Financial Performance - Adjusted sales for Q1 2022 were $196.6 million, a 7.5% increase compared to Q4 2021[12, 23] - Adjusted gross profit for Q1 2022 was $41.4 million, with a margin of 21.1%, a decrease from Q4 2021's 22.8%[12] - The company offset approximately 90% of incremental material costs in Q1 2022 relative to Q4 2021 through pricing and supply chain actions[12, 13] - Adjusted operating loss for Q1 2022 was $(3.0) million, or (1.5%) operating margin, an increase of 260 bps over Q4 2021[12, 23] - Adjusted EBITDA for Q1 2022 was $4.3 million, representing a 2.2% margin[10, 12] Guidance and Outlook - The company maintains full-year 2022 revenue guidance of $860 million to $900 million[10, 17, 24] - The company maintains adjusted EPS guidance of ($0.15) to $0.10[10, 17, 24] - The company is increasing 2022 adjusted gross, operating, and EBITDA margin guidance by 25 basis points[10, 17, 24, 59] - The company expects incremental tax expense of approximately $2.0 million due to the forecasted geographical mix of earnings[10, 24, 55] MirrorEye - The first OEM MirrorEye program in Europe has an estimated take rate of at least 35% based on year-to-date performance[16] - Maverick is expected to reach a total of 1,000 MirrorEye installations by the end of 2022[16]

For the quarter ended March 31, 2022 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, Novi, Michigan 48377 (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: Common Shares, without ...

| --- | --- | |-------------------------------|-------| | | | | Full-Year and Q4 2021 Results | | | March 1, 2022 | | Forward-Looking Statements 2 Statements in this presentation that are not historical facts are forward-looking statements, which involve risks and uncertainties that could cause actual events or results to differ materially from those expressed or implied by the statements. Important factors that may cause actual results to differ materially from those in the forward-looking statements inclu ...

Stoneridge Inc. (NYSE:SRI) Q4 2021 Earnings Conference Call March 1, 2022 9:00 AM ET Company Participants Jon Sandison - Director of FP&A Jonathan DeGaynor - CEO, President & Director Matthew Horvath - CFO & Treasurer Conference Call Participants Justin Long - Stephens Scott Stember - CL King Gary Prestopino - Barrington Research Operator Good day, and thank you for standing by. Welcome to the Stoneridge Fourth Quarter 2021 Conference Call. [Operator Instructions] I would now like to turn the conference ove ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 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 D ...

Financial Data and Key Metrics Changes - Third quarter sales were $182 million with an adjusted gross margin of 20.2, resulting in an adjusted operating loss of $6.9 million and an adjusted EPS of negative $0.27 [8][12] - Total incremental costs exceeded $11 million in the quarter, with approximately $5 million or 44% offset [9][17] - Adjusted sales excluding divested product lines were approximately $179 million, a decrease of 5.6% compared to the prior quarter [24] Business Line Data and Key Metrics Changes - Control devices third quarter adjusted sales were approximately $85 million, flat relative to the prior quarter, with adjusted operating income of $3 million [26] - Electronics third quarter sales were approximately $84 million, a decrease of 13.8% versus the second quarter, primarily due to OEM production shutdowns [27] - Stoneridge Brazil's third quarter sales increased by $1.4 million or approximately 9% relative to the second quarter, driven by higher demand in OEM product lines [28] Market Data and Key Metrics Changes - The weighted average end market experienced a decline of 7.4% relative to the second quarter, while the company’s sales decline was 5.6% quarter-over-quarter [14] - Fourth quarter production is forecasted to grow by 8.2% according to IHS and LMC, although the company adjusted its guidance based on current customer orders [20][29] Company Strategy and Development Direction - The company is focused on launching its MirrorEye platform and expanding retrofit programs, with significant progress in both OEM and retrofit markets [10][21] - Full year revenue guidance has been reduced to $740 million to $750 million due to limited component availability [12][24] - The company remains committed to long-term profitable growth and efficient capital deployment to drive shareholder value [13][32] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing supply chain challenges impacting material availability, production schedules, and costs [7][22] - The company expects to continue improving its ability to offset incremental costs and is optimistic about future production stability [17][71] - Management remains confident in achieving mid-teen EBITDA margins in the long term despite recent disruptions [40][41] Other Important Information - The appointment of Matt Horvath as Chief Financial Officer was announced, emphasizing his role in advancing the company's strategic objectives [13] - The company is actively negotiating with customers to recover costs related to supply chain disruptions and inflationary pressures [50][51] Q&A Session Summary Question: Supply chain cost mitigation efforts - Management noted that the percentage of costs offset has improved and expects this trend to continue into the next year [39] Question: Long-term EBITDA margin expectations - Management affirmed that the vision for achieving mid-teen EBITDA margins remains intact, although the timeline has been extended due to recent challenges [40][41] Question: Price increases and recovery strategies - Management discussed ongoing negotiations with customers to recover costs and the importance of transparency in these discussions [50][51] Question: Retrofit programs for MirrorEye - Management clarified that both traditional retrofits and pre-wired orders are being pursued, with demand for retrofits increasing due to supply chain constraints [52] Question: Performance in Brazil - Management highlighted the strong performance of Stoneridge Brazil despite macroeconomic challenges, with expectations for continued growth [53] Question: Market projections for Q4 and 2022 - Management expressed skepticism about IHS and LMC projections, indicating a more cautious outlook based on customer orders [61][62]

Q3 2021 Results October 28, 2021 Forward-Looking Statements 2 Statements in this presentation that are not historical facts are forward-looking statements, which involve risks and uncertainties that could cause actual events or results to differ materially from those expressed or implied by the statements. Important factors that may cause actual results to differ materially from those in the forward-looking statements include, among other factors, the impact of COVID-19, or other future pandemics, on the gl ...

[Form 10-Q General Information](index=1&type=section&id=Form%2010-Q%20General%20Information) [Registrant Information](index=1&type=section&id=Registrant%20Information) This section provides basic filing information for Stoneridge Inc.'s Form 10-Q, detailing registrant specifics and filer status - **Registrant**: **Stoneridge Inc.**[2](index=2&type=chunk) - **Quarter Ended**: **September 30, 2021**[2](index=2&type=chunk) - **Commission file number**: **001-13337**[2](index=2&type=chunk) - **Filer Status**: **Accelerated filer**[4](index=4&type=chunk)[5](index=5&type=chunk) - **Common Shares outstanding** as of **October 22, 2021**: **27,178,466**[5](index=5&type=chunk) [Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This section identifies forward-looking statements by specific terminology and lists key risk factors that could materially alter actual results from projections - **Forward-looking statements** are identified by words such as "will," "may," "should," "believes," "plans," and "expects"[9](index=9&type=chunk) - **Key risk factors** include the impact of **COVID-19**, **loss of major customers/suppliers**, **business realignment costs**, **changes in vehicle production**, **competitive conditions**, **foreign currency fluctuations**, **ability to achieve cost reductions**, **customer acceptance of new products**, **adverse changes in laws/regulations**, **intellectual property protection**, **warranty/recall liabilities**, **labor disruptions**, **natural disasters**, **supply chain issues** (e.g., semiconductors), **indebtedness covenants**, **capital availability**, **failure to integrate acquisitions**, and **IT system risks**[10](index=10&type=chunk) [PART I – FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%E2%80%93FINANCIAL%20INFORMATION) This part presents the company's unaudited condensed consolidated financial statements and related interim disclosures [Item 1. Financial Statements](index=9&type=section&id=Item%201.%20Financial%20Statements) This item presents Stoneridge, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income, cash flows, and shareholders' equity, with accompanying notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The condensed consolidated balance sheets present the company's financial position as of September 30, 2021, and December 31, 2020, detailing assets, liabilities, and shareholders' equity Condensed Consolidated Balance Sheets | Metric | Sep 30, 2021 (in thousands) | Dec 31, 2020 (in thousands) | Change (YoY) | | :-------------------------- | :-------------------------- | :-------------------------- | :----------- | | Total Assets | $626,678 | $621,408 | $5,270 (0.85%) | | Total Liabilities | $329,027 | $324,774 | $4,253 (1.31%) | | Total Shareholders' Equity | $297,651 | $296,634 | $1,017 (0.34%) | | Cash and cash equivalents | $50,001 | $73,919 | $(23,918) (-32.36%) | | Inventories, net | $124,741 | $90,548 | $34,193 (37.76%) | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The condensed consolidated statements of operations present the company's financial performance for the three and nine months ended September 30, 2021 and 2020, highlighting net sales, costs, and net income (loss) Three Months Ended September 30 | Metric | 2021 (in thousands) | 2020 (in thousands) | Change (YoY) | | :-------------------------- | :------------------ | :------------------ | :----------- | | Net Sales | $181,680 | $175,764 | $5,916 (3.4%) | | Operating (loss) income | $(8,928) | $9,827 | $(18,755) (-190.9%) | | Net (loss) income | $(10,358) | $6,714 | $(17,072) (-254.3%) | | Diluted (Loss) Earnings Per Share | $(0.38) | $0.25 | $(0.63) (-252%) | Nine Months Ended September 30 | Metric | 2021 (in thousands) | 2020 (in thousands) | Change (YoY) | | :-------------------------- | :------------------ | :------------------ | :----------- | | Net Sales | $566,809 | $458,275 | $108,534 (23.7%) | | Operating income (loss) | $19,815 | $(13,337) | $33,152 (248.6%) | | Net income (loss) | $9,570 | $(11,530) | $21,100 (183.0%) | | Diluted (Loss) Earnings Per Share | $0.35 | $(0.43) | $0.78 | [Condensed Consolidated Statements of Comprehensive (Loss) Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20(Loss)%20Income) This statement details comprehensive income (loss) components beyond net income, focusing on foreign currency translation adjustments and unrealized gains/losses on derivatives for the three and nine months ended September 30, 2021 and 2020 Three Months Ended September 30 | Metric | 2021 (in thousands) | 2020 (in thousands) | | :-------------------------------- | :------------------ | :------------------ | | Net (loss) income | $(10,358) | $6,714 | | Other comprehensive (loss) income, net of tax | $(7,233) | $6,997 | | Comprehensive (loss) income | $(17,591) | $13,711 | Nine Months Ended September 30 | Metric | 2021 (in thousands) | 2020 (in thousands) | | :-------------------------------- | :------------------ | :------------------ | | Net (loss) income | $9,570 | $(11,530) | | Other comprehensive (loss) income, net of tax | $(10,582) | $(10,746) | | Comprehensive (loss) income | $(1,012) | $(22,276) | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement provides an overview of cash inflows and outflows from operating, investing, and financing activities for the nine months ended September 30, 2021 and 2020, showing the net change in cash and cash equivalents Nine Months Ended September 30 (in thousands) | Activity | 2021 | 2020 | | :------------------------------------------ | :----- | :----- | | Net cash provided by (used for) operating activities | $(19,689) | $8,955 | | Net cash provided by (used for) investing activities | $12,948 | $(25,038) | | Net cash (used for) provided by financing activities | $(14,652) | $14,834 | | Effect of exchange rate changes on cash and cash equivalents | $(2,525) | $134 | | **Net change in cash and cash equivalents** | **$(23,918)** | **$(1,115)** | [Condensed Consolidated Statements of Shareholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders%27%20Equity) This statement details changes in shareholders' equity components, including common shares, additional paid-in capital, treasury shares, retained earnings, and accumulated other comprehensive loss, for the three and nine months ended September 30, 2021 and 2020 - **Total shareholders' equity** at **January 1, 2021**: **$296,634 thousand**[20](index=20&type=chunk) - **Net income** for the nine months ended **September 30, 2021**: **$9,570 thousand**[13](index=13&type=chunk) - **Other comprehensive loss**, net of tax for the nine months ended **September 30, 2021**: **$(10,582) thousand**[15](index=15&type=chunk) - **Total shareholders' equity** at **September 30, 2021**: **$297,651 thousand**[12](index=12&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide additional information and explanations to the condensed consolidated financial statements, detailing accounting policies, significant estimates, and specific financial statement line items [Note 1. Basis of Presentation](index=11&type=section&id=Note%201.%20Basis%20of%20Presentation) This note explains that the condensed consolidated financial statements are unaudited, prepared under SEC rules, and clarify the accounting for the Company's 49% equity investment in Minda Stoneridge Instruments Ltd - **Statements are unaudited** and prepared under SEC rules, including normal recurring adjustments[22](index=22&type=chunk) - Results for interim periods are not necessarily indicative of full-year results[22](index=22&type=chunk) - **Investment in Minda Stoneridge Instruments Ltd. (MSIL)** is accounted for using the **equity method** due to **49%** ownership[23](index=23&type=chunk) [Note 2. Recently Issued Accounting Standards](index=11&type=section&id=Note%202.%20Recently%20Issued%20Accounting%20Standards) This note outlines recently adopted and not yet adopted accounting standards, detailing their impact or potential impact on the Company's financial statements - **ASU 2019-12 (Income Taxes)** adopted **Jan 1, 2020**, resulted in a **$13,750 thousand** reduction to **deferred tax liabilities** and an increase to **retained earnings** as of **December 31, 2020**, with no impact on operations or cash flows[24](index=24&type=chunk) - **ASU 2018-15 (Internal-Use Software)**, **ASU 2018-13 (Fair Value Measurement)**, and **ASU 2016-13 (Credit Losses)** were adopted as of **January 1, 2020**, with no material impact on the financial statements[25](index=25&type=chunk)[26](index=26&type=chunk)[27](index=27&type=chunk) - **ASU 2020-04 (Reference Rate Reform)** provides temporary optional expedients for contract modifications and hedge accounting related to the **LIBOR transition**; the Company is evaluating its impact, with no contracts modified yet[28](index=28&type=chunk) [Note 3. Revenue](index=12&type=section&id=Note%203.%20Revenue) This note describes the Company's revenue recognition policies, disaggregates revenue by segment and geographical location, and explains performance obligations for OEM, aftermarket, and monitoring services - **Revenue is recognized** when control of products/services is transferred, typically upon shipment or delivery[29](index=29&type=chunk) Revenue by Reportable Segment (Three months ended September 30) | Segment | 2021 (in thousands) | 2020 (in thousands) | Change (YoY) | | :---------------- | :------------------ | :------------------ | :----------- | | Control Devices | $87,618 | $99,942 | $(12,324) (-12.3%) | | Electronics | $77,585 | $62,995 | $14,590 (23.2%) | | Stoneridge Brazil | $16,477 | $12,827 | $3,650 (28.5%) | | **Total Net Sales** | **$181,680** | **$175,764** | **$5,916 (3.4%)** | Revenue by Reportable Segment (Nine months ended September 30) | Segment | 2021 (in thousands) | 2020 (in thousands) | Change (YoY) | | :---------------- | :------------------ | :------------------ | :----------- | | Control Devices | $273,581 | $243,797 | $29,784 (12.2%) | | Electronics | $250,440 | $180,071 | $70,369 (39.1%) | | Stoneridge Brazil | $42,788 | $34,407 | $8,381 (24.4%) | | **Total Net Sales** | **$566,809** | **$458,275** | **$108,534 (23.7%)** | - **OEM and Tier 1 supplier revenue** is recognized at the point of transfer of control, typically upon shipment/delivery, for customized parts[35](index=35&type=chunk) - **Aftermarket product revenue** is recognized at the point of transfer of control based on shipping terms, with variable consideration for discounts and rebates[36](index=36&type=chunk) - **Monitoring services revenue** in **Stoneridge Brazil** is recognized over the life of the contract using the "right to invoice" practical expedient[37](index=37&type=chunk) [Note 4. Inventories](index=15&type=section&id=Note%204.%20Inventories) This note details inventory valuation methods (lower of cost or net realizable value, using FIFO or average cost) and provides a breakdown of inventory components - **Inventories are valued** at the **lower of cost or net realizable value** (**FIFO or average cost**)[39](index=39&type=chunk) Inventory Breakdown (in thousands) | Component | September 30, 2021 | December 31, 2020 | | :---------------- | :------------------- | :------------------ | | Raw materials | $97,332 | $67,775 | | Work-in-progress | $8,579 | $7,005 | | Finished goods | $18,830 | $15,768 | | **Total inventories, net** | **$124,741** | **$90,548** | - **Total inventories, net**, increased by **$34,193 thousand** (**37.76%**) from **December 31, 2020**, to **September 30, 2021**[39](index=39&type=chunk) [Note 5. Financial Instruments and Fair Value Measurements](index=16&type=section&id=Note%205.%20Financial%20Instruments%20and%20Fair%20Value%20Measurements) This note describes the Company's financial instruments, including derivatives for hedging foreign currency and interest rate risks, provides fair value measurements, and discusses earn-out consideration and asset impairment - The Company uses **derivative financial instruments** (**foreign currency forward contracts**, **cross-currency swaps**, **interest rate swaps**) for hedging purposes, not speculation[42](index=42&type=chunk)[43](index=43&type=chunk) Derivative Instruments Notional Amounts (in thousands) | Instrument | September 30, 2021 | December 31, 2020 | | :-------------------------- | :------------------- | :------------------ | | Forward currency contracts | $12,653 | $1,242 | | Interest rate swap | $50,000 | $50,000 | | Cross-currency swaps | $50,000 | $0 | - **Cross-currency swaps** with notional values of **$50,000 thousand** were entered into in **Q3 2021**, designated as **net investment hedges** for a euro-denominated subsidiary[44](index=44&type=chunk) - An **interest rate swap** with a notional amount of **$50,000 thousand** hedges exposure to interest payment fluctuations on the **Credit Facility**, increasing **interest expense** by **$486 thousand** for the nine months ended **September 30, 2021**[51](index=51&type=chunk) Fair Value Measurements (in thousands) | Item | September 30, 2021 (Fair Value) | December 31, 2020 (Fair Value) | | :-------------------------------- | :------------------------------ | :------------------------------- | | Financial assets: | | | | Cross-currency swaps | $607 | $0 | | Financial liabilities: | | | | Forward currency contracts | $48 | $0 | | Interest rate swap | $859 | $1,318 | | Earn-out consideration | $6,914 | $5,813 | - The fair value of **Stoneridge Brazil earn-out consideration** increased to **$6,914 thousand** at **September 30, 2021**, due to updated financial performance projections[61](index=61&type=chunk)[62](index=62&type=chunk) - An **impairment loss** of **$2,326 thousand** was recorded in **2020** for **PM sensor fixed assets** at the Tallinn, Estonia facility due to the **strategic exit** of the product line[66](index=66&type=chunk) [Note 6. Share-Based Compensation](index=22&type=section&id=Note%206.%20Share-Based%20Compensation) This note reports share-based compensation expense, which increased in 2021 compared to 2020 due to reduced attainment of performance-based awards in the prior year Share-Based Compensation Expense (in thousands) | Period | 2021 | 2020 | | :-------------------------- | :----- | :----- | | Three months ended Sep 30 | $1,924 | $1,430 | | Nine months ended Sep 30 | $4,685 | $3,535 | - The increase in **2021** is attributed to the recognition of reduced attainment of performance-based awards during **2020**[67](index=67&type=chunk) [Note 7. Debt](index=22&type=section&id=Note%207.%20Debt) This note details the Company's debt, including its revolving credit facility and international short-term obligations, along with compliance with covenants Total Debt (in thousands) | Type | September 30, 2021 | December 31, 2020 | | :-------------------------- | :------------------- | :------------------ | | Revolving Credit Facility | $130,000 | $136,000 | | Stoneridge Brazil short-term obligations | $99 | $1,561 | | Sweden short-term credit line | $0 | $1,591 | | Suzhou short-term credit line | $1,551 | $4,521 | | **Total Debt** | **$131,650** | **$143,673** | - The **Revolving Credit Facility** has a **$400,000 thousand** maximum, matures in **June 2024**, and had **$130,000 thousand** outstanding at **September 30, 2021**[69](index=69&type=chunk)[74](index=74&type=chunk) - An amendment in **June 2020** provided **covenant relief** during the '**Covenant Relief Period**' (ended **August 14, 2021**) and adjusted LIBOR pricing[72](index=72&type=chunk)[73](index=73&type=chunk) - The Company was in **compliance with all credit facility covenants** at **September 30, 2021**[74](index=74&type=chunk) - **Stoneridge Brazil's short-term debt** had a **weighted-average interest rate** of **8.8%** at **September 30, 2021**[75](index=75&type=chunk) - Suzhou subsidiary's credit lines had **$1,551 thousand** outstanding at **September 30, 2021**, with a **weighted-average interest rate** of **4.30%**[77](index=77&type=chunk) [Note 8. Leases](index=25&type=section&id=Note%208.%20Leases) This note discusses the Company's lease activities, specifically related to its former Canton, Massachusetts facility, which was leased and subsequently sold - The Company leased its former **Canton, Massachusetts facility** to a third party from **July 1, 2020**, until its sale on **June 17, 2021**[78](index=78&type=chunk) - **Lease income** recognized for the nine months ended **September 30, 2021**, was **$602 thousand** (operating) and **$199 thousand** (variable)[78](index=78&type=chunk) [Note 9. Earnings Per Share](index=25&type=section&id=Note%209.%20Earnings%20Per%20Share) This note outlines the calculation of basic and diluted earnings per share, including weighted-average common shares outstanding and treatment of potentially dilutive securities Weighted-average Common Shares outstanding (in thousands) | Type | Three months ended Sep 30, 2021 | Three months ended Sep 30, 2020 | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Basic | 27,147 | 26,956 | 27,100 | 27,047 | | Diluted | 27,147 | 27,223 | 27,432 | 27,047 | - Potential dilutive shares were excluded from **diluted loss per share** calculations when their effect would be anti-dilutive (e.g., **239,254** shares for **Q3 2021**, **265,335** shares for **9M 2020**)[79](index=79&type=chunk) [Note 10. Equity and Accumulated Other Comprehensive Loss](index=27&type=section&id=Note%2010.%20Equity%20and%20Accumulated%20Other%20Comprehensive%20Loss) This note details changes in shareholders' equity, including common share repurchase programs and components of accumulated other comprehensive loss - The Company had a **$50,000 thousand share repurchase program** authorized in **October 2018**, which was settled in **February 2020**[81](index=81&type=chunk)[82](index=82&type=chunk) - A new **$50,000 thousand repurchase program** was authorized in **February 2020**, under which **$4,995 thousand** was used to repurchase **242,634** shares in **Q1 2020**; this program was temporarily suspended in **April 2020** and expired in **Q3 2021**[83](index=83&type=chunk)[84](index=84&type=chunk) Accumulated Other Comprehensive Loss (in thousands) | Component | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------------- | :------------- | :------------- | | Foreign currency translation | $(99,501) | $(88,795) | | Unrealized gain (loss) on derivatives | $(716) | $(840) | | **Total** | **$(100,217)** | **$(89,635)** | - **Accumulated other comprehensive loss** increased by **$10,582 thousand** for the nine months ended **September 30, 2021**, primarily due to **foreign currency translation losses**[86](index=86&type=chunk) [Note 11. Commitments and Contingencies](index=28&type=section&id=Note%2011.%20Commitments%20and%20Contingencies) This note describes various legal actions, claims, environmental remediation liabilities, product warranty/recall accruals, and Brazilian tax contingencies - The Company is subject to various **legal actions and claims** primarily arising in the ordinary course of business, including breach of contracts, **product warranties**, **product liability**, patent infringement, **regulatory matters**, and employment-related matters[87](index=87&type=chunk) - Accruals are established for matters where losses are probable and can be reasonably estimated[87](index=87&type=chunk) - The Company does not believe that the ultimate resolution of these matters will have a **material adverse effect** on its consolidated results of operations or financial position[87](index=87&type=chunk) - Accrued **$434 thousand** at **September 30, 2021**, for expected future **groundwater remediation costs** at a former Sarasota, Florida facility; expense recognized was **$407 thousand** (**9M 2021**) vs **$108 thousand** (**9M 2020**)[88](index=88&type=chunk) - **Stoneridge Brazil** has **civil, labor, and tax contingencies** totaling R$**45,127 thousand** (**$8,296 thousand**) at **September 30, 2021**, deemed reasonably possible but not probable, with no provision recorded[89](index=89&type=chunk) - A R$**7,995 thousand** (**$1,598 thousand**) fine from **CADE** against **Stoneridge Brazil** for **abuse of dominance** is being challenged in Brazilian federal court[90](index=90&type=chunk) Product Warranty and Recall Liability (in thousands) | Item | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Beginning balance | $12,691 | $10,796 | | Accruals established | $5,125 | $4,817 | | Changes in pre-existing liabilities | $49 | $1,137 | | Settlements made | $(7,990) | $(4,630) | | Foreign currency translation | $(317) | $42 | | **Ending balance** | **$9,558** | **$12,162** | - A favorable judicial decision in **2019** granted **Stoneridge Brazil** the right to recover **$6,473 thousand** in **federal tax liabilities**, with no expected impact from a **May 2021** Supreme Court decision[93](index=93&type=chunk)[94](index=94&type=chunk) [Note 12. Business Realignment and Restructuring](index=30&type=section&id=Note%2012.%20Business%20Realignment%20and%20Restructuring) This note details costs and actions for restructuring initiatives, including the PM sensor product line exit, Canton facility closure, Electronics segment restructuring, and ongoing business realignment charges - The Company committed to the strategic exit of its **Control Devices particulate matter (PM) sensor product line** on **May 19, 2020**[95](index=95&type=chunk) - **PM sensor restructuring expense**: **$675 thousand** (**Q3 2021**) vs **$342 thousand** (**Q3 2020**); **$2,329 thousand** (**9M 2021**) vs **$2,894 thousand** (**9M 2020**)[96](index=96&type=chunk) - Remaining estimated costs for **PM sensor commercial settlements** and **legal fees** are approximately **$1,400** to **$4,200 thousand**[96](index=96&type=chunk) - The **Canton, Massachusetts facility** restructuring resulted in its closure on **March 31, 2020**, with no additional costs expected[98](index=98&type=chunk)[99](index=99&type=chunk) - **Electronics segment restructuring** actions include moving European Aftermarket sales and transferring European controls production to China, with immaterial additional costs expected through **Q4 2021**[101](index=101&type=chunk) Total Business Realignment Charges (in thousands) | Period | 2021 | 2020 | | :-------------------------- | :----- | :----- | | Three months ended Sep 30 | $1,080 | $401 | | Nine months ended Sep 30 | $1,386 | $3,588 | [Note 13. Income Taxes](index=35&type=section&id=Note%2013.%20Income%20Taxes) This note explains the Company's interim tax reporting methodology, detailing income tax expense (benefit) and effective tax rates for the three and nine months ended September 30, 2021 and 2020, attributing changes to earnings mix, valuation allowances, and the Canton facility sale gain Income Tax Expense (Benefit) (in thousands) | Period | 2021 | 2020 | | :-------------------------- | :----- | :----- | | Three months ended Sep 30 | $526 | $1,814 | | Nine months ended Sep 30 | $6,739 | $(3,694) | Effective Tax Rate | Period | 2021 | 2020 | | :-------------------------- | :----- | :----- | | Three months ended Sep 30 | (5.4)% | 21.3% | | Nine months ended Sep 30 | 41.3% | 24.3% | - The **effective tax rate** for **Q3 2021** was negative due to the estimated tax impact on the **gain from the sale of the Canton facility** and **tax losses** for which no benefit is recognized[108](index=108&type=chunk) - The **effective tax rate** for **9M 2021** was higher than the statutory rate primarily due to **tax losses** with no recognized benefit and **U.S. taxes on foreign earnings**, partially offset by **tax incentives**[109](index=109&type=chunk) [Note 14. Segment Reporting](index=36&type=section&id=Note%2014.%20Segment%20Reporting) This note provides financial information disaggregated by the Company's three reportable segments (Control Devices, Electronics, and Stoneridge Brazil) and geographic locations, including net sales, operating income, and total assets - The Company's three reportable segments are **Control Devices**, **Electronics**, and **Stoneridge Brazil**[113](index=113&type=chunk) Net Sales by Segment (in thousands) | Segment | 9M 2021 | 9M 2020 | Change (YoY) | | :---------------- | :-------- | :-------- | :----------- | | Control Devices | $273,581 | $243,797 | $29,784 (12.2%) | | Electronics | $250,440 | $180,071 | $70,369 (39.1%) | | Stoneridge Brazil | $42,788 | $34,407 | $8,381 (24.4%) | | **Total Net Sales** | **$566,809** | **$458,275** | **$108,534 (23.7%)** | Operating (Loss) Income by Segment (in thousands) | Segment | 9M 2021 | 9M 2020 | Change (YoY) | | :---------------- | :-------- | :-------- | :----------- | | Control Devices | $50,129 | $10,116 | $40,013 (395.5%) | | Electronics | $(7,793) | $(7,523) | $(270) (-3.6%) | | Stoneridge Brazil | $112 | $3,419 | $(3,307) (-96.7%) | | Unallocated Corporate | $(22,633) | $(19,349) | $(3,284) (-17.0%) | | **Total Operating (Loss) Income** | **$19,815** | **$(13,337)** | **$33,152 (248.6%)** | Total Assets by Segment (in thousands) | Segment | Sep 30, 2021 | Dec 31, 2020 | | :---------------- | :------------- | :------------- | | Control Devices | $189,426 | $194,433 | | Electronics | $313,569 | $303,914 | | Stoneridge Brazil | $62,262 | $61,350 | | Corporate (unallocated) | $395,178 | $390,851 | | Eliminations | $(333,757) | $(329,140) | | **Total Assets** | **$626,678** | **$621,408** | Net Sales by Geographic Area (in thousands) | Region | 9M 2021 | 9M 2020 | Change (YoY) | | :---------------- | :-------- | :-------- | :----------- | | North America | $288,629 | $240,549 | $48,080 (20.0%) | | South America | $42,788 | $34,407 | $8,381 (24.4%) | | Europe and Other | $235,392 | $183,319 | $52,073 (28.4%) | | **Total Net Sales** | **$566,809** | **$458,275** | **$108,534 (23.7%)** | [Note 15. Investments](index=38&type=section&id=Note%2015.%20Investments) This note details the Company's equity investments, including Minda Stoneridge Instruments Ltd. and Autotech Fund II, and the earn-out consideration related to the Stoneridge Brazil acquisition - The Company holds a **49% equity interest in Minda Stoneridge Instruments Ltd. (MSIL)**, accounted for under the **equity method**, with an investment value of **$14,859 thousand** at **September 30, 2021**[120](index=120&type=chunk) - **Equity in earnings from MSIL** was **$1,320 thousand** for the nine months ended **September 30, 2021**, compared to **$556 thousand** in the prior year[120](index=120&type=chunk) - The Company is required to pay **additional earn-out consideration** for **Stoneridge Brazil** based on its **2021** financial performance, which is not capped[121](index=121&type=chunk) - The Company has a **$10,000 thousand** investment in **Autotech Fund II**, a venture capital fund, with a cumulative investment of **$6,159 thousand** at **September 30, 2021**[123](index=123&type=chunk) - **Equity in earnings from Autotech Fund II** was **$374 thousand** for the nine months ended **September 30, 2021**, compared to **$168 thousand** in the prior year[123](index=123&type=chunk) [Note 16. Disposals](index=39&type=section&id=Note%2016.%20Disposals) This note details the disposal of the PM sensor business and the sale of the Canton Facility, including financial impacts and ongoing commitments - The Company sold its **PM sensor business assets** to **Standard Motor Products, Inc. (SMP)** for **$4,000 thousand** (subject to adjustment), recognizing a **gain on disposal** of **$740 thousand** for **Gen 1 fixed assets** in **Q1 2021**[124](index=124&type=chunk)[125](index=125&type=chunk) - **PM sensor Gen 1 net sales** to **SMP** were **$3,228 thousand** in **Q3 2021** and **$6,298 thousand** for **9M 2021** under a **contract manufacturing agreement**[126](index=126&type=chunk) - **Gen 2 fixed assets** of **$287 thousand** are held for sale as of **September 30, 2021**, following the completion of supply commitments[128](index=128&type=chunk) - The **Canton Facility** was sold for an adjusted purchase price of **$37,900 thousand** on **June 17, 2021**, resulting in net proceeds of **$35,167 thousand** and a **net gain** of **$30,718 thousand**[130](index=130&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=41&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition and results of operations, discussing key trends, performance drivers, and future outlook [COVID-19 Impact and Supply Chain Uncertainties](index=41&type=section&id=COVID-19%20Impact%20and%20Supply%20Chain%20Uncertainties) The COVID-19 pandemic continued to impact the global economy and the Company's operations in 2021, leading to significant supply chain disruptions, particularly a worldwide semiconductor shortage, resulting in increased costs and production volume reductions - **COVID-19** caused adverse economic conditions, **supply chain disruptions**, and restricted manufacturing in **2020** and **2021**[134](index=134&type=chunk) - A worldwide **semiconductor supply shortage** and other constraints led to longer lead-times, higher costs, and production volume reductions in **Q3 2021**[135](index=135&type=chunk) - The Company is working with suppliers and customers to minimize impacts, but the magnitude of adverse effects depends on the evolution of these disruptions[135](index=135&type=chunk) [Segments Overview](index=41&type=section&id=Segments%20Overview) The Company operates through three reportable segments: Control Devices, Electronics, and Stoneridge Brazil, each focusing on distinct product categories and solutions - **Control Devices** segment manufactures actuators, sensors, switches, and connectors[136](index=136&type=chunk) - **Electronics** segment produces driver information systems, camera-based vision systems, connectivity and compliance products, and electronic control units[136](index=136&type=chunk) - **Stoneridge Brazil** (SRB) segment designs and manufactures vehicle tracking devices, monitoring services, security alarms, convenience accessories, in-vehicle audio/infotainment, and telematics solutions[137](index=137&type=chunk) [Third Quarter Overview (Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020)](index=42&type=section&id=Third%20Quarter%20Overview%20(Three%20Months%20Ended%20September%2030%2C%202021%20Compared%20to%20Three%20Months%20Ended%20September%2030%2C%202020)) The Company reported a net loss of $10.4 million in Q3 2021, a significant decrease from net income in Q3 2020, primarily due to lower gross margin, higher SG&A, and increased D&D costs, despite modest net sales growth [Net Sales Analysis](index=42&type=section&id=Net%20Sales%20Analysis_Q3) Net sales increased by 3.4% in Q3 2021, driven by strong Electronics and Stoneridge Brazil performance due to COVID-19 recovery, partially offset by Control Devices declines from supply chain issues and the PM sensor business exit Total Net Sales (in thousands) | Period | 2021 | 2020 | Change (YoY) | | :-------------------------- | :----- | :----- | :----------- | | Three months ended Sep 30 | $181,680 | $175,764 | $5,916 (3.4%) | - **Control Devices net sales** decreased by **$12.3 million** (**-12.3%**) due to **supply chain disruptions** in North American automotive and commercial vehicle markets, and the PM sensor business exit in Europe[140](index=140&type=chunk)[165](index=165&type=chunk) - **Electronics net sales** increased by **$14.6 million** (**23.2%**) due to increased volumes in European, North American, and China commercial vehicle markets, and off-highway vehicle markets, benefiting from **COVID-19** recovery and favorable foreign currency translation[141](index=141&type=chunk)[166](index=166&type=chunk) - **Stoneridge Brazil net sales** increased by **$3.7 million** (**28.5%**) due to higher volumes in OEM and OES product lines[142](index=142&type=chunk)[167](index=167&type=chunk) - North American **net sales** decreased by **$2.2 million** (**-2.2%**) due to automotive market declines from **supply chain disruptions**, partially offset by commercial vehicle and off-highway increases[168](index=168&type=chunk) - South American **net sales** increased by **$3.7 million** (**28.5%**) due to higher OEM and OES product line volumes[168](index=168&type=chunk) - Europe and Other **net sales** increased by **$4.4 million** (**6.8%**) due to increases in European off-highway and commercial vehicle markets, and China automotive, with favorable foreign currency translation, offset by the PM sensor business exit[168](index=168&type=chunk) [Cost of Goods Sold and Gross Margin Analysis](index=48&type=section&id=Cost%20of%20Goods%20Sold%20and%20Gross%20Margin%20Analysis_Q3) Gross margin significantly decreased to 19.8% in Q3 2021 from 26.2% in Q3 2020, primarily due to increased material costs and overhead as a percentage of sales, driven by supply chain disruptions and material price increases - **Gross margin** decreased from **26.2%** (**Q3 2020**) to **19.8%** (**Q3 2021**)[169](index=169&type=chunk) - **Material cost** as a percentage of **net sales** increased from **52.6%** (**Q3 2020**) to **56.8%** (**Q3 2021**) due to **supply chain disruptions** and material price increases[169](index=169&type=chunk) - **Overhead** as a percentage of **net sales** increased to **18.1%** (**Q3 2021**) from **16.2%** (**Q3 2020**) due to higher material and **supply chain disruption** costs[169](index=169&type=chunk) - **Control Devices gross margin** decreased primarily due to lower sales volume, **supply chain costs**, and unfavorable fixed cost leverage[170](index=170&type=chunk) - **Electronics gross margin** decreased primarily due to increased **supply chain disruption** costs and material prices[170](index=170&type=chunk) - **Stoneridge Brazil gross margin** as a percentage of sales decreased due to adverse sales mix and increased costs associated with **supply chain disruptions**[172](index=172&type=chunk) [Selling, General and Administrative Expenses Analysis](index=50&type=section&id=Selling%2C%20General%20and%20Administrative%20Expenses%20Analysis_Q3) SG&A expenses increased by $4.1 million in Q3 2021, mainly due to an unfavorable adjustment to Stoneridge Brazil earn-out consideration, higher business realignment costs, and increased professional services, partially offset by lower incentive compensation - **SG&A expenses** increased by **$4.1 million** (**Q3 2021** vs **Q3 2020**)[143](index=143&type=chunk)[173](index=173&type=chunk) - Key drivers include a **$3.1 million** increase in net adjustments to the fair value of SRB **earn-out consideration**, **$0.8 million** higher **business realignment costs**, and higher professional services and selling costs, offset by lower incentive compensation expense of **$2.6 million**[143](index=143&type=chunk)[173](index=173&type=chunk) [Design and Development Costs Analysis](index=50&type=section&id=Design%20and%20Development%20Costs%20Analysis_Q3) D&D costs increased by $4.7 million in Q3 2021, primarily driven by higher consulting and prototype costs in the Electronics segment and reduced customer reimbursements for ongoing development activities - **D&D costs** increased by **$4.7 million** (**Q3 2021** vs **Q3 2020**)[144](index=144&type=chunk)[174](index=174&type=chunk) - Increase due to higher consulting and prototype costs in the **Electronics** segment and lower customer reimbursements for ongoing development activities[144](index=144&type=chunk)[174](index=174&type=chunk) [Operating (Loss) Income Analysis](index=50&type=section&id=Operating%20(Loss)%20Income%20Analysis_Q3) The Company's operating income shifted to a loss of $8.9 million in Q3 2021 from an income of $9.8 million in Q3 2020, primarily due to lower gross margin, higher D&D, and increased SG&A, with significant declines in Control Devices and Stoneridge Brazil Total Operating (Loss) Income (in thousands) | Period | 2021 | 2020 | Change (YoY) | | :-------------------------- | :----- | :----- | :----------- | | Three months ended Sep 30 | $(8,928) | $9,827 | $(18,755) (-190.9%) | - **Control Devices operating income** decreased by **$9.6 million** (**-76.7%**) due to lower gross margin from **supply chain disruptions**, higher material prices, and adverse fixed cost leverage[140](index=140&type=chunk)[175](index=175&type=chunk) - **Electronics operating loss** increased by **$5.8 million** (**-890.3%**) due to lower gross margin from higher material prices and **supply chain costs**, and increased D&D spending[141](index=141&type=chunk)[176](index=176&type=chunk) - **Stoneridge Brazil operating income** decreased by **$2.5 million** (**-73.6%**) primarily due to a **$3.1 million** increase in net adjustments to the fair value of the **earn-out consideration**[142](index=142&type=chunk)[176](index=176&type=chunk) - Unallocated corporate **operating loss** increased by **$0.9 million** (**-13.6%**) due to higher **business realignment costs** and professional services, offset by lower incentive compensation[177](index=177&type=chunk) - North American **operating loss** increased by **$10.1 million** (**-304.1%**) due to decreased automotive sales and increased **supply chain disruption** costs[178](index=178&type=chunk) - Europe and Other operating results decreased by **$6.1 million** (**-199.6%**) due to lower gross margin and higher D&D spending[178](index=178&type=chunk) [Other Income/Expense Analysis (Interest, Equity in Earnings, Other, Taxes)](index=51&type=section&id=Other%20Income%2FExpense%20Analysis%20(Interest%2C%20Equity%20in%20Earnings%2C%20Other%2C%20Taxes)_Q3) Interest expense decreased in Q3 2021 due to lower borrowings and rates, equity in earnings increased, other expense, net, increased due to foreign currency transaction losses, and income tax expense decreased due to the Canton facility sale gain and tax losses - **Interest expense, net**, decreased by **$0.4 million** (**Q3 2021** vs **Q3 2020**) due to a reduction in average outstanding borrowings and lower interest rates[139](index=139&type=chunk)[179](index=179&type=chunk) - **Equity in earnings** for MSIL was **$0.4 million** (**Q3 2021**) vs **$0.3 million** (**Q3 2020**)[179](index=179&type=chunk) - **Other expense, net**, increased by **$0.3 million** (**Q3 2021** vs **Q3 2020**) due to **2020** foreign currency transaction gains in **Control Devices** and **Stoneridge Brazil** segments[180](index=180&type=chunk) - **Provision for income taxes** was **$0.5 million** expense (**Q3 2021**) vs **$1.8 million** expense (**Q3 2020**), with an **effective tax rate** of **(5.4)%** in **Q3 2021** due to the estimated tax impact of the **Canton facility** sale gain and **tax losses** with no recognized benefit[181](index=181&type=chunk)[182](index=182&type=chunk) [Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020](index=51&type=section&id=Nine%20Months%20Ended%20September%2030%2C%202021%20Compared%20to%20Nine%20Months%20Ended%20September%2030%2C%202020) For the first nine months of 2021, the Company achieved net income of $9.6 million, a significant improvement from a net loss in the prior year, driven by increased net sales and operating income, largely due to the Canton facility sale gain and COVID-19 recovery, despite ongoing supply chain challenges and higher D&D costs [Net Sales Analysis](index=51&type=section&id=Net%20Sales%20Analysis_9M) Total net sales increased by 23.7% for the nine months ended September 30, 2021, with all segments showing growth, primarily driven by COVID-19 recovery and favorable foreign currency translation, despite the PM sensor business exit Total Net Sales (in thousands) | Period | 2021 | 2020 | Change (YoY) | | :-------------------------- | :----- | :----- | :----------- | | Nine months ended Sep 30 | $566,809 | $458,275 | $108,534 (23.7%) | - **Control Devices net sales** increased by **$29.8 million** (**12.2%**) due to recovery in North American automotive, agricultural, and commercial vehicle markets, and China markets, along with favorable foreign currency translation, partially offset by the PM sensor business exit in Europe[185](index=185&type=chunk) - **Electronics net sales** increased by **$70.4 million** (**39.1%**) due to recovery in European and North American commercial and off-highway vehicle markets, and favorable foreign currency translation[186](index=186&type=chunk) - **Stoneridge Brazil net sales** increased by **$8.4 million** (**24.4%**) due to higher volumes across all product lines and the Argentina market, offset by unfavorable foreign currency translation[187](index=187&type=chunk) - North American **net sales** increased by **$48.1 million** (**20.0%**) due to sales volume increases in automotive, commercial vehicle, and **Electronics** off-highway markets[189](index=189&type=chunk) - South American **net sales** increased by **$8.4 million** (**24.4%**) due to higher volumes, offset by unfavorable Brazilian real foreign currency translation[189](index=189&type=chunk) - Europe and Other **net sales** increased by **$52.1 million** (**28.4%**) due to increases in European commercial and off-highway markets, and China markets, with favorable foreign currency translation, partially offset by the PM sensor business exit[189](index=189&type=chunk) [Cost of Goods Sold and Gross Margin Analysis](index=53&type=section&id=Cost%20of%20Goods%20Sold%20and%20Gross%20Margin%20Analysis_9M) Gross margin slightly decreased to 22.0% for the nine months ended September 30, 2021, from 22.8% in the prior year, primarily due to increased material costs as a percentage of sales from supply chain disruptions and price increases, despite favorable fixed cost leverage - **Gross margin** decreased from **22.8%** (**9M 2020**) to **22.0%** (**9M 2021**)[189](index=189&type=chunk) - **Material cost** as a percentage of **net sales** increased from **52.9%** (**9M 2020**) to **55.8%** (**9M 2021**) due to **supply chain disruptions** and material price increases[189](index=189&type=chunk) - **Overhead** as a percentage of **net sales** decreased to **16.6%** (**9M 2021**) from **18.9%** (**9M 2020**) due to fixed cost leverage from higher sales, offset by higher incremental freight costs[189](index=189&type=chunk) - **Control Devices gross margin** increased due to lower restructuring costs and favorable fixed cost leverage, offset by **supply chain disruptions**[190](index=190&type=chunk) - **Electronics gross margin** decreased primarily due to higher **supply chain disruption** costs, offsetting favorable fixed cost leverage[190](index=190&type=chunk) - **Stoneridge Brazil gross margin** decreased due to adverse sales mix (higher product sales vs. monitoring fees) and **supply chain disruption** costs, offset by favorable fixed cost leverage[191](index=191&type=chunk) [Selling, General and Administrative Expenses Analysis](index=53&type=section&id=Selling%2C%20General%20and%20Administrative%20Expenses%20Analysis_9M) SG&A expenses increased by $7.6 million for the nine months ended September 30, 2021, driven by increased earn-out consideration adjustments for Stoneridge Brazil, impairment of Brazilian indirect tax credits, and higher professional service costs, partially offset by a gain on disposal of the PM sensor business - **SG&A expenses** increased by **$7.6 million** (**9M 2021** vs **9M 2020**)[192](index=192&type=chunk) - Key drivers include a **$4.5 million** increase in net adjustments to the fair value of SRB **earn-out consideration**, **$0.6 million** impairment of Brazilian indirect tax credits, and higher professional service costs, partially offset by a **$0.7 million** gain on disposal of the PM sensor business[192](index=192&type=chunk) [Design and Development Costs Analysis](index=53&type=section&id=Design%20and%20Development%20Costs%20Analysis_9M) D&D costs increased by $10.2 million for the nine months ended September 30, 2021, primarily due to increased consulting and prototype costs in the Electronics segment and lower customer reimbursements, partially offset by higher capitalized software development costs - **D&D costs** increased by **$10.2 million** (**9M 2021** vs **9M 2020**)[193](index=193&type=chunk) - Primarily due to a **$9.0 million** increased spend in the **Electronics** segment for consulting and prototype costs, and lower customer reimbursements, offset by higher capitalized software development costs[193](index=193&type=chunk)[194](index=194&type=chunk) [Operating Income (Loss) Analysis](index=55&type=section&id=Operating%20Income%20(Loss)%20Analysis_9M) Operating income significantly improved to $19.8 million for the nine months ended September 30, 2021, from a loss of $13.3 million in the prior year, largely due to the Canton Facility and PM sensor business sale gains, and higher Control Devices gross margin, despite increased losses in Electronics and Stoneridge Brazil Total Operating Income (Loss) (in thousands) | Period | 2021 | 2020 | Change (YoY) | | :-------------------------- | :----- | :----- | :----------- | | Nine months ended Sep 30 | $19,815 | $(13,337) | $33,152 (248.6%) | - **Control Devices operating income** increased by **$40.0 million** (**395.5%**) due to higher gross margin, **$30.7 million** gain on **Canton Facility** sale, **$0.7 million** gain on PM sensor business disposal, and lower restructuring expense, offset by **supply chain disruptions** and higher environmental costs[195](index=195&type=chunk) - **Electronics operating loss** increased by **$0.3 million** (**-3.6%**) due to higher **supply chain disruption** costs and D&D costs, partially offset by higher sales and gross margin[196](index=196&type=chunk) - **Stoneridge Brazil operating income** decreased by **$3.3 million** (**-96.7%**) due to a **$4.5 million** increase in **earn-out consideration** adjustments and **$0.7 million** impairment of Brazilian indirect tax credits, partially offset by higher sales and gross margin[196](index=196&type=chunk) - Unallocated corporate **operating loss** increased by **$3.3 million** (**-17.0%**) due to higher **business realignment costs** and professional service costs[197](index=197&type=chunk) - North American **operating income** increased by **$33.6 million** (**197.0%**) due to **Canton Facility** sale gain, higher sales in automotive/commercial markets, and lower restructuring costs, offsetting **supply chain disruptions**[198](index=198&type=chunk) - South American **operating loss** increased by **$3.3 million** (**-96.7%**) due to unfavorable **earn-out consideration** adjustments, offsetting higher sales and gross margin[198](index=198&type=chunk) - Europe and Other operating results increased by **$2.9 million** (**1,060.9%**) due to higher sales in commercial vehicle/off-highway markets and favorable foreign currency translation, offset by **supply chain disruptions** and D&D costs[198](index=198&type=chunk) [Other Income/Expense Analysis (Interest, Equity in Earnings, Other, Taxes)](index=55&type=section&id=Other%20Income%2FExpense%20Analysis%20(Interest%2C%20Equity%20in%20Earnings%2C%20Other%2C%20Taxes)_9M) Interest expense increased for the nine months ended September 30, 2021, due to higher interest rates and interest rate swap impact, despite lower borrowings; equity in earnings increased, other expense, net, shifted from income to expense due to prior year foreign currency transaction gains, and income tax expense increased significantly due to the Canton facility sale gain and earnings mix - **Interest expense, net**, increased by **$0.8 million** (**9M 2021** vs **9M 2020**) due to higher interest rates on the **Credit Facility** and the adverse impact of the **interest rate swap**, offsetting reduced average outstanding borrowings[199](index=199&type=chunk) - **Equity in earnings** for MSIL was **$1.3 million** (**9M 2021**) vs **$0.6 million** (**9M 2020**)[199](index=199&type=chunk) - **Other expense (income), net**, shifted from **$1.9 million** income (**9M 2020**) to **$0.1 million** expense (**9M 2021**) due to **2020** foreign currency transaction gains in **Stoneridge Brazil** and **Electronics** segments[200](index=200&type=chunk) - **Provision (benefit) for income taxes** was **$6.7 million** expense (**9M 2021**) vs **$(3.7) million** benefit (**9M 2020**), with an **effective tax rate** of **41.3%** in **9M 2021** due to the **Canton facility** sale gain, earnings mix, and **tax losses** with no recognized benefit[201](index=201&type=chunk)[202](index=202&type=chunk) [Outlook](index=44&type=section&id=Outlook) The Company anticipates continued positive impact from products addressing industry megatrends but expects ongoing challenges from supply chain disruptions, particularly semiconductor shortages, impacting sales volumes and gross margins through 2021; D&D spending is projected to increase, and the effective tax rate is expected to remain higher than normal in 2021 before returning to previous rates in 2022 - The Company believes focusing on products addressing industry megatrends will positively impact top-line growth and underlying margins[146](index=146&type=chunk) - Continued adverse impact from **supply chain disruptions** (**semiconductor shortage**) on sales volumes and gross margins is expected for the remainder of **2021**[147](index=147&type=chunk)[151](index=151&type=chunk) - **Electronics** segment sales are expected to increase in **2021** due to production volume forecasts, strong off-highway demand, and new program launches, including MirrorEye camera-based vision systems[148](index=148&type=chunk) - **D&D spend** is expected to moderately increase from current levels to support new program launches and advanced technologies[149](index=149&type=chunk) - The **effective tax rate** is expected to remain higher than normal in **2021** due to atypical jurisdictional earnings mix and incremental engineering expenses, returning to previous rates in **2022**[152](index=152&type=chunk) [Other Matters](index=44&type=section&id=Other%20Matters) This section discusses various other significant matters including foreign currency exchange rate impacts, details of the PM sensor business disposal, Canton facility sale, Electronics segment restructuring, share repurchase programs, and ongoing customer pricing pressures - **Foreign currency exchange rate movements** significantly affect results, especially in Brazil, Argentina, Mexico, Sweden, Estonia, Netherlands, United Kingdom, and China[153](index=153&type=chunk)[220](index=220&type=chunk) - The **U.S. Dollar** strengthened against several foreign currencies in **2021**, unfavorably impacting material costs and reported results[153](index=153&type=chunk) - The PM sensor business assets were sold for **$4.0 million** (subject to adjustment); Gen 2 assets (**$0.3 million**) were held for sale as of **September 30, 2021**[154](index=154&type=chunk) - The **Canton Facility** was sold for **$37.9 million**, resulting in a **$30.7 million net gain**[156](index=156&type=chunk) - A **$50.0 million share repurchase program** authorized in **February 2020** was temporarily suspended due to **COVID-19** and expired in **Q3 2021**, with **$5.0 million** utilized in **Q1 2020**[160](index=160&type=chunk) - **Business realignment costs** of **$1.1 million** (**Q3 2021**) and **$1.4 million** (**9M 2021**) were incurred for severance and related costs[161](index=161&type=chunk) - The Company faces **competitive pricing pressures** and is negotiating for price increases and mitigation of future costs[162](index=162&type=chunk) [Liquidity and Capital Resources](index=57&type=section&id=Liquidity%20and%20Capital%20Resources) The Company's cash and cash equivalents decreased in 2021, with cash used for operating activities increasing due to working capital needs; net cash provided by investing activities increased due to asset sales, while financing activities used cash for debt repayments; the Company maintains a $400 million revolving credit facility and was in compliance with all covenants as of September 30, 2021, but future borrowing flexibility could be impacted by financial performance Net Change in Cash and Cash Equivalents (in thousands) | Activity | 9M 2021 | 9M 2020 | | :------------------------------------------ | :-------- | :-------- | | Operating activities | $(19,689) | $8,955 | | Investing activities | $12,948 | $(25,038) | | Financing activities | $(14,652) | $14,834 | | Effect of exchange rate changes | $(2,525) | $134 | | **Net change** | **$(23,918)** | **$(1,115)** | - **Cash used for operating activities** increased due to higher working capital for inventory, despite higher net income[203](index=203&type=chunk) - **Net cash provided by investing activities** increased due to proceeds from the sale of the **Canton Facility** and PM sensor business, and lower capital expenditures[204](index=204&type=chunk) - **Net cash used for financing activities** increased due to net **Credit Facility** payments and debt repayments[204](index=204&type=chunk) - The **Credit Facility** has a **$400 million** maximum, with **$130 million** outstanding at **September 30, 2021**[205](index=205&type=chunk) - The Company was in **compliance with all credit facility covenants** at **September 30, 2021**[210](index=210&type=chunk) - Total **undrawn commitments** under the **Credit Facility** and cash balances exceed **$318.3 million**, but future **borrowing flexibility** may be limited by lower than expected financial performance due to **supply chain disruptions**[210](index=210&type=chunk)[221](index=221&type=chunk) [Commitments and Contingencies](index=60&type=section&id=Commitments%20and%20Contingencies_MD%26A) The Company refers to Note 11 for detailed disclosures regarding its commitments and contingencies, including legal actions, environmental remediation, Brazilian tax contingencies, and product warranty/recall claims - Refer to Note 11 for details on **legal actions**, **environmental remediation**, **Brazilian tax contingencies**, and **product warranty/recall claims**[222](index=222&type=chunk) [Seasonality](index=60&type=section&id=Seasonality) The Control Devices and Electronics segments are not typically seasonal, but the Stoneridge Brazil segment experiences higher demand for consumer products in the second half of the year, particularly the fourth quarter - **Control Devices** and **Electronics** segments are not typically seasonal[223](index=223&type=chunk) - **Stoneridge Brazil** segment's consumer product demand is higher in the second half of the year, especially **Q4**[223](index=223&type=chunk) [Critical Accounting Policies and Estimates](index=62&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section states no material changes to the Company's critical accounting policies and estimates as disclosed in its 2020 Form 10-K, which involve significant management judgment and potential financial statement impact - No material changes in **critical accounting policies** or estimates during **Q3 2021**[225](index=225&type=chunk) - **Critical accounting policies** involve management's best estimates and judgments due to inherent uncertainty[225](index=225&type=chunk) [Inflation and International Presence](index=62&type=section&id=Inflation%20and%20International%20Presence) The Company's international operations expose it to foreign currency exchange rates and economic conditions in various countries, and fluctuations in commodity prices are noted as a potential significant impact on profitability - International operations expose the Company to foreign currency exchange rates and economic conditions[227](index=227&type=chunk) - Increases in **commodity prices** could significantly affect profitability[227](index=227&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=46&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item states no material changes to the Company's quantitative and qualitative disclosures about market risk from those previously presented in its 2020 Form 10-K - No material changes to **market risk disclosures** from the **2020** Form 10-K[228](index=228&type=chunk) [Item 4. Controls and Procedures](index=46&type=section&id=Item%204.%20Controls%20and%20Procedures) As of September 30, 2021, the Company's management, including the PEO and PFO, concluded that its disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the quarter - **Disclosure controls and procedures** were effective as of **September 30, 2021**[229](index=229&type=chunk) - No material changes in **internal control over financial reporting** during **Q3 2021**[230](index=230&type=chunk) [PART II – OTHER INFORMATION](index=47&type=section&id=PART%20II%E2%80%93OTHER%20INFORMATION) This part contains other information not covered in the financial statements, including legal proceedings, risk factors, equity security sales, defaults, mine safety disclosures, and exhibits [Item 1. Legal Proceedings](index=47&type=section&id=Item%201.%20Legal%20Proceedings) The Company is involved in various legal actions and claims incidental to its business, including product liability, warranty, and regulatory matters; accruals are made for probable and estimable losses, and the Company does not expect a material adverse effect on its financial position or results of operations - The Company is involved in various **legal actions and claims** primarily arising in the ordinary course of business, including breach of contracts, **product warranties**, **product liability**, **patent infringement**, **regulatory matters**, and **employment-related matters**[231](index=231&type=chunk) - Accruals are established for matters where losses are probable and can be reasonably estimated[231](index=231&type=chunk) - The Company does not believe that the ultimate resolution of these matters will have a **material adverse effect** on its consolidated results of operations or financial position[231](index=231&type=chunk) - The **Stoneridge Brazil** segment is subject to **civil, labor, regulatory, and other tax contingencies** for which the likelihood of loss is deemed reasonably possible, but not probable[231](index=231&type=chunk) [Item 1A. Risk Factors](index=47&type=section&id=Item%201A.%20Risk%20Factors) This item states no material changes to the risk factors previously disclosed in the Company's 2020 Form 10-K - No material changes to **risk factors** previously disclosed in the Company's **2020** Form 10-K[232](index=232&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=47&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This item reports on repurchases of Common Shares during the three months ended September 30, 2021, specifically detailing shares delivered by employees for tax withholding purposes - During **August 2021**, **11,530 Common Shares** were delivered by employees as payment for **tax withholding purposes** due upon vesting of **performance share awards** and **share unit awards**[233](index=233&type=chunk)[234](index=234&type=chunk) - The **average price paid per share** for these repurchases was **$26.81**[234](index=234&type=chunk) [Item 3. Defaults Upon Senior Securities](index=47&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The Company reported no defaults upon senior securities - None[235](index=235&type=chunk) [Item 4. Mine Safety Disclosures](index=47&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The Company reported no mine safety disclosures - None[236](index=236&type=chunk) [Item 5. Other Information](index=47&type=section&id=Item%205.%20Other%20Information) The Company reported no other information for this item - None[237](index=237&type=chunk) [Item 6. Exhibits](index=48&type=section&id=Item%206.%20Exhibits) This item lists the exhibits filed as part of the Form 10-Q, including separation agreements, certifications, and XBRL exhibits - Exhibits include **separation agreements**, **Chief Executive Officer** and **Chief Financial Officer certifications** pursuant to Sections **302** and **906** of the **Sarbanes-Oxley Act of 2002**, and **XBRL exhibits**[238](index=238&type=chunk) [Signatures](index=49&type=section&id=Signatures) The report is duly signed on behalf of Stoneridge, Inc. by Jonathan B. DeGaynor (President, CEO, and Director) and Matthew R. Horvath (CFO and Treasurer) on October 27, 2021 - The report is signed by **Jonathan B. DeGaynor** (**President, Chief Executive Officer and Director**) and **Matthew R. Horvath** (**Chief Financial Officer and Treasurer**)[242](index=242&type=chunk) - Date of signing: **October 27, 2021**[242](index=242&type=chunk)

Stoneridge, Inc. (NYSE:SRI) Q2 2021 Earnings Conference Call August 5, 2021 9:00 AM ET Company Participants Kelly Harvey - Director of Investor Relations Jon DeGaynor - President and Chief Executive Officer Bob Krakowiak - Chief Financial Officer Conference Call Participants Gary Prestopino - Barrington Research Justin Long - Stephens Scott Stember - CL King Operator Welcome to the Stoneridge Second Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] ...

Q2 2021 Results August 5, 2021 Forward-Looking Statements 2 Statements in this presentation that are not historical facts are forward-looking statements, which involve risks and uncertainties that could cause actual events or results to differ materially from those expressed or implied by the statements. Important factors that may cause actual results to differ materially from those in the forward-looking statements include, among other factors, the impact of COVID-19, or other future pandemics, on the glob ...