Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Stoneridge Third Quarter 2017 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. I would now like to introduce your host for today’s presentation, Mr. Matt Horvath. Sir, please begin.

Great. Thank you. Good morning everyone and thank you for joining us to discuss our third quarter. The release and accompanying presentation, as well as our 10-Q, was filed with the SEC yesterday evening and is posted on our Web site at www.stoneridge.com in the Investors section under Webcast & Presentations. Joining me on today's call are Jon DeGaynor, our President and Chief Executive Officer; and Bob Krakowiak, 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 actual results to differ may be found in our 10-Q filed with the Securities and Exchange Commission under the heading Forward-Looking Statements. During today's call, we will also be referring to certain non-GAAP financial measures. Please see the appendix for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. After Jon and Bob have finished their formal remarks, we will then open up the call to questions. I would ask that you keep your questions to a single follow-up. With that, I will turn the call over to Jon.

Thanks, Matt, and good morning, everyone. Yesterday evening, we released our results for the third quarter in which we delivered another quarter of strong financial performance. Let me begin on Page 3. Each of our segments exceeded expectations for the quarter. Control Devices exhibited strong top line growth, highlighted by continued growth in China which I will discuss in additional detail later in the call. Our Electronics segment was driven by strong performance at Orlaco as well as the ramp up of certain driver information system programs. Finally, PST continued its financial success through both top line growth and margin expansion. In addition to our strong financial performance, I want to highlight a couple of important events that occurred during the quarter. We were happy to host our inaugural Supplier Summit at our headquarters to recognize excellence by our supplier partners. Our suppliers play an integral role in Stoneridge’s goal [Technical Difficulty] vehicle markets are forecasted to grow substantially over the next five years according to IHS. The axle actuation as well as our Park-By-Wire technology will help our customers to seamlessly transition from conventional powertrains to the electrified power in the future. Our axle actuation products are one of the many exciting examples of how Stoneridge is leveraging its expertise in drivetrain actuation to develop new products and solutions that enabled the drivetrain systems are the future. Moving to Slide 8. Our product portfolio continues to evolve as we accelerate our growth in strategic regions by addressing industry megatrends that are particularly relevant to the local market. There is no better example of the growth opportunities for our product portfolio in other geographies than in China. It’s evidenced by a revenue growth of more than 50% year-to-date relative to the same period in 2016. As emissions regulations continue to…

Thank you, Jon, and good morning, everyone. Turning to Slide 11. Net sales in the third quarter were $203.6 million, an increase of 17% relative to the third quarter of 2016 with adjusted operating income of $15.6 million or 7.7% of sales, representing a 32% increase over the same period in 2016. Strong bottom line performance was driven by an increase in gross profit of 26% with adjusted gross margin increasing by 210 basis points over Q3 2016. More specifically, Control Devices net sales of 108 million increased by approximately 4% quarter-over-quarter, resulting in operating income of 16.2 million or 15.1% of sales which is an increase of 6% relative to the third quarter of 2016. Electronics net sales of 80.3 million increased by 40%, resulting in adjusted operating income of 6.7 million or 8.4% of sales. PST’s net sales of 25.5 million increased by 14%, resulting in adjusted operating income of $1.5 million or 5.8% of sales, which is an increase of $1.5 million relative to the same period last year when this segment was roughly breakeven. This morning, we are providing revised guidance on our 2017 financial performance considering our year-to-date performance and revised view for the remainder of the year. In addition to narrowing the ranges for both metrics, we are increasing the midpoint of our sales guidance by $12.5 million and increasing the midpoint of our adjusted EPS guidance by $0.07. Page 12 summarizes the improvement in our key financial metrics in both the quarter-to-quarter period as well as year-to-date specific to Control Devices. Control Devices sales increased by 4% relative to the third quarter of 2016, despite quarter-over-quarter reduction in U.S. light-vehicle production of 13.6%. Year-to-date, Control Devices revenue has increased by 12% while U.S. production has declined by approximately 7.8% relative to the same…

[Operator Instructions]. Our first question or comment comes from the line of Brian Colley from Stephens, Inc. Your line is open.

Hi, guys. Good morning.

Good morning, Brian.

Good morning, Brian.

So you guys are seeing pretty solid margin improvement across the business this year and I was just wondering if you could talk about how we should be thinking about margins as we look forward moving into 2018 and kind of where you see the most room for improvement.

Brian, thank you for the question. This is Bob. In terms of where we see margin going, we will be providing some guidance at the Deutsche Bank Conference in January. So I’m not going to say anything specifically relative to margin performance at this point in time, but we will continue to say what we’ve said all along that we’re building an organization that is absolutely focused on continuous improvement. And if you look at the margin enhancement that we’ve achieved of the company, we’re seeing it really across the board in all the categories and that’s the change we’re leading. We’re seeing it on the revenue side, we’re seeing it on the car side within sourcing, within manufacturing, productivity programs and improved quality. During the quarter we had some – on the SG&A front, we had some one-timers during the third quarter that impacted us. We had an ERP startup in North America, so we had some startup costs that impacted us during the third quarter. And then in addition to that when you go through the Q, you’ll see that we had a warranty settlement from product that we produced over 10 years ago. That was a little over $0.5 million. In addition that, we’ve adjusted our incentive compensation because of the large and average movement in the – positive movement in the share price during the quarter, so you see a slight uptick in the SG&A line for the quarter but that’s really not indicative of where the run rate is. We have a number of kind of one-timers in that during the quarter that impacted that.

Great. That’s helpful. And then just looking at your commentary on the driver information systems in China, I thought that was interesting. I was wondering if you could just elaborate on what exactly that is, and kind of what the opportunity looks like there?

Thanks, Brian. It’s Jon. What we’re seeing both on the passenger car side as well as the commercial vehicle side is you’re seeing really the maturation of the Chinese market going from – with our commercial vehicles going from really did they have a truck to what they expect when they’re going to a commercial vehicle. So the level of driver interface, the level of performance of the vehicle is really becoming more and more toward a global standard. And as we see that happen, then that creates greater opportunities for us both on the Electronics side as well as on the Control Devices side to help the OEs and the engine manufacturers there really deliver world-class product in that market.

Great. I appreciate the time.

Thanks, Brian.

Thanks, Brian.

Thank you. Our next question or comment comes from the line of Christopher Van Horn from B. Riley FBR. Your line is open.

Good morning. Thanks for taking my call.

Good morning, Chris.

Good morning, Chris.

I was hoping to get some commentary on Shift-by-Wire and what the product category looked like during the quarter and maybe what’s going on in the pipeline for that product?

Chris, obviously we don’t break out the product categories as we’ve talked to you before. Some of it comes down to our end customers’ mix between their passenger cars and light trucks. So that impacts us. But in the quarter, nothing that was unforeseen with regard to that mix. And again, just to remind everybody, passenger car and North American passenger car is less than 50% of our total sales. And of that less than 50%, SUVs and trucks represent more than half of that. So our exposure as the market moves and decides what they’re doing with regard to light trucks versus passenger car, it may impact the tape rate [ph] for Shift-by-Wire but it’s an opportunity for us.

Chris, this is Bob. One thing I’d like to add to that and I think one thing that’s important for everyone to know is both of our Shift-by-Wire programs from the launch perspective in terms of the full impact of the run rate for the launch, we’ve gone past that period where we’ve been 12 months running at the full run rate. So in terms of the growth that we’ve seen in our revenue during the quarter, it’s not a result of a Shift-by-Wire programs where we haven’t seen the impact full in annualization. That’s already occurred. So I think it’s important to point that out.

But I’ll just jump back in. As we’ve talked to our investors before, Shift-by-Wire is really not just a couple of programs. It becomes a platform for other things. So as our customers transition from conventional drivetrains to more electrified drivetrains, the Park-by-Wire activities that we have and some of the other actuation like we mentioned today the axel or some of the other actuation systems that we’re selling really are built on the success that we’ve had with the Shift-by-Wire and the trust that we’ve built with our customers that we can provide them with a viable, high-quality, high-performance solution. So Shift-by-Wire is really a platform for future programs.

Okay, great. Thanks for the color there. And then you’ve obviously had significant margin expansion and not to dwell too hard on that, but are margins benefitting a little bit from the actual production cuts in passenger car, because I imagined content per vehicle might be higher on a truck or a SUV or CUV and maybe some of these production cuts are cutting some lower margin business. Just tell me if I’m off base there.

For us, Chris, that sort of mix we don’t really see that as a benefit one versus the other. Our margin expansion beyond the ramp up of certain products, our margin expansion is really driven by – as we talk about, it’s really driven by our continuous improvement focus and our improvement in all of our plants and our improvement in the supply chain. So this is not about something that’s happening inorganically to us. It’s about the organic improvements within our total supply chain within our engineering, within our execution as an organization that drive that performance, not a mix-related activity.

Okay. And then just one follow on, if you don’t mind. With the kind of expansion of electric vehicle offerings or the content that you’ll be able to get, I imagine that’s higher margin type content. Is this becoming kind of space race, if you will, of competitors in this or do you guys kind of have an incumbent advantage in your view of getting on to more of these electric vehicles?

So what I would say to you and it goes back to the answer I gave you with regard to Shift-by-Wire. Certainly we have very capable competitors. And we work very hard with our customers to demonstrate our capabilities and the successful launch of Shift-by-Wire helps solidify that and the awards that we’ve won from customers from a quality perspective show that. So what we’re doing is trying to get further upstream with our customers working with their advanced drivetrain development activity as to make sure that the solutions that we’re providing anticipate the needs that they have. So yes, it’s more technology, it’s further upfront but our organization is well positioned for that and it’s part of the transformation that Stoneridge has gone through which is getting closer to the customers, being further upfront from the development perspective and having those solutions ready to go before the customers need them.

Okay, great. Thanks for the time.

Thanks, Chris.

Thank you. [Operator Instructions]. Our next question or comment comes from the line of Irina Hodakovsky from KeyBanc. Your line is open.

Thanks. Good morning, everyone.

Good morning, Irina.

Good morning, Irina.

A question for you guys on PST operations. You covered that in your opening remarks quite a bit. I’m just wondering if you can perhaps talk about the outlook there. We know that that market’s been doing good, automotive demand is going up. However, in terms of the outlook and what do you think is driving the momentum; economic conditions, employment? And then as a follow up to that, if you do expect this positive momentum to continue, historically PST margins were higher than the rest of the company’s average. Would you expect contribution margins from that business to be higher now than the company average, or is there any reason to believe that that would not play out?

Irina, good morning to you again and thanks for your question. PST obviously it’s been a source of a lot of conversations over my entire tenure here and it’s nice to be able to talk about the growth of PST and really the future outlook for PST. So just to remind everybody that while that is primarily an aftermarket and a novice [ph] service business, our revenue growth there is highly correlated with the market expansions, so be it pass car, commercial vehicle or the motorcycle space. So as we see the economy in Brazil and really in all of South America start to improve, we expect to grow with that. So that’s piece number one. Secondly, the cost cutting and the efficiency improvements that have been driven in PST over the last two years and particularly over the last 18 months give us the ability as we drive top line to really drive margin expansion and drive overall margin much faster than we see the top line growth. So you’ll continue to see quarter-over-quarter and the year-over-year progress that you see shown here in Q3, you’ll continue to see that going forward and we’re very confident in PST’s future.

Irina, I would just add that – in summary, the conversation with the PST has transitioned from what are we doing about PST to PST is fixed, PST is becoming a significant contributor to the company. And we’re very – again, we haven’t assumed really big improvements in the macroeconomic environment in Brazil, but we feel again looking at the culture here that we’re building a continuous improvement which will have significant opportunities to continue to add significant amount of values on PST. So we’re very excited about that.

Thank you, gentlemen.

Thanks, Irina.

Thanks, Irina.

Thank you. I’m showing no additional audio questions in the queue at this time. I would like to like to turn the conference back over to Mr. DeGaynor for any closing remarks.

Thanks very much. And thank you all for participating in today’s call. Just want to remind everyone that our next investor event will be at the Stephens Conference in New York on Tuesday, November 7, which will be available via webcast. In closing, I can assure you that our company’s committed to continue driving shareholder value through strong operating results, profitable new business and focused deployment of our available capital. We are confident that our actions will result in continued success in 2017 and beyond. Thanks very much.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.