.2% in the
first quarter of 2024. Our material cost as a percentage of net sales
decreased to 58.9% in the first quarter of 2024 from 62.6
%
in the first quarter of 2023. The decrease in material cost percentage was
mostly due to the impact of required electronic component spot buy purchases
in 2023, reimbursed by customers. The impact of these spot buy purchases
increased cost of goods sold by $9.1 million, or 3.8% of net sales, for the
first quarter of 2023, which reduced gross margin percent by 0.7%. Other
factors contributing to the reduction in material costs were favorable product
mix and material cost improvement actions.
Overhead as a percentage of net sales was 16.2% and 14.8% for the first
quarter of 2024 and 2023, respectively. The increase in overhead as a
percentage of sales was attributable to higher indirect wage inflation.
Our Control Devices segment gross margin increased primarily due to lower
direct material costs.
Our Electronics segment gross margin increased due to the contribution from
higher sales levels, the reduction of the adverse effect of required
electronic component spot buy purchases, net of customer recoveries and lower
direct material and labor costs relative to sales.
Our Stoneridge Brazil segment gross margin decreased primarily due to lower
sales and higher overhead costs offset by favorable sales mix.
Selling, General and Administrative.
SG&A expenses increased by $0.6 million primarily due to the 2023 gain on sale
of fixed assets of $0.8 million.
Design and Development.
D&D costs increased by $0.6 million due to incremental engineering spending
primarily related to product launches and lower customer reimbursements offset
by increased capitalized software development costs in our Electronics segment.
Operating Income (loss)
. Operating income (loss) by segment is summarized in the following table (in
thousands):
Three months ended March 31, 2024 2023 Dollar Percent
increase increase
(decrease) (decrease)
Control Devices $ 2,164 $ 2,087 $ 77 3.7 %
Electronics 7,089 1,400 5,689 406.4
Stoneridge Brazil 204 1,343 (1,139) (84.8)
Unallocated corporate (9,126) (8,859) (267) (3.0)
Operating income (loss) $ 331 $ (4,029) $ 4,360 (108.2) %
Our Control Devices segment operating income increased slightly due to lower
direct material costs and lower D&D and SG&A spending offset by the gain on
sale of fixed assets recognized in the first quarter of 2023.
Our Electronics segment operating income increased primarily due to higher
contribution from higher sales and lower business realignment expense offset
by higher SG&A and D&D spending.
Our Stoneridge Brazil segment operating income decreased due to lower sales
and higher overhead costs offset by favorable sales mix.
Our unallocated corporate operating loss increased slightly from higher SG&A
incentive compensation offset by lower business realignment costs.
Operating income (loss) by geographic location is summarized in the following
table (in thousands):
Three months ended March 31, 2024 2023 Dollar Percent
increase increase
(decrease) (decrease)
North America $ (5,606) $ (6,871) $ 1,265 18.4 %
South America 204 1,343 (1,139) (84.8)
Europe and Other 5,733 1,499 4,234 282.5
Operating income (loss) $ 331 $ (4,029) $ 4,360 (108.2) %
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Our North American operating loss decreased due to favorable margin offset by
higher
SG&A and D&D spending
. Operating income in South America decreased due to lower sales levels offset
by lower direct material costs. Our operating results in Europe and Other
increased primarily due to contribution from higher sales levels and lower
business realignment expense offset by higher SG&A and D&D spending.
Interest Expense, net.
Interest expense, net was $3.6 million and $2.7 million for the three months
ended March 31, 2024 and 2023, respectively. The increase for the quarter
ended March 31, 2024, was the result of higher outstanding balance on the
Credit Facility and higher benchmark rates affecting the Company's floating
rate Credit Facility debt.
Equity in Loss of Investee.
Equity loss for Autotech Fund II was $0.3 million and $0.2 million for the
three months ended March 31, 2024 and 2023, respectively
.
Other Expense, net
. We record certain foreign currency transaction losses (gains) as a component
of other expense, net on the condensed consolidated statement of operations.
Other expense, net of $2.0 million increased by $0.9 million compared to the
first quarter of 2023 due to foreign currency transaction losses in our
Electronics and Control Devices segments from the weakening of the U.S. dollar.
Provision (Benefit) for Income Taxes.
For the three months ended March 31, 2024, income tax expense of $0.5 million
was attributable to the mix of earnings among tax jurisdictions as well as
U.S. taxes on foreign earnings, offset by tax losses for which no benefit is
recognized due to valuation allowances in certain jurisdictions and tax
credits and incentives. The effective tax rate of (9.1)% varies from the
statutory tax rate primarily due to U.S. taxes on foreign earnings offset by
the impact of tax losses for which no benefit is recognized due to valuation
allowances in certain jurisdictions and tax credits and incentives.
For the three months ended March 31, 2023, income tax benefit of $(0.7)
million was attributable to the mix of earnings among tax jurisdictions as
well as tax losses for which no benefit is recognized due to valuation
allowances in certain jurisdictions. The effective tax rate of 8.7% varies
from the statutory tax rate primarily due to U.S. taxes on foreign earnings
and non-deductible expenses offset by the impact of tax losses for which no
benefit is recognized due to valuation allowances in certain jurisdictions and
tax credits and incentives.
Liquidity and Capital Resources
Summary of Cash Flows:
Three months ended March 31, 2024 2023
Net cash provided by (used for):
Operating activities $ 9,109 $ (9,182)
Investing activities (5,714) (8,755)
Financing activities 5,388 (2,119)
Effect of exchange rate changes on cash and cash equivalents (1,184) 423
Net change in cash and cash equivalents $ 7,599 $ (19,633)
Cash provided by operating activities increased compared to 2023 primarily due
to a reduction in cash used for
accounts receivables. Cash provided by inventory improved compared to 2023 due
to the impact in the prior year of new product launches and mitigation of
historical supply chain disruptions, as well as the impact of our current
inventory reduction actions.
Net cash used for investing activities decreased compared to 2023 due to lower
capital expenditures.
Net cash provided by financing activities increased compared to 2023 due to
higher net Credit Facility borrowings.
As outlined in Note 7 to our condensed consolidated financial statements, the
Credit Facility permits borrowing up to a maximum level of $275.0 million.
This variable rate facility provides the flexibility to refinance other
outstanding debt or finance acquisitions through November 2026. The Credit
Facility contains certain financial covenants that require the Company to
maintain less than a maximum leverage ratio and more than a minimum interest
coverage ratio. The Credit Facility also contains affirmative and negative
covenants and events of default that are customary for credit arrangements of
this type including covenants that place restrictions and/or limitations on
the Company's ability to borrow money, make capital expenditures and pay
dividends. The Credit Facility had an outstanding balance of $194.4 million at
March 31, 2024.
27
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The Company was in compliance with all covenants at March 31, 2024 and
December 31, 2023. The Company has not experienced a violation that would
limit the Company's ability to borrow under the Credit Facility and does not
expect that the covenants under it will restrict the Company's financing
flexibility.
However, it is possible that future borrowing flexibility under the Credit
Facility may be limited as a result of lower than expected financial
performance due to the adverse impact of macroeconomic conditions and supply
chain disruptions on the Company's markets and general global demand.
The Company expects to make additional repayments on the Credit Facility when
cash exceeds the amount needed for operations and to remain in compliance with
all covenants.
The Company's wholly owned subsidiary located in Stockholm, Sweden, has an
overdraft credit line that allows overdrafts on the subsidiary's bank account
up to a daily maximum level of 20.0 million Swedish krona, or $1.9 million and
$2.0 million at March 31, 2024 and December 31, 2023, respectively. At March
31, 2024 and December 31, 2023 there were no borrowings outstanding on this
overdraft credit line. During the three months ended March 31, 2024, the
subsidiary borrowed and repaid 81.0 million Swedish krona, or $7.6 million.
The Company's wholly owned subsidiary located in Suzhou, China, has lines of
credit that allow up to a maximum borrowing level of 20.0 million Chinese
yuan, or $2.8 million at both March 31, 2024 and December 31, 2023. At March
31, 2024 and at December 31, 2023 there was $2.1 million and $2.1 million,
respectively, in borrowings outstanding on the Suzhou credit line with a
weighted-average interest rate of 3.25%. The Suzhou credit line is included on
the condensed consolidated balance sheet within current portion of debt. In
addition, the Suzhou subsidiary has a bank acceptance draft line of credit
which facilitates the extension of trade payable payment terms by 180 days.
The bank acceptance draft line of credit allows up to a maximum borrowing
level of 60.0 million Chinese yuan, or $8.3 million and $8.5 million at March
31, 2024 and December 31, 2023, respectively. There was $2.1 million and $2.4
million utilized on the Suzhou bank acceptance draft line of credit at March
31, 2024 and December 31, 2023, respectively. The Suzhou bank acceptance draft
line of credit is included on the condensed consolidated balance sheet within
accounts payable.
In December 2018, the Company entered into an agreement to make a $10.0
million investment in Autotech Fund II managed by Autotech, a venture capital
firm focused on ground transportation technology. The Company's $10.0 million
investment in the Autotech Fund II will be contributed over the expected
ten-year life of the fund. As of March 31, 2024, the Company's cumulative
investment in the Autotech Fund II was $8.4 million. The Company did not
contribute to Autotech Fund II during the three months ended March 31, 2024 or
2023.
Our future results could also be adversely affected by unfavorable changes in
foreign currency exchange rates. We have significant foreign denominated
transaction exposure in certain locations, especially in Brazil, Argentina,
Mexico, Sweden, Estonia, the Netherlands, United Kingdom and China. Currently,
we have foreign currency forward contracts in place for Mexican pesos. See
Note 5 to the condensed consolidated financial statements for additional
details. Our future results could also be unfavorably affected by increased
commodity prices and material cost inflation as these fluctuations impact the
cost of our raw material purchases.
At March 31, 2024, we had a cash and cash equivalents balance of approximately
$48.4 million, of which 87.6% was held in foreign locations. The Company has
approximately $80.6 million of undrawn commitments under the Credit Facility
as of March 31, 2024, which results in total undrawn commitments and cash
balances of more than $129.0 million. However, it is possible that future
borrowing flexibility under our Credit Facility may be limited as a result of
our financial performance.
Commitments and Contingencies
See Note 10 to the condensed consolidated financial statements for disclosures
of the Company's commitments and contingencies.
Seasonality
Our Control Devices and Electronics segments are moderately seasonal, impacted
by mid-year and year-end shutdowns and the ramp-up of new model production at
key customers. In addition, the demand for our Stoneridge Brazil segment
consumer products is generally higher in the second half of the year.
Critical Accounting Policies and Estimates
The Company's critical accounting policies, which include management's best
estimates and judgments, are included in Part II, Item 7, to the consolidated
financial statements of the Company's 2023
Form 10-K
. These accounting policies are considered critical as disclosed in the
Critical Accounting Policies and Estimates section of Management's Discussion
and Analysis of the Company's 2023
Form 10-K
because of the potential for a significant impact on the financial statements
due to the inherent uncertainty in such estimates. There have been no material
changes in our significant accounting policies or critical accounting
estimates during the first quarter of 2023.
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Information regarding other significant accounting policies is included in
Note 2 to our consolidated financial statements in Item 8 of Part II of the
Company's 2023
Form 10-K
.
International Presence
By operating internationally, we are affected by foreign currency exchange
rates and the economic conditions of certain countries. Furthermore, given the
current economic climate and fluctuations in certain commodity prices, we
believe that an increase in such items could significantly affect our
profitability. See Note 5 to the condensed consolidated financial statements
for additional details on the Company's foreign currency exchange rate and
interest rate risks.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to the quantitative and qualitative
information about the Company's market risk from those previously presented
within Part II, Item 7A of the Company's 2023
Form 10-K
.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of March 31, 2024, an evaluation was performed under the supervision and
with the participation of the Company's management, including the principal
executive officer ("PEO") and principal financial officer ("PFO"), of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based on that evaluation, the Company's management, including
the PEO and PFO, concluded that the Company's disclosure controls and
procedures were effective as of March 31, 2024.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company's internal control over financial
reporting during the three months ended March 31, 2024 that materially
affected, or are reasonably likely to materially affect, the Company's
internal control over financial reporting.
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PART II-OTHER INFORMATION
Item 1. Legal Proceedings
We are involved in certain legal actions and claims primarily arising in the
ordinary course of business. We establish accruals for matters which we
believe that losses are probable and can be reasonably estimated. Although it
is not possible to predict with certainty the outcome of these matters, we do
not believe that any of the litigation in which we are currently engaged,
either individually or in the aggregate, will have a material adverse effect
on our business, consolidated financial position or results of operations. We
are subject to litigation regarding civil, labor, regulatory and other tax
contingencies in our Stoneridge Brazil segment for which we believe the
likelihood of loss is reasonably possible, but not probable, although these
claims might take years to resolve. We are also subject to product liability
and product warranty claims. In addition, if any of our products prove to be
defective, we may be required to participate in a government-imposed or
customer OEM-instituted recall involving such products. There can be no
assurance that we will not experience any material losses related to product
liability, warranty or recall claims. See additional details of these matters
in Note 10 to the condensed consolidated financial statements.
Item 1A. Risk Factors
There have been no material changes with respect to risk factors previously
disclosed in the Company's 2023
Form 10-K
.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table presents information with respect to repurchases of Common
Shares made by us during the three months ended March 31, 2024. There were
35,992 Common Shares delivered to us by employees as payment for withholding
taxes due upon vesting of performance share awards and share unit awards.
Period Total number of Average price Total number of Maximum number
shares purchased paid per share shares purchased as of shares that may
part of publicly yet be purchased
announced plans under the plans
or programs or programs
1/1/24-1/31/24 1,990 $ 17.91 N/A N/A
2/1/24-2/29/24 - $ - N/A N/A
3/1/24-3/31/24 34,002 $ 17.20 N/A N/A
Total 35,992
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
During the three months ended March 31, 2024, no director or officer of the
Company
adopted
or
terminated
a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement,"
as each term is defined in Item 408(a) of Regulation S-K.
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Item 6. Exhibits
Exhibit Exhibit
Number
31.1 Chief Executive Officer certification pursuant to Section
302 of the Sarbanes-Oxley Act of 2002, filed herewith.
31.2 Chief Financial Officer certification pursuant to Section
302 of the Sarbanes-Oxley Act of 2002, filed herewith.
32.1 Chief Executive Officer certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
32.2 Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
101 XBRL Exhibits:
101.INS XBRL Instance Document - the instance document does not appear in the Interactive
Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
104 The cover page from our Quarterly Report on Form 10-Q for the period ended March 31, 2024, filed with the Securities
and Exchange Commission on May 1, 2024, is formatted in Inline Extensible Business Reporting Language ("iXBRL")
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
STONERIDGE, INC.
Date: May 1, 2024 /s/ James Zizelman
James Zizelman
President, Chief Executive Officer and Director
(Principal Executive Officer)
Date: May 1, 2024 /s/ Matthew R. Horvath
Matthew R. Horvath
Chief Financial Officer and Treasurer
(Principal Financial Officer)
32
EXHIBIT 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James Zizelman certify that:
(1)
I have reviewed this Quarterly Report on Form 10-Q of Stoneridge, Inc. (the
"Company");
(2)
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
(3)
Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the Company
as of, and for, the periods presented in this report;
(4)
The Company's other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a - 15(f) and 15d - 15(f)) for the Company
and we have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the Company's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation;
(d)
Disclosed in this report any change in the Company's internal control over
financial reporting that occurred during the Company's most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting;
(5)
The Company's other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
Company's auditors and the audit committee of the Company's board of directors:
(a)
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the Company's ability to record, process, summarize
and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal control over
financial reporting.
/s/ James Zizelman
James Zizelman, President and Chief Executive Officer
May 1, 2024
EXHIBIT 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Matthew R. Horvath, certify that:
(1)
I have reviewed this Quarterly Report on Form 10-Q of Stoneridge, Inc. (the
"Company");
(2)
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
(3)
Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the Company
as of, and for, the periods presented in this report;
(4)
The Company's other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a - 15(f) and 15d - 15(f)) for the Company
and we have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the Company's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation;
(d)
Disclosed in this report any change in the Company's internal control over
financial reporting that occurred during the Company's most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting;
(5)
The Company's other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
Company's auditors and the audit committee of the Company's board of directors:
(a)
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the Company's ability to record, process, summarize
and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal control over
financial reporting.
/s/ Matthew R. Horvath
Matthew R. Horvath
Chief Financial Officer and Treasurer
May 1, 2024
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, James Zizelman, President and Chief Executive Officer of Stoneridge, Inc.
(the "Company"), certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
the Quarterly Report on Form 10-Q of the Company for the three months ended
March 31, 2024 ("the Report") which this certification accompanies fully
complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and
(2)
the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ James Zizelman
James Zizelman, President and Chief Executive Officer
May 1, 2024
A signed original of this written statement required by Section 906 of the
Sarbanes-Oxley Act of 2002 has been provided to the Company and will be
retained by the Company and furnished to the Securities and Exchange
Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Matthew R. Horvath, Chief Financial Officer and Treasurer of Stoneridge,
Inc. (the "Company"), certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
the Quarterly Report on Form 10-Q of the Company for the three months ended
March 31, 2024 ("the Report") which this certification accompanies fully
complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and
(2)
the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Matthew R. Horvath
Matthew R. Horvath
Chief Financial Officer and Treasurer
May 1, 2024
A signed original of this written statement required by Section 906 of the
Sarbanes-Oxley Act of 2002 has been provided to the Company and will be
retained by the Company and furnished to the Securities and Exchange
Commission or its staff upon request.
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