Good day, ladies and gentlemen, and welcome to the Second Quarter 2015 Stoneridge Earnings Conference Call. My name is Tracy, and I'll be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. [Operator Instructions]. I would now like to turn the call over to Ken Kure, Corporate Treasurer and Director of Finance. Please proceed sir.

Good morning, everyone, and thank you for joining us on today's call. By now, you should receive our second quarter earnings release. The release and the accompanying presentation has been or will shortly be filed with the SEC and has been posted to our website at www.stoneridge.com. Joining me on today's call are Corey Jon DeGaynor, our President and Chief Executive Officer; and George Strickler, our Chief Financial Officer. Before we begin, I need to inform you that certain statements today may be forward-looking statements. Forward-looking statements include statements that are not historical in nature and include information concerning our future results or plans. Although we believe that such statements are based upon reasonable assumptions, you should understand that these statements are subject to risks and uncertainties and actual results may differ materially. Additional information about such factors and uncertainties that could cause these actual results to differ may be found in our 10-K filed with the Securities and Exchange Commission under the heading Forward-Looking Statements. During today's call, we'll also be referring to certain non-GAAP financial measures. Please see the Investor Relations section of our website for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. As a result of the sale of the wiring business starting in the second quarter 2014, our Control Devices Electronics and PST segments and then reported as continuing operations while the wiring business reported as a single line called discontinued operation. In addition, our balance sheet and income statements and cash flow, including the wiring business through July 31, 2014. Our forward projections for 2015 are for our three remaining segments as only historical results including the wiring business are not indicative of our future performance. John will begin the call by describing his initial observations and strategies to address the near-term challenges and longer term value enhancements for Stoneridge. George will discuss the financial and operational aspects of the second quarter. We prepared and published an earnings presentation to provide more detailed schedules to help your understanding of the second quarter results, trends for our continued improvement, and update you on key initiatives to improve financial performance. A copy of these can be found on our website at www.stoneridge.com in the investor relations section. After John and George are finished with the formal remarks, we’ll then open up the call for questions. With that I will turn the call over to John.

Thanks Ken and good morning. I’m pleased to report that we recorded a strong second quarter despite of headwinds from currency changes in Europe and Brazil and continued deterioration in the economic situation at Brazil. This performance is a reflection on the capability of Stoneridge collectively perform to our expectations. George will provide more detail in his section on the performance of the second quarter. Over the last four months, I visisted every business unit at least once, the focus of my visits has been to identify opportunities to improve the profitability, cash flow, and return on invested capital on our current business while improving our capabilities to support future growth. Based on my initial assessment, there are few critical themes intended to provide focus for the organization over the coming months. First, predictability, putting the analytical tools in place so we can reduce variations in our business and prioritize capital and human resource deployment. In essence, get better at being able to predict future performance of the company. Second, deepening our organizational confidence. I’m going through a robust organizational review to make sure that we have the right people in the right positions and that we are effectively aligned to ensure positive future performance. Thirdly, new program launch execution, in 2016 we will have the largest organic growth opportunity in the history of the company, nearly $90 million in new sales. With the launch of our new shift-by-wire programs, our number one focus for the second half of this year is to launch each of those new program flawlessly. By standardizing facilities and refining activities, we will increase our capability to launch products flawlessly and support our customers. To facilitate productivity improvements in engineering, we have also started to evaluate global centers of expertise seeking to leverage development efforts…

Thank you, Jon. In spite of currency headwinds and a difficult Brazilian economy, Stoneridge reported a strong earnings per share for continuing operations of $0.25 per share in the second quarter of this year compared to adjusted earnings per share from continuing operations of $0.06 in the second quarter of last year. Our second quarter results show the strength of our combined businesses with the ability of our PST management team to react quickly due to deteriorating economic situation to our control device and electronic business to perform better, which helped to offset some of the unfavorable effects of PST’s performance. Stoneridge’s consolidated revenues in the second quarter were $165.3 million, an increase of $3.2 million or 2% over the second quarter of last year and on a constant currency basis, which excludes the impact of foreign exchange translation, Stoneridge’s sales would have grown 12.2% compared to the second quarter of last year. And by business unit, sales in the second quarter increased to control devices by $8 million or 10.4%, and electronics by $5.1 million or 9.7%. And sales of electronics decreased by $1.7 million or 3.2% after excluding sales of $6.8 million to Motherson which prior to the sale of the wiring business were accounted for us an intercompany sale. In addition, electronics revenues were negatively affected by approximately $8.7 million on translation of sales due to weakening Swedish krona and Euro against the US dollar. See Slide 4 for more detail. Passenger car and light truck revenues were $68.6 million in the second quarter, a 14% increase over the second quarter of last year sales of 60.2 million as volumes increased on Control Device products, which included new programs shift-by-wire, Seat Track Position Sensors and Keyless Entry. North America automotive production continued to look very favourable in…

[Operator Instructions] Your first question comes from the line of Jimmy Baker from B. Riley & Company. Please proceed.

All right. Good morning. Thanks for taking my questions.

Good morning, Jimmy.

Good morning, Jimmy.

First, could you just talk a little bit more about what’s driving the control device strength in China, who are your major customers there and then do you have kind of an expectation for full year sales out of the region?

Jimmy, let me try to answer the first please. Our growth there is both with local customers, but as much coming back to export to the U.S. as well as export into Europe. So it’s with our global footprint, but what we’re seeing is an overall opportunity to rationalize our capability across the globe and utilize the capabilities we have in China. They are both with local customers and for export.

And in total sales in the region, yes.

Hey, Jimmy, what we’re seeing is even though the legislative haven’t been fully implemented or endorsed by the government, as you know it’s been delayed since 2012, we’re starting to see some of the local Chinese companies go ahead and implement that strategy, so it’s elevated our emisson sensing product, especially high temp in the first half of this year.

Okay. That’s helpful. And then just, over to shift by wire for a moment, could you talk about how your backhalf expectations for that product line compare to what’s reported in the first half and then should we think about that business building momentum sequentially in the back half into the 2016 backlog.

Yes. For sure, Jimmy. We currently -- as you are aware, we’ve been in production on shift-by-wire since 2012 with Ford, and we even received an innovation award from them last year in 2014. But we continue to see our products roll across additional platforms within Ford, and we are launching products with other customers throughout this year and early into 2016. In addition to that, we are seeing other opportunities to apply the technology. We have other customers as well as beyond conventional powertrain looking at some hybrid powertrain opportunities for the technology, so we believe that the momentum will certainly increase in the second half and both with regard to the ramp up of our production in our different facilities as well as with business wins.

Okay. And then just lastly, maybe for you George on the tax side, it looks like there was about a nickle tailwind for you here in the quarter versus the last quarter guide, it sounds like maybe this lower tax rate should be expected to continue for the balance of the year. So could you just talk about that, and then I guess the implied question is with no change to the full year earnings guide despite that tailwind, would you say that tax tailwind now has you tracking to the high end of the EPS guidance range.

Well I think the question mark will be Brazil whether we track to the high end of middle point but I think what we consistently said is that and we have - we have mentioned that Brazil will still incur a loss in the third quarter, but they will be profitable in the fourth quarter, so it will be more breakeven in the second half. So that will offset a little bit of the tax, but I think clearly what is happening now is our earnings ramp has got much stronger North America and the low interest expense, so a lot of our earnings are now starting to come out in North America which will have the zero tax, and so it will continue to lower our effective tax rate until we utilize the tax loss carryforward, and as you know, we have a tax loss carryforward of somewhere in the range of about $75 million to $85 million. So, as you look at your models, I think we will have -- our mix of tax will be zero in the U.S. and North America will pay about 23% in Europe and 21% in Brazil, once we get them back on track to profitability, so I would envision that our effective tax rate will stabilize in the range of probably 6% to 10%, that mix of earnings at least for the next two years until we utilize our tax loss carryforwards. And then, I would point with our mix of earnings, I think as I mentioned in the past is that our effective tax rate with our structure will be somewhere in the range of 25% to 27% once we come out of the tax loss carryforward.

Understood. Thanks very much.

You’re welcome.

Thank you for your questions. [Operator Instructions] Your next question comes from the line of Justin Long from Stephens Incorporated. Please proceed.

Thanks. Good morning guys, and congrats on the quarter.

Good morning, Justin.

Good morning, Justin. Thank you.

So first question I had was on the net new business backlog, I was wondering if you could speak to the level of production growth that you’re assuming in that number as we look out over the next year or too, I’m sure it varies by geography and customer, but might be helpful if to just get a sense of what you’re assuming on that front whether it is flattish production, both single digit growth or something else just from a high level?

Well Justin as you remember, we put the plan together in that October, November, December timeframe, and we use IHS and the others, JD Powers in Europe, and so a combination of those really still had pass car growth in the range of 2.5% roughly. We have not changed that we are going through our planning process right now, in fact we are having our strategy sessions here in August, September that will lead to a full budget again in December. I think what you are already seeing is that the forecast coming out of the different agencies has the growth in pass car for example of around 2.5%, control devices continues to grow well, they grew at 10.4%. So I think you are going to see us be above those levels, which is consistent with what we build into our guidance based on our performance in our new growth areas that we have said. I think the area that surprised us a little bit is Europe, if you think about Europe, there was a change in the currency value this year to last year was about 10% to 12%, but we have actually been neutral in dollars, and I think we have said that Europe right now have been growing in local currency terms closer to 8% to 10% and we have been performing to that level which just helped to offset some of the currency headwinds, and then Brazil quite frankly is a little bit of a crapshoot right now because the GDP continues to drop, it is actually a negative 2.6%. When the year started, it was a negative 1.3%. So I think if you want to look at high level and we will certainly update this in the fourth quarter or probably January, February we normally…

Okay, great that’s all really helpful and sorry if I miss this but I wanted to ask to if your expectations for CapEx in 2015 and have changed at all and as we also look into 2016, do you have an initial expectation for how CapEx should trend, I’m just curious if your framework for free cash flow being 3% to 4% of total revenue has changed at all or that still a good way to think about the cash generation of the business.

I think just at about high level that’s still a good number I think what we’re experiencing and seeing this year is that the shift by wires clearly adding some additional capital here we have been installing the equipment since the second quarter or third quarter so if you look at the ramp of shift by wired, we’ve actually been production here through the third and fourth quarter so you’re going to see a higher level of capital. Last few years we spent around $23 million to $24 million I think its going to get up closure to the, the $30 million this year that we’re seeing right now because of that capital but once we get through that edge it really depends on what we do with new launches in 17, 18 because we have started to back fill some of the reduction that you saw last two years ago we had a $176 million in net new business to 130 but we’ve already started to do land some business in Europe, Electronics we offset that, that will bring little bit of capital but I think that our capital will stabilize there and one action that John has really pushing its optimization of our capital we’ll talk a little bit of out there as we get to the third quarter because we’ve seen some examples of pushing efficiency levels in our plans so we’re actually able to minimize our capital, we able to drive some different actions with our optimization of our equipment.

Okay, great and last question from me I was wondering if you could provide some more color on the cadence of EPS that’s kind of baked into your guidance for the back half of the year, what you expecting between 3Q and 4Q, I know you gave the expectation for PST but on a consolidated basis how do you expect earnings to progress?

I think you’re going to see earnings in the third and fourth quarter pretty consistent with the second quarter with slight variations on the upside. I think lot of that will depend on where PST is, I think we shared with you, we still see a loss with PST in the third quarter profitability but there will be breakeven essentially in the second half and that is sort of reduction from what we indicated last quarter and I think that’s a result of we have seen a lower economic activity I mean GDP is dropped a lot, interest rates are going up, unemployment’s going up so the access we’re putting in place is to mitigate those things and really position us when the market does return because we do believe that the Brazilian market will start to recover at some point at that level I think our earnings per share will still be within that guidance that I have seen in the street from all of you in the sales side that I think we’ll consistent with also and the quarters won’t change a lot in the third and fourth quarter for what we’re seeing in the second quarter.

Okay, great. I’ll leave there. Thanks so much for the time.

You’re welcome Justin.

Thank you for your question. Your next question comes from the line of Rhem Wood from BB&T Capital Markets. Please proceed.

Good morning.

Good morning Rhem.

Good morning. Rhem, did we loose you?

We seem to have lost Rhem. [Operator Instructions]

I think we lost you Rhem. Operator Rhem, if you would like to ask a question, use please star, one again. We have Rhem back now, please proceed Rhem.

Yes. Can you hear me?

Yes. Good morning.

Yes. We can hear you now.

Okay. I don’t know what happened. So just stick on the guidance, cadence question, can you talk about the just the seasonality in the core, you talked about PST in the profitability, but can you talk about the just the seasonality in the core business in the third and fourth quarter.

I think what we’re seeing right now is and you’ve seen the uplift in sales and in Europe electronics. We saw a little bit of softness in July but I think what we are looking at would be pretty consistent in the third quarter and the fourth quarter that we saw in the second quarter. So we don’t see a big uplift in Europe on that side of it, control devices has performed very well they’ve been up over last year in sales but we see that trend about the same in the third and fourth quarter. And what has really happening there is the build and putting the equipment in place for the significant lift in shift by wire. Because when we look at that forecast for next year and there has been some slight adjustments nothing major. We have to be ready for really the uplift and shift by wire, almost starting late first quarter. So this thing is not a big ramp for ramps over the course of the year, it’s going to be pretty consistent coming out of control devices during the whole four quarter and next year, the shift by wire. So that’s why you are not going to see a big change in our third and fourth quarter in terms of the sales and the sales will be influenced by currency more than anything. But our volumes are pretty well in place so I think the sales levels that are being projected will highly depend on what the currencies are doing. But our volume should be pretty consistent in Europe, looking pretty consistent in control devices in the third and fourth quarter. At least we’ve seen in the second quarter.

Okay. Thanks. That’s helpful. And then, to go back to PST in Brazil, I think when you bought that business, you were talking about opportunities to bring Brazilian products, PST products to other markets and vice versa, I mean, where does that stand at this point, are there other opportunities to do that. And maybe the larger question for Jon, as you get into this I mean, do you still consider that PST business to be core, I mean, got of the wiring business, is that still something you consider to be core to what you are trying to do here? It seems like lot of the opportunities you talked about were in the core business, so just a little color there.

Yes. Thanks for the question, Rhem. Let’s just frame this a little bit. First, we continue to look for opportunities to take maybe both the products but also the core competencies that exist within PST which is some of their own electronics development capabilities and particularly focused on how do they simplify products for their market with their electronics capability and we’ve looked at how we can apply that in other markets. So we’ve explored both by ourselves and with partners in North America, we continue to look at what we could do with our Minda joint venture and India to take some of the products from PST and move them into that market. We also are in a very early stages of looking at China. But the other thing to keep in mind and as you think about our core business is yes, Brazil is in a difficult situation right now. But it still represents the eight largest car market in the world. With a huge population, where we believe like other that the economy at some point will come back and our ability to have a capable footprint there that allows us to support our core customers and their growth is a critical competitive advantage for us. Today we supply, we get requests from Scania and other truck makers to be able to make our electronics products in Brazil where that isn’t something that we have done in the past, the PST but we're exploring that today. So part of the strategic direction that the senior team in IR are leading and George and I were there as recently as last week is not only looking at how do we get PST through this very difficult time, but also how do we prepare it for the future both with taking the products that it has and applying them in other markets but also doing a better job of getting it ready to be an OEM supplier.

Okay. Thank you. That’s a good color. And then last question just on Minda, I mean I missed the numbers that you gave there could you give us again and that market seems to be pretty strong, what do you expect kind of how do you expect that to trend this year and next?

The question I mean this is a perfect example when the Government changed in India, it sort of cool consumer confidence picked up, it had nothing to do with the fundamental economic efficiency of the company, it had just with the psyche of the consumer and all the business people and so shortly thereafter I think the first quarter after the Election, our sales jumped 18%, so they are back returning I think we did a $11 million in sales this quarter about $144,000 in income our share and so India has actually returned and what we are seeing in India is really resurge of a complete market there, they are sort of lower cost in China to some extent, we are seeing a lot of our key customers especially in commercial not only building manufacturing capabilities but they are also building engineering centers. So India is becoming more and a more important footprint in the Asia market and so I think it fits very well and one of the things that Jon and I and the team have talked about is that now that we’ve negotiated the new joint venture that we control 60% it is a question of what products do we want to really nurture in India and the joint venture that we have the dominant position from a leadership standpoint, our management team that we want to really move forward in India because that is a venture where we can grow because I think how this venture is starting to happen is they concentrate and to strengthen two and three reorders, we have converted from electromechanical into electronics, so it has gotten us into the commercial side of the business but there is a whole array of pass car products and both commercial products that we control the technology and the manufacturing processes. So that is something we are highly involved in right now. So it is actually turning out to be very good location and they went through some of the same problems like Brazil did but I think their economy is really being driven by a new Prime Minister who made some of the right decisions and that Indian market has recovered pretty nicely.

Okay, thanks for the time guys.

You’re welcome, Rhem. End of Q&A

Thank you for your questions. I would now like to turn the call over to Jon DeGaynor for closing remarks.

Well again thank you everybody for your time this morning. Our second quarter results are demonstration of the ability at Stoneridge to overcome challenges and deliver. I’m excited to see the global team worked at the company is demonstrating and these efforts really embody our theme of one Stoneridge. We will continue to expand the ways that we leverage our global capabilities. These leveraging actions will manifest themselves and facilities optimization, supply chain refinement, engineering globalization and new technology development. I look forward to updating those of you on this call regarding our progress in forthcoming calls. I hope you all have a great day, thanks.