Executive Summary / Key Takeaways

• Stoneridge is undergoing a significant strategic transformation, highlighted by the planned divestiture of its Control Devices segment, to sharpen its focus on high-growth Electronics and Stoneridge Brazil businesses, particularly advanced vision systems like MirrorEye and telematics solutions.
• The company's core technological differentiators, such as the MirrorEye camera monitor system and the SMART2 tachograph, are driving substantial new program awards and market outperformance, with MirrorEye revenue projected to nearly double in 2025 to $120 million and reach $300 million annually by 2029.
• Despite macroeconomic headwinds and declining end markets, Stoneridge has demonstrated operational resilience, improving gross margins, reducing material and quality-related costs, and generating positive free cash flow, with a targeted $25 million to $30 million in free cash flow for 2025.
• The potential sale of Control Devices is expected to significantly de-leverage the balance sheet, reduce interest expense, and free up capital and resources to accelerate growth in the Electronics and Stoneridge Brazil segments, positioning the company for long-term shareholder value creation.
• While the company faces risks from market volatility, tariff impacts, and the need to refinance its credit facility, its strategic initiatives and technological leadership in niche markets are poised to drive substantial earnings expansion and revenue growth, targeting $1.3 billion to $1.45 billion in revenue and $160 million to $200 million in EBITDA by 2029.

Stoneridge's Visionary Path: Reshaping for Future Mobility

Stoneridge, Inc. (NYSE:SRI), a global supplier of safe and efficient electronics systems and technologies, is strategically reorienting its business to capitalize on the evolving landscape of the automotive, commercial, off-highway, and agricultural vehicle markets. Founded in 1965, Stoneridge has built a foundation in engineered electrical and electronic systems, components, and modules. The company's current strategy centers on leveraging its technological prowess in advanced driver information solutions, vision systems, and connectivity to drive long-term growth and enhance shareholder value. This strategic pivot is particularly critical in an industry facing significant shifts towards electrification, enhanced safety, and increased connectivity.

The competitive landscape for Stoneridge is characterized by a mix of large, diversified automotive suppliers like Bosch, Continental AG (CTTAY), and Denso (DNZOY), alongside more specialized players. Bosch, a dominant force in automotive components, excels in R&D and integrated solutions, often setting industry trends. Continental AG is a leader in advanced electronics and safety-critical components, while Denso specializes in EV technologies and powertrain components. Stoneridge differentiates itself by focusing on specialized segments and aftermarket solutions, where its agility and customer-focused strategies allow it to compete effectively. While larger competitors benefit from scale and broader market penetration, Stoneridge aims to carve out and expand its leadership in niche, high-value areas, particularly with its innovative MirrorEye system.

Technological Leadership Driving Growth

Stoneridge's investment thesis is deeply rooted in its differentiated technology, which provides tangible benefits and underpins its growth strategy. The company's core technological advantage lies in its advanced vision systems, particularly the MirrorEye camera monitor system. This system offers superior driver visibility and vehicle efficiency compared to traditional mirrors. For instance, the MirrorEye system, when paired with an independent camera wing design, falls under Stoneridge's FMCSA exemption in North America, allowing for the removal of conventional rearview mirrors. This design significantly reduces aerodynamic drag, contributing to fuel savings of up to 3% for commercial vehicles. The system also integrates advanced features like blind spot and forward-facing detection, digital video stream output for recording, and automatic camera adjustments based on trailer position, enhancing road safety and driver awareness.

Beyond MirrorEye, Stoneridge's SMART2 tachograph represents another key technological differentiator. This next-generation digital tachograph ensures compliance with European regulations and provides advanced driver information solutions. The company is also innovating with its Leak Detection Module (LVM), a new technology designed for hybrid and traditional powertrain vehicles to address evaporative emissions challenges. This system combines emission systems design expertise with canister vent solenoid technology, offering a more effective and integrated solution for a critical pain point in hybrid vehicle emissions control. Furthermore, Stoneridge is developing a suite of connected trailer products that leverage proprietary technology to transmit data through existing power cables, enabling features like digital backup cameras with no latency and integrated lighting, tire pressure monitoring, and cargo surveillance. This connectivity innovation allows for rapid and easy adoption without requiring additional driver training.

These technological advancements are not merely incremental improvements; they are foundational to Stoneridge's competitive moat. The MirrorEye system, for example, is the only system available on new production vehicles with every major OEM in North America. This market leadership in camera vision systems translates into stronger pricing power, increased market share in specialized segments, and a robust pipeline of new business awards. The company's R&D efforts are focused on expanding these platforms, with goals to enhance system integration, add new sensing technologies, and continuously improve performance metrics, thereby securing long-term growth and profitability.

Strategic Realignment: Focusing on Core Strengths

A pivotal strategic initiative for Stoneridge is the announced review of strategic alternatives for its Control Devices division, with a primary focus on a potential sale. This decision, announced in Q2 2025, is a deliberate move to optimize resource allocation and unlock greater shareholder value. Management believes that dedicating capital, engineering resources, and leadership focus to the high-growth opportunities within the Electronics and Stoneridge Brazil segments will yield the highest return profile for shareholders. A potential divestiture of Control Devices would allow that business to have dedicated ownership and resources, fostering its specific growth avenues.

The financial implications of this strategic realignment are significant. The potential proceeds from a sale would be used to significantly reduce Stoneridge's current leverage profile and interest expense burden, thereby strengthening the balance sheet and creating additional options for capital deployment. This move underscores a commitment to shaping a more focused and successful Stoneridge, capable of accelerating growth in its most promising segments.

Financial Performance and Operational Resilience

Stoneridge's recent financial performance reflects both market challenges and the positive impact of its operational initiatives. For the three months ended September 30, 2025, the company reported a net loss of $9.4 million, or $0.34 per diluted share, an increase of $2.3 million compared to the same period in 2024. Net sales for Q3 2025 decreased by 1.7% to $210.3 million, primarily due to lower production volumes in the North American and European commercial vehicle markets within the Electronics segment, and reduced volumes in the China automotive market for Control Devices. These declines were partially offset by higher European off-highway sales, increased OEM product sales in Stoneridge Brazil, and growth in North American and China commercial vehicle sales in Control Devices.

Despite the top-line pressures, Stoneridge has demonstrated operational resilience. The gross margin as a percentage of sales decreased slightly to 20.3% in Q3 2025 from 20.8% in Q3 2024, mainly due to lower contribution from reduced sales. However, for the nine months ended September 30, 2025, the material cost as a percentage of net sales decreased due to favorable foreign exchange-related variances. The company has made significant strides in operational efficiency, with a $2.5 million improvement in quality-related costs in Q1 2025 compared to Q4 2024. In 2024, Stoneridge reduced overall material costs by 120 basis points and improved direct labor by 30 basis points, representing a 7% year-over-year improvement.

The Electronics segment, a key growth driver, saw its net sales decrease by 4.7% in Q3 2025, but its operating income increased by 67.1% due to lower selling, general and administrative (SGA) and design and development (DD) expenses. MirrorEye sales continue to be a standout, achieving record-setting quarterly sales with an impressive 21% growth in Q2 2025 relative to Q1 2025. Stoneridge Brazil exhibited robust growth, with net sales increasing by 29.7% in Q3 2025, driven by higher OEM product sales, which also led to a substantial 274.3% increase in operating income for the segment.

Liquidity and Capital Structure

Stoneridge is actively managing its liquidity and capital structure to support its strategic objectives. As of September 30, 2025, cash and cash equivalents stood at $54 million, with 86.7% held in foreign locations. The company has been proactive in reducing its debt, with borrowings outstanding on its Credit Facility decreasing to $170.2 million at September 30, 2025, from $201.6 million at December 31, 2024. This reduction was significantly aided by a $43.8 million tax-efficient international cash repatriation program executed in Q2 2025.

The Credit Facility, which matures on November 2, 2026, is expected to be refinanced before the end of 2025. An amendment to the facility on November 5, 2025, reduced the borrowing capacity from $275 million to $225 million and adjusted certain covenant ratios, including extending the minimum interest coverage ratio of 2.50 through Q1 2026. Despite these adjustments, Stoneridge maintains approximately $104.8 million of undrawn commitments, resulting in total undrawn commitments and cash balances exceeding $158.8 million as of September 30, 2025. The company's focus on inventory management has also yielded positive results, with a $7.3 million reduction in Q2 2025 over Q1 2025, and a $28 million reduction over Q1 2024. Management believes there is still significant opportunity to improve inventory turns, even with future revenue growth.

Outlook and Growth Trajectory

Stoneridge's outlook is characterized by a commitment to leveraging its technological strengths and strategic focus to drive significant growth and earnings expansion. For the full year 2025, the company is maintaining its revenue guidance of $860 million to $890 million, anticipating that favorable foreign currency impacts and strong operating performance will offset lower production volume expectations in the North American commercial vehicle market. Adjusted EBITDA guidance has been updated to $34 million to $38 million, reflecting year-to-date non-operating foreign currency expenses and approximately $1 million in estimated tariff-related costs. The company targets a compliance net debt-to-EBITDA leverage ratio of approximately 2.5x by the end of 2025.

MirrorEye is projected to be a primary growth engine, with revenue expected to grow by at least $54 million, or approximately 75%, over 2024, reaching $120 million in 2025, with $100 million from OEM programs. This growth is driven by the ramp-up of new OEM programs, including launches with Volvo (VLVLY) and Daimler Truck North America (DTRUY), and the system becoming standard equipment on several key truck platforms. Long-term targets for MirrorEye are ambitious, aiming for nearly $300 million in annual revenue by 2029, based on targeted European take rates of 25% and North American take rates of 25% to 35%.

Beyond 2025, Stoneridge anticipates strong growth, targeting revenue of at least $975 million in 2026, representing 11% growth over the 2025 midpoint. This is supported by expected strong commercial vehicle production, particularly in North America, driven by pre-buying ahead of 2027 emissions regulations. By 2029, the company projects total revenue of $1.3 billion to $1.45 billion, representing a five-year compound annual growth rate of 7.5% to almost 10%, with targeted EBITDA of $160 million to $200 million. New program awards, totaling approximately $775 million in lifetime revenue, including a $535 million MirrorEye program extension through 2033 and a $85 million infotainment ECU program for Stoneridge Brazil, underscore this growth trajectory.

Risks and Challenges

Despite the compelling growth narrative, Stoneridge faces several pertinent risks. Macroeconomic headwinds, including continued volatility in end markets and lower production volumes, particularly in the North American commercial vehicle sector, could impact revenue and profitability. The company is exposed to fluctuations in the cost and availability of key materials and components, and its ability to offset these cost increases through pricing or other actions is crucial. Geopolitical risks, tariffs, and trade tensions also present ongoing challenges, although Stoneridge has implemented mitigation strategies, such as USMCA certifications and cost-sharing agreements with customers.

Quality-related costs have historically impacted financial performance, and while management has redoubled efforts to improve built-in quality and rapid response to issues, the potential for future warranty claims or product recalls remains. A significant risk is the need to refinance the Credit Facility by the end of 2025. Failure to do so could lead to an audit opinion indicating substantial doubt about the company's ability to continue as a going concern, potentially triggering an event of default. Furthermore, the competitive nature of the markets, with larger, more diversified players like Bosch and Continental, means Stoneridge must continuously innovate and execute to maintain its market position and avoid pricing pressures.

Conclusion

Stoneridge is at a critical juncture, embarking on a strategic transformation to unlock its full potential in the rapidly evolving mobility sector. By focusing its resources on the high-growth Electronics and Stoneridge Brazil segments, driven by technologically advanced products like MirrorEye, the SMART2 tachograph, and the new Leak Detection Module, the company is positioning itself for substantial long-term growth. The planned divestiture of Control Devices is a bold move designed to streamline operations, strengthen the balance sheet through debt reduction, and provide dedicated capital for its core growth platforms.

While macroeconomic uncertainties and competitive pressures persist, Stoneridge's commitment to operational excellence, including material cost reductions and improved quality, coupled with its robust pipeline of new program awards, provides a compelling investment thesis. The company's ability to execute its strategic realignment and successfully refinance its debt will be paramount. With a clear technological roadmap and a focused strategy, Stoneridge aims to significantly expand its earnings and drive long-term shareholder value, making it a compelling consideration for discerning investors looking for exposure to the future of vehicle intelligence and safety systems.