Stoneridge, Inc. (SRI) Earnings Call Transcript & Summary

[Audio Gap] Third day or close to the end of the third day.

So why are people here to talk Stoneridge?

Let me spend just a couple of minutes giving a bit of background as to why a soon-to-be 57-year-old company is interesting. What you'll see is a company that's global. But more importantly, it's a company that in, particularly in the last 7 years, has gone through a tremendous transformation in what we do and how we do it. And what that -- what this slide will tell you is we've rotated so that we're basically powertrain-agnostic. So the issue of whether internal combustion matters in the future, we made a significant change with regard to that. That translates into our growth rate of still over this next 5-year period of a 9% compound annual growth rate and probably, most importantly, is this $3.4 billion backlog. And the way in which we think about backlog is that is booked business with IHS volumes over a 5-year period. So it's not total life of program. It's literally just what the next 5-year outlook is. So that means we could not win another program, which I don't plan on doing, and we'd have this level of growth for a significant period of time. As you think about the company, it's pretty well balanced between its end markets, the specific technologies and really, customers. So we're roughly split 50-50 between commercial vehicle and passenger car with some -- then another 20% of that going into the aftermarket space or into the non-OE space, split around the globe. And most importantly for me, when I joined this opportunity, the fact that not only are we geographically split and are we product split, but there's no one customer that can completely cripple the company. So for a company our size to have this sort of customer diversity means we get the chance to win and adjust with the winners, but there isn't one that can hold us hostage from a pricing perspective. And particularly in this inflationary period of time, that's a great opportunity. What you also see is, again, here are some of the transformation that we've gone through, product portfolio transformation, organizational transformation and really going from being an online producer of build-to-print, cheap and cheerful sensors and actuators, to subsystems and now really platforms and technology platforms. And we'll talk a little bit more about that, both with MirrorEye and what's beyond that as well as what we're doing on the passenger side from an actuation and a sensing perspective. So again, the business is split roughly 50-50 between Control Devices, which you can think of as actuation and sensing, primarily for passenger cars and light trucks; our Electronics business, which is driver -- basically driver interface electronics and vehicle control electronics for the commercial vehicle space; and then our SRB business, which is primarily aligned with our Electronics business, again, safety and security activities in the electronic space in that market. And because of the barriers to entry in that market, it's really important to have a manufacturing and a technology presence there. And it's also a really capable set of engineers that we're able to use much more globally than we did 5 or 7 years ago. The -- what we talk about the future and we talk about the portfolio rotation, we'll talk about MirrorEye in a minute, is this powertrain-agnostic aspect means that historically, all of the Control Devices business was largely associated with internal combustion. And we have rotated out of many of those products. And now the things that we're working on is applying our core competencies, our actuation core competencies in the things that can help whether it's an electric vehicle or a hybrid vehicle or an internal combustion engine. The electronic park module that we have in the -- on the Ford electric vehicles is one of the examples, where something that we are doing in Shift-by-Wire for the internal combustion engine vehicles, we are able to -- that engineering relationship and the core competencies turned into how do we help them solve a problem on their electric vehicles. So Stoneridge really has worked very hard in, as we reposition also, selling through the engineering organizations and making sure that we're solving a customer's problem. And that's what you see with the electrified platforms and the vehicles we're working on there and things like trailer tow. So as you want to -- as you see the advertisements for pickup trucks with trailers and how do you see behind the trailer, the ability to facilitate that comes through some of the connectors that we still deliver. So again, it's technology even in some of the older product lines that we have. So on the Control Devices side, rotating out of anything that was solely internal combustion-focused, getting out of products like soot sensing, where that was only diesel-focused and putting our resources toward what are the things that are going to win with the winners. On the Electronics side, probably the most exciting product that we have and really emblematic of the transformation of the organization is our MirrorEye system. And that is a replacement of the mirrors on a commercial vehicle with a camera system. That is a tremendous fuel economy improvement and safety improvement, but really is stepping back and saying, what is it that the drivers and the fleets need to be successful? In North America, the fastest rising cost in commercial vehicles, set aside near-term fuel, is insurance. It's the fifth largest cost, and it's the fastest-rising cost. 36% of the accidents are blind-spot accidents. By replacing the physical mirror with a camera system and then ultimately with recording, now what I can do is I can eliminate that blind spot. But I also can give a liability reduction to a fleet because they've got the recording that says, "I was in the lane" or if it's their fault, they can settle it. And we've seen tremendous interest in that from the fleets and also from the insurance collectives that are working with these smaller fleets. What -- as you think about our technology versus competitors, we have the first product that is both in the U.S. and in Europe. We have the first one that's got the FMCSA exemption that allows for trucks to pull the mirrors off. The product has been extremely successful commercially, and we've won basically all of the programs in the U.S. that have been awarded, we've won. And in -- we end up with something like 70% market share, the vehicles of 70% market share in North America and around 33% market share in Europe. We're on those platforms. It's also been very successful from a retrofit perspective. Fleets that don't want to wait till the OE programs, and they want that insurance benefit. We've had great success there, and we continue to see growth on that side. It's also where we use the fleets as sort of our technology development and our road map development. What problems are they trying to solve, and how do we put the technology in place so that we can be solving their problems. We're going to the OEs and saying, "Hey, here's the next one that you've got to be able to solve." And that, again, is a differentiation versus just being a regular Tier 1 who's waiting for the OE to define what the need is. We're creating those needs. This is a business that from nothing, now we have $75 million worth of peak annual award contracts, but what we could see as, depending on the take rate, something that could be a $0.5 billion product line on an annual basis from nothing in the last couple of years. And what that also does is it gives us then a platform when we talk about a platform that is now that you're in the vehicle and you're providing that digitized image, now you've got recording. You've got the ability to use the connectivity soot modules that we already provide and put into trucks to stream the video, and we start bring it in now with a digital display. Now you can add -- you can bring all these things, weave them together. So whether it's driver monitoring is the next step, whether it's additional cameras around the truck, again, it's providing a complete safety and driver information solution rather than just providing individual components in individual systems. And that's really where the company is going is whether it's in -- on the passenger side or whether it's on the commercial vehicle side is how do we think, what do our customers need, how do we utilize our core competencies to provide really value-added systems going forward. And that's what the next years of the transformation of the company will be. So with that, Brian, I will -- think turn it over to you.

Thank you for taking us through that, Jon. Very informative in terms of what's here. I think a key question that has come up in all the presentations at the conference over the last few days has been just the macro environment, how navigating that effectively. We'll come back to talk more about the technology here, but just I think a key focus on investors' minds has been the inflation that we're seeing from an input cost standpoint, from a labor standpoint, supply chain, et cetera. How are you seeing it where you sit at Stoneridge? And how is Stoneridge best navigating this challenging environment?

Well, it's a -- there's a couple of aspects to that. Certainly, with the rotation that we made of the product portfolio, we basically turned into -- we rotated the organization into an inflationary space with the fact that everything we make now has a chip. The -- so that certainly has been a challenge. But because we've got a level of technology capability in each of the products, this isn't the commodity, it's not easily replaceable, and it's engineered in. So what that has allowed us to do is go to the customers, explain the situation, sometimes nicely, sometimes not so nicely, and be able to get recovery on, at this point, 90% of the inflation that we've seen on it, we've been able to get recovery. And we continue to work to get more of that. As you think about the overall macroeconomic environment, part of the other aspect for Stoneridge is because we're not in one geography, and we're not just on one set of product lines or with one end market between commercial vehicle and pass car, the -- some of those macroeconomics are mooted just a bit. The other thing as you think about inflation with regard to labor inflation and some of the other pieces there is we don't have a huge manufacturing footprint in the U.S. So we're not seeing base labor inflation in our big facilities. Our largest facility's in Juarez. While there is labor inflation, direct labor as a percent of sales was less than 3.5%. So the impact of inflation as it means to margin is relatively de minimis. But what we have been able to do is where we're seeing inflation on freight or where we're seeing inflation on input materials, we're going back to the customers. And we're having those really hard conversations.

Yes, I mean -- no, I think it's important also to note, though, that when we think about the macroeconomic challenges, our exposure is primarily to electronic components and that supply chain. So it's much less commodity focused and much more electronic component, which is like what Jon said, our strategy, moving the portfolio towards a more electronic-focused portfolio has kind of walked us into these issues. But it's also what gives us the ability to go back to customers and have those constructive conversations because we've got something unique. We've got something that's got intellectual property behind it, something that's in the growth areas of the market, so it gives us a little bit of leverage in those conversations. And like Jon said, we've been very successful in not only passing along premium, what we call spot buys, which is basically individual buys for scarce components, but also more durable material costs. So we've had renegotiated most of our exposed contracts with customers such that it not only provides relief historically to the costs we've seen, but also going forward, we've got some visibility into relief there. So it's been -- now that's not to say that we haven't continued to see challenges. And we'll probably have to go back and continue to have those conversations. But like Jon said in the first quarter, we offset about 90% of that material cost that we saw come through. So we've got a playbook in place. We've had conversations with customers, and we've been very successful in getting the price increases so far.

I think this is an industry I've been in for 32 years. The first answer from customers for any situation is no. But one of the things that I'm really proud of is we've rotated out of all of the commodity products or most of the commodity products. So in a situation where a customer would just say, it's no or I'm going to resource you, we don't have those sort of customer -- we don't have those sort of exposures anymore. Now you've got engineered -- things that are engineered in with some real technology in there. And so it's much stickier. It's much harder for a customer to make a change, so that makes the negotiation a little different.

On MirrorEye, you talked about the retrofit opportunity relative to the OE or the engineered-in opportunity. We've seen something like this before with LEDs with commercial vehicles. And so where would you say you are in the journey in the retrofit relative to the new OE installation?

So the retrofit is both a product development and a market development activity. And the retrofit isn't really an opportunity in Europe. It's just the way the legislation works and the way the trucks are purchased. It doesn't work that way. In the U.S., it becomes -- because the fleets are so powerful and particularly the safety-leading fleets or big fleets that we've talked about, J.B. Hunt, Schneider, those sort of things, they spec in what they want. So if we're able to demonstrate the value proposition of how it helps with safety, how it helps with fuel economy, how it helps with driver retention and driver training, it becomes a topic where the fleets are going to the OEs and saying, "I want this. And by the way, I want Stoneridge in particular. I want MirrorEye in particular." And that's why, in my mind, why I think we've been so successful with the OE programs is the fact that the fleets are calling the OEs and saying, "This is what I want." And so it -- there is synergy between those 2 things. The other aspect is the retrofit side is, in some situations, 2 or 3 years ahead of when there will be an OE solution. OE programs take longer. Vehicles have to be redesigned. So they want the savings, and they want the safety benefit right now. And so they're doing the retrofits in advance of that.

I can even add to that, Brian. We have gotten such strong pull from the fleets to the OEs. We've announced that we're doing prewires, right? So in advance of an OEM program, we've got a prewire application that does a portion of the install straight from the factory, so it's much easier to retrofit the application once it gets on the road. So fleets that don't want to wait for the OE product are going to OEs and asking, "Can you do this before we get the truck so it's easier to adopt the retrofit when we get the vehicle?" So the go-to-market -- I mean, ultimately, the end customer is a driver, right? So getting driver feedback, going to the market with the fleets and getting the feedback from the fleets and having that pull through the OEs makes for a much easier back-and-forth discussion on what does the product need to look like. Remember, it's a new product. There's not a camera system that replaces mirrors on trucks today. So it's a new product. Going back and getting that feedback, getting the driver and the fleet adoption confirmation allows us to pull through that OE, the OE awards, and like Jon said, we've won every single OE award in North America that's been awarded. And it represents a significant portion of the overall production market should the system be adopted as an option when the truck is ordered. So the fleet activity has not only been a financial opportunity for us to sell product, but it's also been a good market feedback opportunity and a good way to pull through the forward programs.

Thank you. Further on the MirrorEye, you talked about the 15% take rate, what you described in the slide as conservative on existing awards. And that was visibility towards, what, $75 million peak annual contracted OEM revenue.

Right.

Just again, I'm not trying to get -- like based on the early activity and the early experience of the customers that you're working with, just -- I'm not trying to get you to quantify, but just talk about where that could go.

Yes. So we've talked about this publicly. The first OE program started in Europe, and it's double the take rate initially. So what they asked us to prepare for, their order intake is more than double. That is supply constrained. If we were able to deliver more, they would take them. So what we're seeing is it's a little bit like backup cameras in a car 4 or 5 years ago or 7 or 8 years ago at the point when it was regulated in, I think that was 2015. The time that it took for those to become ubiquitous was 7 years. But what you end up with is as soon as a driver has it and understands the power of it, they want it. In Europe, it's -- there's also a significant fuel economy benefit to it, and the fleets get a tax rebate. So we're seeing it more than double. It's supply constrained. As these other OE programs start, we expect that the same thing will happen. And with the feedback that we've gotten from the fleets, we've talked about Maverick as one of our lead fleets. They've decided to go across the board. They're not going to wait for the OE programs. They're retrofitting all of their trucks. That tells you something because these are guys that roll their fleet every 4 years. And they're taking trucks that they may only have 1 year, 1.5 years left, and they're retrofitting. So the value equation is so much, is so strong that they're going to do it right now. So we think the take rate that we published is what we are awarded, but we think it's grossly understated. And the first data would say that, that's true.

And look, I mean, you talked about just the market share you have in North America relative to Europe in this product as well. Can you talk a little bit more just with the number of technologies like this that are coming up, just the IP competitive moat that's embedded here, why can't -- why are you winning the performance? And how are you protecting the reason that you're winning?

So the only other system that's in production is a system that is a venture between [ Macra ] and Bosch. And that's on the European Daimler Actros. We competed for that program when it was originally awarded in 2015. What -- and we've won every program since then in head-to-head competition with Bosch, [ Macra ], we've won every program since then. They have a significant patent portfolio. We have a significant patent portfolio. What we see is I've been in this industry long enough to know that there will be competition. And I would never take a competitor like Bosch lightly. That's foolish. It's why doing the fleet activities and making sure that we're iterating the system to really make it the most valuable for the driver and for the fleet and making sure that we've got the feature functions that they want as opposed to just treating it like any other Tier 1 developing a product, I think that's our competitive advantage. Yes, there's intellectual property that goes along with it. But it's a lot more of how we've gone to market and what do we do to keep that lead so that we're not just falling into -- we're competing with Bosch on their playing field. We're changing the rules of the game.

Yes. I would add to that a little bit and actually bring it back to your last question on value proposition. Like Jon said, the way that we've approached the market is probably a differentiator. And it's really important when you start to understand the system, the value proposition and the reason we approach the market that way. In Europe, fuel economy was the biggest benefit when they were awarded the original program, right? And the safety aspect was not as big of a cost savings or as an opportunity from a value proposition perspective. When we brought the system to North America and we worked with the fleet, what we understood was the safety benefit is actually tremendously greater in North America and is probably the leading value proposition for the system going forward. So our system both have -- again, Bosch is a very -- obviously, a viable competitor. Both systems have their advantages. Our system is focused on the safety aspects of the overall system rather than just the fuel economy, which you get, obviously, by taking the mirrors off. But the safety benefit is what has allowed us to work with the [ footprint ] where you see a bigger value proposition that has been pulled through that OE win. So when you look at it, the system, when you take off the mirrors, it saves about 3% fuel economy, okay? So the system has a payback period, obviously, a better payback period today than it did a year ago given where fuel is, but the payback on the fuel alone is within 2 years. When you add on the fact that, like Jon said, 1/3 of the incidents in these vehicles happen in the blind spots that we're eliminating with this camera system and you start looking at not only rising insurance costs, but some of the guys are self-insured, are seeing that benefit right off the top, right? I think it was published a couple of years ago, the average non-fatality accident, recordable accident in a commercial vehicle is $400,000 settlement, and the average fatality is over $7 million. So when you add on the fuel benefit that is just simply thereby removing the mirrors and then you take into account the safety aspect and how our system plays to some of the safety benefits that eliminate those accidents, you can really see a duplicative effect of the value proposition. So when you add that on to the fact that we marketed it a little bit differently in North America, that's where you get that big differentiation between us and what will be other competitors, but we've got a significant commercial lead for that reason.

And the broader question I have, and this is across the portfolio, but I'd also like you address it from a MirrorEye standpoint as well. But if you think about the shifts, and you talked about portfolio largely being ICE-agnostic in terms of today. So trends that are out there, both EV as well as ADAS and autonomous. And so ADAS autonomous are like -- you'd also tie in specific to MirrorEye. But just how does that impact your business? And on the MirrorEye side, I mean, where I'm going down the path is like active versus passive safety, I mean, tremendous amount of capabilities, but what's the potential here?

So we made a -- let's talk about active versus passive safety. We made a conscious decision to stay out of active safety activities. There's too many big players that are spending way too much money in that space. So what we have consciously decided is let everybody focus on the forward. That 90 degrees, they can have. They can pour their billions of dollars of engineering into that. We can drive tremendous value with the side, and where we're talking about next is the back of the truck. But what we know is this customer intimacy, autonomous is a long way away, particularly on commercial vehicles. Autonomous is a long way away with any sort of commercial penetration. What we know is if you're in the conversations and you're helping to facilitate vehicle automation, it gives you the chance to be in there for what does the future system look like. So will it be an input into an autonomous system? Will it be an input into an active safety device? The answer is yes. Are we going to be putting the software in place that says, we see the image in it, and we're going to impact the steering wheel? Probably not because the value-added versus a ZF or versus a Bosch or those sort of things, it's just not the right choice for us. The same is true on the powertrain side, where the actuation and using the capabilities that we have, we may end up being a Tier 2 in some of these. And that's fine as long as it's getting us the margins and the return on the engineering that we want. So whether it's a Tier 1 or a Tier 2, it's what is the value added that we have. We are Tier 1 and Tier 2 in driveline actuation today. So it's not uncomfortable for us to be in that situation from an EV perspective. It's just making sure that we're using our competencies and our return on engineering appropriately.

Yes, that's a really important concept when you look at the strategy. I think the last slide that Jon showed shows kind of our portfolio as a whole, right? When we think about going from a product to a component to a system, we own some really interesting real estate, both on the electrified powertrain side and passenger car and on kind of what I call like the user interface or the data side on the commercial vehicle. So when you think about today the digital instrument clusters, for example, that we make, the digital instrument cluster today is speedometer, tachometer, the normal things you would expect in an instrument cluster. But really, it's the main interaction between the vehicle and the driver, right? So as you go forward, when you think about platooning or whatever the next step is, you own that piece of real estate rather than that product. So we try to build the same way that we talked about using the vision systems to build inside, behind trailer. What is the next iteration of that product? It's owning the real estate and really owning the capability of that real estate going forward, not necessarily the product. It's the same thing on the powertrain side. When we look at the actuation space, we're fairly unique in that we have a pretty broad actuation portfolio rather than just one specific application of actuation where we did a historical product that was mechanical that moved to electrified, unlike others. So like Jon said, our core competency is what really allows for that portfolio-based strategy rather than those individual product line growth strategies.

Thank you. Any questions on the floor? Okay.

A little about the backlog, the MirrorEye program. Would be interested in kind of getting your perspective or intel on what percent of MirrorEye kind of represents as part of your backlog over the next 5 years and just kind of what that -- how that's going to play out.

Yes, it's a great question. Our backlog is -- there's very little MirrorEye on our backlog. Our backlog is only awarded programs, and the only MirrorEye that's in the backlog is at the quota take rates, so that 15%. Like we said -- and actually, some of those programs will launch in 2023 and 2024, so the backlog has a very small portion of awarded MirrorEye business. There's obviously an option value on top of that. When you think about the take rate, like we said, it's already -- right out of the gate in our first OE program, it has doubled that 15% -- more than doubled that 15%. So there's an option value on top of the backlog, but the backlog is primarily what I would call the base business. MirrorEye is an option on top of that. And also, that doesn't include our aftermarket, right? About 20% of our business is aftermarket, including the retrofit opportunity that we talked about at MirrorEye. So the backlog is more or less base business growth with a MirrorEye kind of kicker on top.

And any follow-up questions? But maybe just to pick up on what you had, Matt, there, specifically, earlier on the slide, you talked about the 5-year revenue CAGR of 9-plus percent. And so that's very substantial, and that's obviously captured as part of that. But just to have that type of -- I mean, for parts of this industry that can be cyclical, I mean, that's several hundred basis points ahead of market through the cycle. So obviously, at Stoneridge -- and this gets back to the transformation point as well, but how you've been able to evolve and transform the company over the last several years? How do you see that 9% continue to evolve going forward?

So let me answer on the top level, and then I'll let him give all the details. The -- when you move from a mechanical instrument cluster to a digital instrument cluster, you go from $100 to $400 worth of content. So I don't need -- you don't need to win market share in order to have huge growth. Some of the powertrain actuation, again, is those sort of things. We're putting more value in the same space as where we were. MirrorEye is the option on top of all of that because it's -- you start talking about multiple thousand dollars worth of value. It's a segment that wasn't there. So we don't have to displace something. It's not -- we weren't selling the mirrors. So we're not displacing that $400 worth of revenue with multiple thousands of dollars. So it's a completely new segment for us and a completely new space in the marketplace. So that's why we -- we're so excited about how the businesses transformed is the fact that we're not -- you're not just running in place to compete on a couple of percentage points of market share one way or the other versus another competitor. It's really creating new things that can create tremendous transformational growth for the company.

Yes. We've talked about the fact that because of where the portfolio is positioned, and we didn't go through a lot of the details as far as the way that we've rotated the portfolio over time, but we've exited some business. We've acquired some business. We've invested in some business, specifically to rotate the portfolio into this market outperformance opportunity. We said that we expect the portfolio can outperform the market by 2 to 3x over a cycle. Now that's obviously not linear over year-to-year but over a cycle. And then when you add on top of that the fact like Jon said, that we've got some new programs and new pies that are growing, particularly on MirrorEye, you end up with a really strong CAGR forward. And when you think about even extending that longer, now that you own that real estate, you have the ability to do something different in the longer term. So we've positioned the portfolio to not only outperform the market but also continued with kind of the industry mega trends to allow us to continue to invest, to continue to get that ROIC forward and facilitate that future growth as well.

A quick question. It's a very exciting story and it's definitely a shift in strategy. But I was just curious, was there any issues in terms of culture or management receptiveness to walking into inflationary issues kind of as you guys put it? Even though all the industry trends are in the right direction, it's clearly in the core competency, I was just curious on any color there.

So we've only got 2 point -- 2 minutes and 34 seconds. This is -- this could be another 30-minute conversation. The change in the culture and the change in how the organization approached what we do has probably been the hardest thing that we had to do in the last 7 years. That was really catalyzed with change in the management team after I joined a little over 7 years ago. Moving the headquarters out of Ohio into Detroit, that opened up a new base of talent. So we've changed the entire leadership team. We've changed over 70% of the top 100 and over probably close to 80% of the top 200 or 70%, 75% for the 2. So that's one piece. It's a mindset top-to-bottom change. The commercial conversations on, hey, you got to go back, and you got to raise prices, and you got to do it right now, was everybody swallowed hard thinking about -- because it would be the first time they really had to do that. And what they realized is because the portfolio change that we made is actually easier than they thought, it didn't mean that we didn't have really hard conversations with customers. And in some situations, we had to go to the wall. But we did it without melting any customer relationships down fully. And now we've got some -- we built some new muscle within the commercial organization and with the overall -- within the overall organization of we've got to be more aggressive. And because of the moves that we've made, we can be. Does that -- I hope that answers your question.

My final question, and again, I appreciate another theme that's come out of this conference over the last few days has been around just as we navigate this volatile environment, there's an emphasis on liquidity. And so that ultimately, longer term, when you think about capital deployment and where you've been and where you're going, could you comment on that?

I'll let Matt talk about the liquidity piece. And where we're really focused on from a capital deployment standpoint is we have so many opportunities for growth organically is we're a relatively CapEx-light business. And the more we move from -- to electronic standpoint, it's more and more CapEx light. The biggest constraint that we have is return on engineering. Engineering is our largest single expense and how do we make sure that we're getting the largest return for those engineers that when Matt talks about ROIC, we're really talking about return on invested engineering. So that's why the prioritization of let's make sure that we get the greatest return for those engineers and the greatest opportunity is how the organization thinks. And we're -- and we've continued to rotate our portfolio to make sure that we're taking the great issues to the 500-plus engineers that we have to drive that growth. But as you think about liquidity...

Yes, from a liquidity perspective, we've got a $300 million revolver. We've drawn about $150 million on it. The banks, obviously, have been very supportive of us as we've gone through a challenging trailing 12-month period. We've got a waiver on our covenant ratios through the third quarter and then a fairly conservative reintroduction of that ratio as we get towards the end of the year and into next year. The beauty of our business, like Jon said, is very CapEx-light. It's IP-intensive, which generally generates a required investment in engineering but not a lot of CapEx. And we also -- we scale up very nicely with revenue growth. We've got about a 25% to 30% contribution margin, obviously depending on product and end market, but about a 25% to 30% contribution margin. And when you think about what we have invested in to get to this point, there's not a lot of incremental scale that we need to really gross up for the backlog that we've got. So going forward, obviously, the short to medium term has been very challenging from a macro perspective. But going forward, with the level of backlog that we've got, with the relatively light CapEx requirements that we've got, which actually generate a very strong ROIC and a really good contribution margin with still a very stable balance sheet, we can see a lot of runway to earnings power here in the next 12 to 18 months, for sure.

Well, thank you again, both Jon and Matt, for participating with us today and very excited to see all the progress that Stoneridge has made and continues to accelerate forward.

Well, thanks for your interest. And Brian, thanks for inviting us.

Thanks for having us.