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

All right. We're going to get going with our next presentation now. Once again, I'm Ryan Brinkman, the U.S. autos analyst. Very happy to have Jim Zizelman, President and Chief Executive Officer of Stoneridge; and Matthew Horvath, Chief Financial Officer. They've got some opening remarks, and then we'll engage them in some Q&A. Jim, I'll turn it over to you. Thank you so much.

Thank you very much. Appreciate it, and thanks for affording Stoneridge some time here today to talk a little bit about our company, and then we'd be very happy, of course, to engage deeply on the questions as they come. So maybe moving on here to Page 4, I guess. And just getting into a company overview. So some of you may know Stoneridge, I think probably many of you don't know much about Stoneridge. So I thought I'd take a little bit of time to provide some background on the company itself. It's a fairly well-established company. It's very well diversified by customer, by end market, by geography and by segment within the company as well. The product portfolio inside of Control Devices and Electronics as well as our Brazil segment, it's all been transforming fairly significantly over the last few years as the industry megatrends have changed pretty dramatically. And one of the key megatrends that is of critical nature, I think, to most folks in the auto industry is the movement toward electrification, whether that be pure electrics or hybridized vehicles. And we had to make sure that as we navigated the waters here that we're doing the right thing with regard to that particular megatrend. And one of the approaches we take is, I think, very specific, and that is this idea of being driveline agnostic. So what that means is you wouldn't design a product specifically for electric or specifically for internal combustion engines, you design, at least at the technology level, the product such that it could be applied at the product level to either of those 2 very different drivelines. And that's really the approach that we've been taking inside of Stoneridge. And as we move forward here, we expect that more than 90% of our sales by 2027 will be products that are, in fact, driveline agnostic. And it's important because the movement, the adoption of electrified powertrains, it's quite different from region to region. And as we've seen in the last couple of years, maybe is a bit variable even within a region based on what the prior expectations were. So having that agnostic nature gives you that flexibility to really address the market with product in whatever way it happens to roll out. And as you can see here on the slide as well, we have a very healthy 5-year backlog of $3.6 billion, and this is very supportive of a nearly 10% 5-year revenue CAGR, right. So it's very healthy in this industry and certainly at a pace that is far outpacing our end markets. So maybe with that quick introduction, I'll move on here to the next slide and talk a little bit about the diversified products that we have in our portfolio, and I'll talk about it also by segment. And again, we are very cognizant of the industry megatrends. I mentioned electrification already. But that also includes things like safety and security, intelligence, and we're now combining efficiency and emissions sort of into one megatrend. And all of the work we do, of course, we want to make sure that we have a great return on investment, but we also want to make sure that it's clearly focused on these megatrends. The Control Devices segment is -- they're shown up on the left, and that comprises about 41% of our adjusted sales. And again, this -- in this particular segment, we've made a significant transformation as that's the segment that was much more conventional in nature historically. And we've been working in all of those product line areas to make sure that we are able to serve, again, both the conventional market as well as the electrified market. And again, the product lines that you see up there, first one you see is actuation. And this is an important product line for us. In fact, it makes up now more than half of our business in Control Devices. And the actuation technologies themselves are focused very much so on actual disconnect type applications, electronic transmission shift applications basically control elements that can be applied, again, independent of the type of driveline you have. A couple of good examples of product in that space that we've recently talked about. Last quarter, we announced our product called the driveline clutch actuator for the Corvette E-Ray. And this product actually is on that particular vehicle, which is a hybrid electric vehicle for GM on the Corvette for the first time. And it's an actuator that allows you to connect or disconnect the electric motor which powers the front axle in that application. Also, we announced in this past quarter in the earnings call last week, we talked about a new product that we are winning some new business on, an extension to current business, but also the new and next-generation products as well in a conventional 4-wheel drive space. So it's also an actuator that connects or disconnects an axle, but allows you for that transition between 4-wheel drive and 2-wheel drive. The interesting thing about those 2 technologies and the reason I bring them up is that at the fundamental level, at the base technology level, they use the same technology. They use the same technology, but one is purely in the electric space, the other one is purely in the internal combustion engine space. So again, that strategy that we talk about being agnostic to driveline type is really put into action here pretty heavily. Also, you see valving technologies well placed in thermal management systems for electric vehicles and sensing technologies, too, which have historically been in the temperature space for us, and historically been placed on conventional internal combustion engines. But now as we move toward battery-powered vehicles, the thermal management necessary to control temperatures on batteries, on power electronics and electric motors, those sensors are providing that feedback to the control system. In fact, a good portion of our business today in low temp sensing is, in fact, in the electric vehicle space. Now on the electronics side, it's about 53% of adjusted sales, and this business here is focused almost entirely in the commercial vehicle space. And in this particular segment, over the last years, we've ramped up a lot of new products, especially in the driver information systems space, so electronic instrumentation and engagement -- the human interface engagement inside the cabin of a commercial vehicle. We've had extremely strong and positive reaction to those technologies in vehicles like that and continue to book new and interesting business in that space. Connectivity is also a key space for us. We're launching our Smart 2 tachograph in Europe during this summer. And that product, again, is a key follow-on product from our existing connectivity product in that space as well. And interesting thing about that product is it's applicable both to OE business as well as aftermarket business. And then on the safety and security side, we have a product called MirrorEye, and this is basically a camera mirror system that replaces the large rearview mirrors on today's commercial vehicles. And I'm going to talk a lot more about that going forward, but it's a critical product for us. A lot of additional content per vehicle with that product and a lot of opportunity to get into, I'll say, product adjacencies where you would build off the foundation of that MirrorEye product. And again, we'll talk a lot more about that here by the end of the discussion. And then on the Stoneridge Brazil side, historically, this has been an aftermarket business for us. And we've been, essentially, over the last few years, transforming that business to be more OE-focused and more of an increase in terms of OE focus on the local Brazilian commercial vehicles. And they've also served for us to be a good technology partner, a good place to do strong electronics engineering serving the entirety of Stoneridge as well. So that essentially covers the product portfolio and the diversification in that portfolio. And let me move now on to some discussion around MirrorEye itself. Again, this is, as I said, a camera mirror system and it's a replacement technology for those large side view mirrors, as I had mentioned. And what do you get from such a technology. First off, the field of view from a camera mirror system is far superior to what you have in today's conventional mirror systems, typical side view mirrors, you'll have a mirror in the front that looks down the front along the grill. And yet another mirror on the side and the passenger side that looks directly down along the passenger side. This camera mirror system allows you for coverage of all of that in a digital fashion. Again, so the field of view is significantly improved. Driver safety is far, far improved. Cameras are high definition, their color, there are night vision capabilities with these cameras also in color. So the visibility you get across all operating environments is extremely strong. And it's also hydrophobic, right? So in inclement weather, water droplets do not stick to the camera lens itself, unlike the conventional mirrors. So again, another real opportunity for clarity in the vision of the system or the vision of what's around the truck. And then lastly, by the nature of the product itself, you can't really see it well in the picture, but with the removal of the side view mirrors and the application of a very aerodynamic wing or housing for these cameras, there's a substantial improvement in fuel economy, too. And as you might guess, in the fleet business, that's extremely important. And customers are reporting back 1.5% or 2% improvement in fuel economy. And as some of us know in the room, that's a very big deal. And how are we going to market with this product? There are really 3 different ways that we go to market. First way is through retrofit. And early on, when we wanted to really excite the market with this technology and really enthused OEs to listen and engage us. We started working with several different North American fleets. And these names are known in the fleet area, names like Schneider and Nussbaum and KLLM or Frozen Food Express. These are well-known fleets. And they have been utilizing this technology sold directly to them from us, retrofitted by us so that they could really see the benefits from this. And some of the numbers I'm reporting in terms of benefit. Those numbers come from those fleets because they have large numbers of vehicles that are utilizing the technology, and they can be statistical about what they're seeing. So that's one way, a direct retrofit. And then we also have a second way where we prewire vehicles. So we announced a while ago that we were working with Daimler Truck North America to retro -- not to retrofit, but to have them prewire vehicles so that their vehicles are ready for retrofit. So it makes the transition to a retrofit MirrorEye much easier. There's a greater degree of reliability associated with having a factory wiring harness instead of someone trying to do that after the fact. And that's been quite important for us in terms of the retrofit then of those Daimler Truck North America vehicles. And then lastly, and certainly most importantly and most sustainably is the OEM programs. We have 4 awarded programs. You can see those on the chart on the right. And we have significant market share in the space, and we're focused very much so both in North America and in Europe with this product at the moment. When we were booking this business, the original expected take rate or the rate at which dealers would be optioning their trucks to have this type of technology, we were told and we were advised that 15% was the right number, and a lot of our calculations are based on that. But we're finding that the take rates are -- once the customer gets the product available, the take rates are much higher, and we'll talk about some numbers here in a moment. We launched our first program, this program that we won up there in Europe in late 2021. And that take rate at the moment is about 40%, so more than double what was initially anticipated. Our second program, we announced this again just last week. We launched -- it's a program with PACCAR, and the PACCAR North American brands are Kenworth and Peterbilt. PACCAR has launched already on the Kenworth truck, and they're anticipating a launch very soon on their Peterbilt model of truck as well. And then thirdly, the third program there. It's, a European OE, and this particular OE is expected to launch in the first half of 2024. So we are really chipping away at this business. And really booking every opportunity we get relative to a camera mirror system we've booked. So in the end, we're quite optimistic about the opportunity here. Clearly, the take rates are well enhanced relative to what was expected. And it has great potential to drive increased revenue for the company going forward. And again, there's a lot of adjacent products that come along with the MirrorEye system over time that will eventually help in terms of the revenue in the company. So with that, let me pass the microphone over to Matt Horvath, our CFO, and he's going to talk a little bit about our long-term targets. Matt?

Great. Thanks, Jim. So as you can imagine, with the product portfolio that Jim just outlined, we have a significant amount of market outgrowth that we expect over the next several years. So we put out long-term targets on the top line that represent about a 10% revenue CAGR over the next 5 years between $1.3 billion to $1.5 billion. Like Jim mentioned, we have a very strong backlog of awarded business. The MirrorEye programs that are launching and launching at take rates that are higher than what was originally quoted, that as an opportunity even outperformed that growth rate that we've outlined. So really strong performance on the top line that we expect going forward. When you look at that, that represents about 2.5x or 3x market outgrowth over that same period of time. So a tremendous amount of content growth, a tremendous amount of new program launches that really facilitates a lot of top line growth for the company. When you look at our margin profile and the way that we contribute, we contribute about 25% to 30% contribution margin on incremental revenue. So when you're talking about 10% CAGR over the next 5 years, we expect really strong EBITDA performance. Coming this year from about a 5.5% EBITDA guidance, we expect to be between 11.5% and 13.5% EBITDA margin over the next 5 years. And again, that's based basically on contribution margin and incremental revenue and that strong backlog that supports that top line growth. So really a tremendous amount of opportunity for the company going forward. You look at that in pure dollars perspective, that's coming something from mid-50s to $60 million of EBITDA this year to about $150 million plus of EBITDA over a 5-year period. So really tremendous opportunity to create value on top line growth that is more or less booked in the backlog, maybe even some opportunity outperformed based on the take rates conversation that Jim just mentioned. So we're really excited about the next 5 years for the company. We've got a product portfolio that obviously supports a significant amount of growth and really an overall strategy like Jim mentioned, drivetrain agnostic, following industry megatrends, tremendous opportunity for financial performance and really some key areas of focus. Jim mentioned the fact that MirrorEye, as that platform continues to grow, there's opportunity to even grow product around that existing capability. Today, it is a really good mirror replacement product, but we've talked recently about the fact that we've expanded that to trailer activity, for example. So taking the MirrorEye system and now incorporating that into a smart trailer, where you've got vision and safety capabilities around the trailer, piped into the tractor. We've already got displays and can see what's going on in and around the truck, is a great opportunity for us forward. So we're really excited about our product portfolio. We think it turns into really strong financial performance for the company going forward. And we feel really comfortably aligned with the industry megatrends that will drive that growth. So with that, I think we'll take some questions.

Yes. Great. First question is, if you could comment on the state of demand in your major end markets?

Yes. The demand -- well, let's split them into the 2 end markets, primarily. So in the commercial vehicle side, the demand, I'll say, locally from our customers at the moment is extremely strong. And they expect to maintain that strength throughout the course of this year. They have a lot of backlog. They're making up a lot of sales if you will from trucks that were not ordered during time periods when there were component shortages, and they really couldn't get out as many vehicles as they wanted. So that -- from our perspective, that market looks strong. Yes, there are some -- when you look at some of the prognostic kind of predictors for that market going forward for next year, for example, there's some indication that, that will come down a little. It's not something we have a significant concern about because they're so what self-help. There's so much added content per vehicle that we're bringing with things like driver information systems, the MirrorEye system, for example, we think that, that will really not be problematic for us. So we're -- again, so we're quite bullish that from a demand perspective for the Stoneridge product, we're going to be in quite good shape. On the light-duty vehicle side and more on the Control Devices side, again, that market is fairly stable. I think it surprised some people how strongly it held in there throughout the course of 2023. We're seeing that be maintained, again, by the nature of our transformation in the product line, we are now resident on a lot of the high demand electric vehicles or the high-demand support utility vehicles or light trucks, where there's just a lot of market share. So again, by the nature of our agnostic approach and the vehicles on which we are placed, we think we're in pretty good shape there as well. Now on everyone's mind who follows automotive, of course, is the pending negotiations between the UAW and the big 3, whoever they choose to target, maybe we'll target a supplier who really knows at this point. But that certainly is on the forefront of our thoughts, right. We're being very careful about keeping up to date with the latest there and engaging our customers very specifically so that if there is something that comes to be a problem in that space that we are prepared to deal with that as well. But that certainly could be a disruptor here for 2023.

Great. And what about what you're seeing on the supply chain side in terms of its impact on your customers' production and sort of the steadiness of the production as it impacts your cost?

Yes. So first things first. We all sort of wiped our brow a bit here as we got into the second half of 2023. We've seen a significant improvement in the supply of our componentry. And we had supply chain issues, not just on electronics. We had it everywhere, whether it be metals or plastics, resin, you name it, there were people in trouble, and we are well beyond that. We really don't have a lot of issue at the moment with regard to supply chain shortages. Now that's not to say there isn't any. There still is an issue here or there, but usually much more addressable, much more quickly at far less cost than what we had seen in the past. So that's maybe one element of that. There still are some chips in some areas, especially the older chips, where there can be some stress, but again, we're able to work around that fairly effectively. Also from a cost perspective, you had mentioned cost. We've seen the material costs, although not declining, right? We've seen it stabilizing, right? So we're not continuously being hit by increased costs that somehow we have to address, whether it be in pricing to our customers or cost reduction inside the house. So I think overall, we feel much, much better about the supply at this moment. And by the way, our customers also are not suddenly taking orders out because they can't get supplied from someone else. So I think what Stoneridge is experiencing is being experienced by most of the other Tier 1 and Tier 2 suppliers out there.

I think in the commercial truck industry, a lot of how the vehicle is configured is they're ordered by the fleets from the manufacturers, right? So we want this equipment on it as opposed to the manufacturers, they give them options, I suppose. Just curious if you're engaging more with the fleets or with the OEMs and I mean, to me, it sounds like -- but it sounded for years like this product MirrorEye of itself. Obviously, it's got a societal benefits with safety and everything, but what about just the return on investment from a hard-nosed fleet operator in terms of what they pay you relative to what their fuel savings can be over time? And then maybe look what their liability savings and insurance savings can be, et cetera?

Yes. So I can be -- let me just say it this way. The fleets see an extremely strong value proposition here, very strong. And all the elements you talked about, fuel economy, for sure, right? They see the fuel economy to talk about it all day long. You can go out on social media and you can see truckers actually talking about, it. right? It's there -- we feel so strongly about it they're actually out there talking about it. From a standpoint of driver fatigue, right, some of our fleet customers are telling us that they like this technology because it just takes -- it creates less stress to drive the truck when you have all of this information available to you in a clear and a continuous fashion. And you're not searching for it or trying to look through something that isn't totally clear. So I feel from a driver fatigue perspective there's some improvement. No, I can't be quantitative on the safety side, but we have also had some commentary from fleet customers that they feel that there is also an improvement in terms of just general safe operation of the truck and an improvement perhaps in liability from their perspective as well. I think that's yet to be seen exactly how that plays out as you get more and more of these on the road today. One thing for sure, if you ever had a chance to have a mishap with an over-the-road truck, almost always, the truck gets caught, right? The trucker is -- he's going to be in the record. Now, yes, with the MirrorEye there's an opportunity to actually save some of these images, so there can be some proof of what exactly happened during an incident with the vehicle. So we also feel that, that is going to serve both the fleets and the OEs quite well. Now in terms of who we're working with, as I mentioned, certainly in the initial part of this business, it was fleets. And part of that was because what you said was right, at least in North America, that the fleets drive the OEs a little bit in terms of what they want. And they have been very vocal to the OEs. And the OEs have responded in kind, and that's why we have succeeded so well in terms of booking the business with the OEs here in North America. So bottom line is we are working with both. Certainly, it was more fleets at the beginning. But as we go forward in the longer term, right, this really is a big OE play.

Yes, the sequential uptick in your margin from 1Q to 2Q, like how much of that was driven by industry factors or macro factors versus company-specific execution, et cetera?

Yes. So obviously, we had a significant increase in gross margin from Q1 to Q2. We talked at the beginning of the year about some of the input costs right, and not just material-related costs, but also labor, energy, particularly even some FX-related costs as we look at where we manufacture product. So we went back with all of our customers and had negotiations around price and what does that mean for price? When you've got technology that's launching like we do, it's a little easier to have those conversations because the demand is pretty strong on the customer side, but we were very successful in getting those price increases, negotiating completely in the second quarter. So we rightsized our run rate from a margin perspective and also have a little bit of a retroactive benefit of some of those negotiations. So for example, things that were concluded in the second quarter, we got a retroactive price maybe for the beginning -- to the beginning of the year that improved gross margin in second quarter. So the gross margin improvement in the second quarter was a little bit offset by incremental D&D in the second quarter. Jim mentioned, for example, the launch of our Smart 2 tachograph program this year in Europe. There's some incremental design and development costs related to launching that program and getting across the finish line, which we don't expect will recur going forward. So we think we've got the gross margin profile rightsizing kind of an inflection point now with the price increases completed. We've got a little bit of short-term uptick in engineering costs that once rightsized will really provide a meaningful tailwind earnings forward. So when you go from Q2 to Q3, and you see the progression in our guidance at the end of the year, not only do we get good contribution margin on revenue in the fourth quarter, we get strong gross margin on the price increases that we've now got finalized and some tailwind back on some of the reduction of those D&D costs as we launch the products. So we thought the second quarter was kind of an inflection point for our margin profile forward. And we feel really comfortable now that going forward and in 2024 that will provide a nice tailwind for us.

Could you elaborate what you mean when you say that MirrorEye could be used as sort of a platform for a long-term opportunity, a platform for adjacencies, et cetera.

Sure. So again, MirrorEye is a camera mirror system. Right now it's focused essentially on rearview, side view and front view, right? But think about your own passenger car today. You probably have a car today that has a 360 view, right, bird's eye view. So we've been -- and we announced this in one of our recent earnings calls. We've been working with certain companies. And in fact, there's a trailer company we're working with called Grote to equip the Class 8 trailers with cameras as well with a very highly engineered, very innovative technology to deliver the signal from those cameras back into the cab without changing any of the wiring on the vehicle, right? So for example, that's a great adjacency because the platform for managing those signals and putting them on to the various monitors inside the vehicle. It's already there in MirrorEye. Now we have an innovation that allows you to connect to that easily and quickly, even retrofit trailers that are out there today, plug in with a standard connector. Now these kinds of things are critical adjacencies that will allow us really in the short term to even up the revenue beyond what we're talking about. Secondly, you think about, again, in automotive, the idea of the advanced driver assistance systems, the ADAS systems. And the object detection, right, or input to systems on the vehicle that allow for there to be a degree of automation in terms of control on the vehicle. The types of signals we're talking about through digital cameras can be a part of those systems as well. And so we're going down that path as a next step in terms of the next generation of products that would be in and around MirrorEye platform.

Interesting. And I heard you said that the large majority of your business is essentially like powertrain or drivetrain agnostic. What is the impact, would you say at the end of the day, in the transition towards electric vehicles business?

Well, I would say we have a greater opportunity. By the nature of what happens in commercial vehicles, these are already driveline agnostic. If you look at camera mirror systems or driver information systems, body control modules, connectivity systems that doesn't matter, every truck needs that regardless of driveline. So really, that's focused almost entirely on the Control Devices space. The reality is, as you go from conventional internal combustion engines to electric vehicles, there's actually a greater trend toward electrified actions, if you will. You don't have mechanical shifters anymore. You have to have electric park lock actuators. You don't have manual 4-wheel drive, i.e., connect an axle or disconnect an axle. It's always electrically you're connecting or disconnecting to the electric motors. You have an enormous opportunity around thermal management, where you have actuators controlling coolant flow. You have sensors, giving you the right feedback to allow the control system to know where to place that coolant to provide efficient operation of the motor of the battery pack and of the power electronics. So as I view it, overall, as Stoneridge views it overall for our Control Devices, it's a market improvement and opportunity for us. As long as you've managed that transition, right, with the technologies that you're working on where they can be applied to both driveline types.

How are you thinking about capital allocation and balance sheet leverage, capital structure?

Yes. So we talked this quarter about the fact that we expect to refinance our existing credit facility by the end of -- by the time we issue our 2023 financial statements. Obviously, with the amount of growth that we've got, we think that there's some opportunity to continue to put capital to work going forward to really accelerate some of the strategic areas that we are in focus. That said, obviously, with the growth profile that we got, the backlog we've got, we don't think we need to do something transformational. We've kind of already done that over the last 5 years to the existing product portfolio. With the last couple of years of challenges on the supply chain side and production levels, when you get the balance sheet back in a place that we can play offense. So we're really focused on cash performance, particularly some working capital generation -- turning working capital into cash. Inventory levels are a little bit higher than where they've been and where they should be going forward. So we're really focused on getting the balance sheet in good shape, getting the credit facility refinanced to a structure that allows for some offense as we go forward. And over the next 12 to 18 months, I think beyond just the organic support that we've got for the growth programs and the product launch we've got, we'll look at areas where we could strategically add to accelerate that product portfolio.

Obviously, you're calling for a step change in your EBITDA margins 11.5% to 13.5% by 2027. Has the company ever operated at that level of margin before? And what kind of gross or EBITDA margin incrementals are assumed there? Obviously, there's got to be a lot of cycling past some relatively fixed expenses? What is that? The development expenses or the MirrorEye system? And how do you ensure that the cost structure doesn't inflates to eat up some of those expected incrementals?

Yes. Yes, that's a great question. The company has operated historically with a much higher EBITDA margin level prior to 2019, which was really prior to the investment required to transition this portfolio to being the drivetrain agnostic and Control Devices or really electronic platform-based on the commercial vehicle side. So there's been a tremendous amount of engineering investment and some structural investment to support that. That does not need to continue at the same rate. So you get a lot of fixed cost leverage. And then when you look at the growth profile, $400 million to $500 million of growth over the next 5 years at a 25% to 30% contribution margin on the incremental growth, you can get really accretive margin pretty quickly on the top line. So the structure is in place to support that growth. The investment has been made over the last several years to support that growth. Now we can ratchet that down to a more normalized level, I appreciate some of that top line growth that falls to the bottom line. But we've operated low double-digit EBITDA historically. So it's not outside the realm for the company.

And then the Brazil business, it always strikes you as little bit of an odd duck, right? But on the other hand, I think you've got like a high share there and it might be a good returns. Just why are you kind of the natural owner of this business? And how does it fit into the strategy of the rest of the business?

Yes, sure. Yes. So Brazil historically has been much more of a stand-alone business than it is now, and which is why we get this question. We've gotten this question frequently historically. That business, if you look at its core, is a local electronics manufacturing business with extremely competent engineering support in the local market, right, at a fairly effective cost structure. . So when you look at our global business now, as we transition from segmented businesses, historically, Stoneridge to a much more global business, the support of our customers in that region with our product portfolio, particularly the commercial vehicle side and utilization of those really capable engineers in that region allows us to support probably more engineering capability and capacity with not more cost, right? So it's global support for our existing customer base. It's globalization of that business and then a structure that really supports our growth forward, utilizing that really competent existing capability.

Any questions from the audience for Stoneridge?

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For MirrorEye? Yes, great question. So the numbers that you see, whenever we do guidance, whenever we do backlog, it's all customer based. It's until it launches and then we look at actual option take rate. So the customer will give us -- when we were awarded the program, they'll say, assume it's on X amount of trucks or X amount of percent of our volume because ultimately, a customer is going to option it in or out of their build. That's the number we report, right? I can tell you for a fact that we think that it's greater than that, which is why we've invested so much in the platform. When it goes to launch, we'll have actual data on how many customers are selecting that, what the actual take rate is, and then you'll see us update that information as it launches. So it's either customer information provided at the award or actual information as we go into production, which we update pretty regularly on a quarterly basis.

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I think the biggest barrier, first, is it's new technology. It's replacing -- particularly on the mirror side, it's replacing something that works, right? If I look at the mirror, generally, I can see what's behind. I might miss quite a bit on my blind spot, but it's technology adoption, just like anything else. If you go back and look at our industry, even seatbelts and airbags have taken a long time to fully adopt, look at backup cameras, finally being regulated in United States-produced vehicles. It's kind of an obvious value proposition once the technology is validated and appropriate to apply. So I think the biggest barrier has just been proving that it's a valid technology, showing that it works in snow and extra hot conditions and all the different inclement weather variations that those vehicles encounter. Once the fleets have seen that it's a valid technology and a good space, they're really excited to either adopt the prewire, the OEs that we're launching with or even in the retrofit market. That's really been the biggest feedback to adoption at first.

Any final questions? We are over on the time. So we yield it back. Thank you so much, Jim and Matthew. We appreciate all the color.

Thank you.

Thank you.