Good day, and welcome to the CTS Corporation First Quarter 2017 Earnings Conference Call. As a reminder, today's conference is being recorded. At this time, I'd like to turn the conference over to Kieran O'Sullivan. Please go ahead.

Thank you, Lisa. Good morning. Thank you for joining us today, and welcome to CTS' First Quarter 2017 Conference Call. Here are some notable items for the quarter. First quarter sales were $100.2 million, up 3.6% from the same period in 2016. Gross margins were 34.2% compared to 34.6% in the first quarter of last year. Adjusted earnings per share were $0.26 compared to $0.26 in quarter 1 of 2016. Our total booked business increased from $1.518 billion to $1.538 billion. The transition of our manufacturing operations is tracking to our previously announced plans. Our CFO, Ashish Agrawal, is with me today's call. And will take us through the safe harbor statement. Ashish?

I would like to remind our listeners that this conference call contains forward-looking statements. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Additional information regarding these risks and uncertainties is contained in the press release issued today, and more information can be found in the company's SEC filings. To the extent that today's discussion refers to any non-GAAP measures relative to Regulation G, the required explanations and reconciliations are available in the Investors section of the CTS website. I'll now turn the discussion back over to our CEO, Kieran.

Thank you, Ashish. First quarter sales were $100.2 million, up $3.4 million compared to the same quarter last year. Foreign currency impacted sales unfavorably by approximately $1 million. We also saw continued decline in our HDD volumes, as we expected with an impact of more than $1 million. Gross margins were 34.2%, down 40 basis points compared to the first quarter of 2016. We were disappointed with this level of performance and we know we can do better. We were impacted by certain production rework issues that we resolved in the quarter. Separately in the single crystal production process, we continue to make efficiency improvements in line with our integration plans. Our operating expenses, excluding restructuring were 21.2% compared to 21.8% in the same period in 2016, driven mainly by an increase in amortization costs due to the single crystal acquisition. Our operational changes are on track for product transfers and qualifications at the receiving locations. We're building safety stock in line with our plans to ensure continuity of supply to our customers during the production transfer. As previously announced the transfer is expected to be completed in 2018. Additionally, our planning for the consolidation of the 2 sites in Illinois is progressing. Both sites will be consolidated into a new location near our corporate office in Lisle. Transition to the new location will begin in late 2017, which also supports our focus on simplification, one of our company's core values. This year, we continue to implement system upgrades to improve and modernize our business effectiveness and efficiency. We have started planning and laying the foundation for the rollout of a new ERP system and we'll provide more information as plans develop. We continue to gain traction with our customers globally and added 9 new customers this quarter. Most of…

Thank you, Kieran. First quarter sales were $100.2 million, up $3.4 million compared to the same quarter last year. Foreign currency impacted sales unfavorably by $0.9 million in the first quarter. Sales to automotive customers were slightly higher by 0.4% and sales through electronic components - sales of electronic components increased by 10.5% compared to the first quarter of 2016, partly as a result of the single crystal acquisition. Gross margin for the quarter was 34.2% versus 34.6% in the same quarter a year ago. We continue our efforts to drive efficiency gains through material and labor productivity projects and the manufacturing transition announced in 2016 is progressing as planned. We expect to complete this transition in 2018. As we communicated in the past, the first full year of savings is expected in 2019. SG&A expenses were $15.2 million or 15.2% of sales in the first quarter of 2017 compared to 15.4% of sales in the first quarter last year. Careful cost management is helping us absorb the additional amortization and SG&A expenses from the single crystal acquisition. R&D expenses were $6 million in the first quarter of 2017 compared to $6.2 million in the same period last year. In first quarter 2017, other income was $460,000. This was driven mostly by foreign currency balance sheet translation gains, as the US dollar depreciated against various foreign currencies. Our effective income tax rate in the first quarter of 2017 was 30.6%. There were certain discrete items that reduced our tax rate in the first quarter. Consistent with our earlier communication, we are expecting our tax rate for the 2017 to be in the mid-30% range. We continue to evaluate the opportunities to improve our tax rate in 2018 and beyond. Our first quarter 2017 earnings were $0.25 per diluted share. Included…

[Operator Instructions] And we'll take our first question.

John Franzreb from Sidoti & Company. Kieran, can you just elaborate a little bit on the production issues you alluded in your commentary? What were they and what's the duration of them?

Yes. First of all, John. They're resolved. We fixed the issue in the quarter. And it's really molding as an integral part of our process in some of the products we make. And we had some fusion issues with the rest that we needed to fix, it was outside the parameters. So we had product that we had to reworked and we've taken care of it. And most of the impact is in the quarter. There might be a little bit of a bleed over into the second quarter, but we're getting the issue behind us. So expect them resolved result and just like we do with any product, if we see something we've got the concern with, if we see it when we're doing the product transfers as part of the restructuring, we want to make sure we're out there protecting our customers.

Okay. All right. And you kind of voiced some concern a little bit about the automotive outlook. You've referenced some closures that are coming. Can you talk a little bit about what your expectations are for the year? How it plays out? What your customers are telling you about the auto cycle?

Yes, where most of our concern is around North America because we had that dip in the cycle in the cycle in March from the seasonally adjusted rate from 17.6% down into the 16% range. We don't think it's going to fall off, but we see some inventory levels that are high, 80 days is a lot. We'd like to see that more in the 60-day range. But - and we - when we plan for the year, we plan for some flatness in certain markets on the auto side. We feel good about Europe. Europe is ticking up a little bit, but we don't have much business there. As we've said before, we're gaining share and that helps us in that kind of a flat-to-soft market. And Asia is pretty steady. There was a little bit of pull back from the tax changes in China, but it's not falling off. It's doing okay. And we expect that to get a little bit better during the year. So overall, we're prepared for some softness, but we plan for that in our planning for the year.

Okay. Can you just remind us how much of your revenue is exposed just to North American auto?

John, we don't break out the product line revenues by region. But roughly, for the overall business, mid-50% is exposed to the North American region.

Okay. And could you just talk a little bit about the, I guess, you're phrasing it total booked business at the end of the quarter. I think you said it was 263 is due to be shipped here. How long of a cycle does that book business play out? Is it firm backlog, can just provide a little more color on how we should kind of view that number?

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Okay. All right. You know what, I'll let somebody else ask questions. I'll get back in the queue.

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So just on that thought, Kieran, I mean to put it in perspective. Can we get some of that data for over the past 2 years, you have it that far back?

John, we haven't disclosed the data for the past years. What I would suggest is, as we continue report it going forward, use that information to build a little bit of how the backlog trend is developing.

[Operator Instructions] And we'll go to our next question now.

This is Ian Gilson. The numbers you quoted on the backlog, was that a year ago quarter or year-end?

So Ian, hi, good morning. The $1,000,000,000,518 million was as of December 2016. And $1,000,000,538 million is as of March 2017.

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We'll continue building from this point on. Our intention is to continue reporting going forward. We will not be looking at talking about 2016 Q1, Q2, those types of data points. We'll be reporting starting from Q4 of 2016 and we will report it quarterly going forward.

Okay. I did notice the pickup in inventory relative to sales booked and I presume that was due to the shift in manufacturing facilities. Is that going to increase still further or is it going to drop back as the year progresses?

We are expecting further build for part of the 2017 and then towards the end of 2017, you should start seeing a slight drop off with a further drop off in 2018. Our expectation is to use the full safety stock in 2018.

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I would think of it more from a second, third, fourth quarter standpoint, Ian. If we exclude the discrete item that we recorded in Q1, we are pretty much in that range for Q1 as well. So the total year will be slightly better. But Q2 through Q4 we are expecting to be in that normal range.

And we'll take our next question.

Again, this is John Franzreb from Sidoti. The electronic component revenue growth, I think was 10.5%, how much of that was organic?

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John, the other thing I would point out and just building on what Ashish said is, we look at our industrial markets for components. We had good progress there. The RF filters, which we have been working on for the last 2 years getting the products ready, we've build some nice momentum with that product and sales. And we see our future growth there as well. So there is some of the electronic component lying outside of the Single Crystal that are gaining nice momentum.

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Yes, I think you covered it very well, Kieran. The only additional color I would add is we are still working on the plans and I'm expecting that in the second quarter earnings call, we'll be able to provide a little more clarity on the timing as well as the range of CapEx that we are expecting to deploy for the ERP implementation.

[Operator Instructions] And we'll take our next question.

Hendi Susanto from Gabelli & Company. Ashish and Kieran, how do you view your full year guidance today versus 3 months ago? Anything changed in terms of your assumption and market views?

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We'll go to our next question.

This is Ian Gilson, again. You stated that revenue was impacted by just less than $1 million in the quarter. What was the impact of currency on the expense line?

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Okay. Because the Mexican peso peaked quite significantly during the first quarter and it was then backed off against the dollar. Living in San Diego, I see that impact more than most people, I'd guess.

Absolutely. That is obviously reflected in our financial statements. If you look at our Qs and Ks, you will also see that we are hedging certain currency exposures, Mexican peso being one of them.

Okay. When are you going to file the 10-Q?

It should be getting filed either later on this afternoon or first thing tomorrow morning.

Okay. What were the actual shares as to at the end of the quarter?

I'm sorry, say that again.

The actual share count at the end of the quarter?

I believe it was basically $32.8 million and on a diluted basis, it's $33.36 million.

There is not much change from the weighted average for the quarter?

Oh! I see your question. I apologize. I was giving you the weighted numbers. I'll get back to you. It will be in the 10-Q, but I can get back to you in an e-mail as well, Ian.

It appears there are no further questions at this time. I would now turn the conference back to Mr. O'Sullivan for any additional or closing remarks.

Great. Thank you, Lisa, and thank you, everybody for joining us on today's call. And as we said in the press release, we had a good solid quarter, but we know we've got work to do to improve for the balance of the year, which we're focused on and plans to execute and we look forward to updating you at the end of the second quarter. So thank you for your time.

Ladies and gentlemen, that does conclude today's conference call. Thank you for your participation.