Stoneridge, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing; it does not provide a standalone fourth-quarter income statement. Stoneridge designs and manufactures vehicle electrical and electronic products, with Control Devices, Electronics, and Stoneridge Brazil reportable segments.
Financial performance
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Net sales | $899.9 million | $770.5 million |
| Gross margin | 19.4% | 21.7% |
| Operating income | $2.9 million | $15.4 million |
| Net income (loss) | $(14.1) million | $3.4 million |
| Diluted earnings (loss) per share | $(0.52) | $0.12 |
| Cash from operating activities | $6.8 million | $(36.2) million |
| Cash and cash equivalents at year-end | $54.8 million | $85.5 million |
| Revolving credit facility borrowings at year-end | $167.8 million | $164.0 million |
Cash used in investing activities was $28.6 million, including $31.6 million of capital expenditures and capitalized intangibles. The company reported $132.2 million of undrawn Credit Facility commitments at year-end, in addition to cash. Inventory rose to $152.6 million from $138.1 million, amid supply disruptions and new launches.
Material changes and drivers
- Sales rose 16.8%. Electronics sales increased 41.1% to $505.1 million; Control Devices sales fell 3.7% to $342.6 million; Stoneridge Brazil sales fell 8.0% to $52.2 million.
- Electronics growth reflected higher commercial and off-highway volumes, negotiated price increases, and customer recoveries for semiconductor spot purchases. Stoneridge recognized $58.4 million of spot-buy-related customer recoveries in 2022.
- Gross margin declined 2.3 percentage points, with higher material costs, supply-chain disruption, spot purchases, and inflation outweighing pricing and volume benefits. Spot-buy activity reduced gross margin percentage by 1.4 points.
- Operating income fell despite higher sales. FY 2021 included a $30.7 million gain on sale of the Canton facility; it also included a $1.1 million gain on disposal of the PM sensor business. Net loss in 2022 was also affected by higher interest expense and foreign-currency transaction losses.
- Operating cash flow improved from a $36.2 million use in 2021, mainly because less cash was absorbed by working capital, particularly inventory.
Outlook, risks, and unusual items
- Management expects 2023 sales to increase in Electronics, supported by commercial/off-highway demand, new launches, and MirrorEye adoption. It expects Control Devices sales to increase, including from actuation launches. No formal consolidated earnings or EPS guidance is provided.
- Management anticipated ongoing but moderating supply-chain disruption, elevated material costs, production volatility, and margin pressure in 2023; it planned to pursue customer price increases, cost recoveries, and supply-chain cost reductions. The company could not predict the duration or magnitude of spot-buy activity.
- On March 1, 2023, the company amended its Credit Facility to provide temporary covenant relief and impose additional restrictions through the specified period ending after delivery of the September 2023 quarter compliance certificate. The amendment reset leverage and interest-coverage limits and retained restrictions on borrowings, restricted payments, and acquisitions. The company reported compliance with covenants at December 31, 2022.
- Principal risks include dependence on vehicle production and major customers (top five accounted for 49% of 2022 sales; top ten, 63%), semiconductor and other supply availability, inflation and customer pricing pressure, foreign-exchange exposure, floating-rate debt, and successful launches of awarded programs. Approximately 99.1% of year-end debt was floating-rate; management estimated a 1-point rate change would affect annual interest expense by about $1.7 million.
- Brazilian civil, labor, and non-income-tax contingencies totaled approximately $9.2 million and were assessed as reasonably possible, not probable; no provision was recorded. The company is contesting a Brazilian competition-authority ruling that included a fine within these contingencies.
- Potential additional PM sensor exit commercial-settlement and legal costs were estimated at up to $4.2 million. The product warranty and recall reserve was $13.5 million at year-end.
- The filing describes an immaterial quarterly-period classification error related to a $3.7 million gain on settled net-investment hedges: it was reclassified from earnings to other comprehensive income. The auditor issued unqualified opinions on the financial statements and internal controls; warranty and recall reserves were identified as a critical audit matter.
Investor verification priorities
- Check the timing and adequacy of customer recoveries and price increases against material inflation, spot-buy costs, and margin trends.
- Monitor cash generation, inventory and receivables, available borrowing capacity, interest costs, and compliance with amended Credit Facility covenants.
- Validate the assumptions behind 2023 segment growth expectations, MirrorEye take-rates, and awarded-program launch schedules.
- Review customer concentration, the status and potential cost of the Brazilian contingencies and PM sensor settlements, and changes in warranty claims and reserves.