Good morning, and welcome to Stoneridge First Quarter 2018 Conference Call. [Operator Instructions] As a reminder, this conference call maybe recorded for replay purposes. It is now my pleasure to turn the conference over to Mr. Matt Horvath, Director of Investor Relations. Sir, the floor is yours.

Thanks Brian. Good morning, everyone. And thank you for joining us to discuss our first quarter results. The release and accompanying presentation was filed with the SEC yesterday evening and is posted on our website 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 which has been 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 first quarter in which we delivered another quarter of strong financial performance. Let me begin on Page 3 with an overview of our financial performance for the quarter. Our first quarter sales of $225.9 million resulted in a gross margin of 30.1% translating to an adjusted operating margin of 8%. Adjusted EPS for the quarter was $0.50, an increase of $0.12 or 33% relative to the first quarter of last year. This morning, we’re increasing our 2018 full year outlook for sales and earnings per share as a result of outperformance this quarter, as well as our expectation of an improved revenue outlook for the remainder of 2018. In short, we expect improved revenue growth particularly related to Control Devices in Electronics. Our full-year guided margin expectations remain intact resulting in an improvement to full year midpoint EPS guidance. Bob will provide additional detail on guidance later in the discussion. Our segments performed as expected during the quarter with Control Devices delivering growth in our emissions and certain actuator products. As discussed last quarter, plant shift-by-wire revenue reductions more than offset our growth and other actuator product lines leading to roughly flat revenue quarter-over-quarter for the segment. Revenue growth of 34% in our Electronics segment was driven by strong performance at Orlaco, as well as the ramp-up of group programs. Additionally, robustness of the commercial vehicle markets in both Europe and North America and favorable currency rates contributed to topline growth for the segment. Sales at PST remained flat relative to the first quarter of 2017 primarily due to the impact of expected seasonality and unfavorable currency. Margin expansion continued for the segment resulting in a trailing 12-month adjusted operating margin of 6%. This compares to…

Thanks Jon. Turning to Slide 11. Net sales during the first quarter were $225.9 million, an increase of 11% relative to the first quarter of 2017. Adjusted operating income of $18 million or 8% of sales represented a 4% increase over the same period last year. More specifically, Control Devices net sales of $117.5 million were in line with our expectations decreasing by approximately 2% quarter-over-quarter. Adjusted operating income of $18.4 million declined 4% relative to the first quarter of 2017 to 15.6% of sales. Electronics net sales of $100 million increased by 34% resulting in adjusted operating income of $8.8 million or 8.7% of sales. PST's net sales of $20.5 million decreased by 5% resulting in adjusted operating income of $1 million or 4.8% of sales, an increase of 70% relative to the same period last year. This morning we are providing revised guidance on our 2018 financial performance considering our first quarter performance and the revised view for the remainder of 2018. We expect continued topline growth due to favorable end markets in our Control Devices and Electronics Segments, extensions of certain shift-by-wire programs and strong performance by PST for the remainder of the year. We are increasing the midpoint of our sales guidance by $30 million to a midpoint of $880 million, an increase of 7% over 2017. We are maintaining our guidance related to adjusted gross margin, operating margin and EBITDA margins with midpoints of 31.5% , 9.5% and 30% respectively. We're also increasing our adjusted EPS guidance by approximately $0.13 to a good point of $2.13 an increase of 36% over last year. Page 12 summarizes the key financial metrics in both quarter-to-quarter and trailing 12 month periods specific to Control Devices. Control Devices sales decreased by 2% relative to the first quarter of 2017.…

[Operator Instructions] And our first question will come from the line of Christopher Van Horn with B. Riley FBR. Your line is now open.

So if I look at your guidance, you obviously maintained the guidance on the margin side, raised it on the revenue side. It’s implying a pretty significant sequential margin expansion as we head throughout the year. And I just want see if we can identify some of the - is there's some big leverage that caused that to happen. Is it lower launch costs or higher margin business rolling on just in more detail there if you don’t mind?

And as we talked about during the call, we had a series of non-continuous activities happen as part of the launch with premium freight, scrap costs and overtime that we don't expect to continue. So, there are action plans that are in place there are specific teams that are working to address each of the top 10 items, and we’re very confident that we will see the improvements in each of those areas and address the one-off items that we talked about on the call.

And then if I look at the FMCSA exemption decision timing, what has to happen in order for that to move favorably and is there an opportunity still for MirrorEye if you don't get that exemption. From the way I understand it, it can be on a vehicle even with the mirrors and just as an added safety feature as well just for clarification there?

So let me answer the second piece first Chris. MirrorEye does not need the FMCSA exemption to be put on the truck. What we see and therefore if get the safety benefits they don't need the FMCSA exemption. However, the FMCSA exemption which is a process of we apply for the exemption, they publish it and there is a period of public comment and then there is - which is 30 days and then there is 90 days in which they have post the public comment to make those decisions. So we’ve submitted our proposal. It's out in the process of public comment currently and we expect within 90ish days to be in a situation of having the answer and it’s a five year exemption from there. But what we see and what we hear back from the fleet is they want not only the safety benefit of MirrorEye but side mirrors do have a fuel economy impact and more importantly they have a maintenance cost because it’s an opportunity to damage the product, to damage the mirror. So it’s a maintenance cost so they want the benefit of taking the mirrors off. But in order to get the safety benefit, we don't need to have the FMCSA exemption in order to do that. And so we're working with - we’re in fleet trials today with the mirrors are not pulled off right.

That’s important. We’re in fleet trials today where the mirrors are not pulled off and the response has been overwhelming positive even with mirrors on the vehicle.

And then just one final one from me, congratulations on the Intelligent Vehicle win here. How big is that business today because the wording it sounds like this is a business you’re already in and where do you see this kind of opportunity going forward because this is a pretty significant win in our view.

Yes, it’s a significant win - we don't breakout the segments within electronics down at that level, but I would say that this is within connectivity, this is a significant win. It builds upon a platform that we're already selling in Europe with at least one OE customer. And what we expect to see is that more and more OEs are looking at what do they do to manage and control the data that’s on the truck. And we’re getting more and more of these questions from our OEM partners. So this win is significant the fact that is both in North America and in Brazil. Its meaningful and the fact that it builds upon a set of core competencies that we already have developed means that we get to lever our engineering as opposed to doing something in this book.

I would just add on to Jon comment that what I think is really important to mention regarding this win as well is we’re looking at launch on this product of margin next year which - when people in the automotive supply they talk about awards, they are generally talking about two to three-year timeframe in terms of and the time that you receive a purchase order to the time that program goes into production. That just really speaks volumes to the fact that we have the install base, the software, we have got system in place and be able to turn around the production system and in that kind of timeframe just really I think speaks volume to the capability of our teams around the world.

And our next question will come from the line of Justin Long with Stephens. Your line is now open.

So maybe I’ll follow-up on that last question on the global connectivity program win that was obviously a nice win. With MirrorEye you’ve given us some help and kind of framed up the addressable market as you see it today. Is there way to think about the addressable market and the way to think about the competitive landscape for that product offering?

The addressable market we see Justin - it’s difficult for us to frame it, it has the ability to go across all trucks. It’s something if you look at some of the announcements that have been made by the OE’s with regard to what they are trying to do with regarding data control in their vehicles. What you see is all of the OE’s are trying to do a better job of controlling the information that's flowing through their truck. This connectivity modules the tool to do that so we look at it as this isn’t to takeaway, ultimately it will be across all trucks so that's piece number one. Secondly, this is a competitive activity. We won the bid competitively our footprint, our technology and our cost structure allowed us to win it competitively. And we feel like we can support our customer in North America, in Europe or anywhere else around the world in order - as they have these needs and they try to offer more services to their customers.

And secondly I wanted to ask about the 2018 revenue guidance, it went up by 30 million. I was wondering if you could help us understand how much of that was from shift-by-wire platforms getting extended versus a better market outlook. And also curious if you have the contribution - the revenue contribution from shift-by-wire in the first quarter?

So really the guide on the increase in revenue is it’s really not about shift-by-wire extensions, it’s really more about our end markets and our customers outperforming really just the overall base market. So I would say kind of categorically if you look at where we had planned our volumes versus what's actually occurring with our customers across the board if its eye test in North America, I don’t see North America, I don’t see Europe. Our customers are gaining share and we’re participating in that because we’re on the right programs on the right platforms and it’s more of a story of that type of world versus shift-by-wire getting extended for period of time.

On that second question, do you have what the shift-by-wire revenue was in the first quarter and is there any color you can provide on how you expect that to ramp down over the course of the year?

We haven't disclosed the shift-by-wire - we haven't disclosed that ramp down but really Justin we’ve given you that information, if you think about the platforms we’ve provided the platforms that were on, we’ve given an average selling price of the products. If you go and look at the eye test data you can look at those platforms and you can calculate what the ramp down looks like.

But I think it’s important to know Justin this isn’t a - just a 2018 ramped down, this is a ramp down over the balance vehicle life. So you're talking about ramp downs in - end of life in 2020 or 2021. So it's not as though it goes from full volume to zero within the calendar year of 2018. It’s been within our plan, it’s at the rates that we're basically within our plan, and we are adjusting our facilities per the ramp down.

And I guess last one from me. I wanted to ask about free cash flow. When we think about the conversion ratio of net income and the free cash flow, is it reasonable to expect that ratio to be around the 100% in both 2018 and beyond.

I think that's a reasonable assumption, yes.

And our next question will come from the line of Scott Stember with CL King. Your line is now open.

You guys talked about - I guess having a certain level of confidence that the approval from your eye here in the U.S. or North America will go through. Can you maybe just talk about some of the - I don’t know what's supporting that confidence, is it just what you’re hearing from the end customers that are testing it or is it - is there anything else any other back channel communications which we are having, which suggest that you are feeling pretty good without it.

Well, first and foremost it starts with - we used all of our partnerships via - we need to be at the fleets to get feedback on the product and see where they would line up. So part of this is making sure that there is whole and that they would agree with the approach. Secondly is, we have given the regulators an opportunity to drive the truck and see the benefits from a safety standpoint. See the benefits of the products. So based on the fact that the feedback that we have gotten from the regulatory bodies on what pace you use the benefit of the product or the technology, the feedback that we have gotten from the OE’s and what we see during our fleet trials, we feel highly confident that we will get the approval, but I am going to say it one more time, I don’t believe that is a major break for the application and products. The safety benefits come regardless of whether the side mirror progress.

So essentially there is a market for it if - like you said from the sales standpoint.

There is absolutely a market and Scott we talked about this fairly consistently. If you look at the expenses that commercial vehicle operators have insurance is one of the top 3 and it’s the fastest growing of those three from a rate year-over-year. The ability for us to help them up weight volume spot accidents and that's really where MirrorEye comes into play. It's just supplement and it is something that they want and we have gotten - we believed it and we got that consistent feedback from the safety leaders in the industry and from our fleet trials.

Jon one thing I will add and correct me if I am wrong, but I believe that the requirement - you can't go down to 50 square-ish mirror which significantly restricts the visibility for the drivers, I would even say if the fleets go down, if the commercial vehicle industry goes down to 50 square-ish mirror, we are going to combine that with some sort of vision system. They have too.

And then also just on that topic, it sounds like you're expecting some retrofit opportunities in the back part of the year. Is that in your guidance?

Well, the answer is yes and yes, but the number is relatively small. What we are looking at there is - it’s a broader proof-of-consent. We have fleet trials going in right now. We see some low level revenues in 2018, but it's really more of an extended proof-of-concept than anything else. It's not on the same order of magnitude as the OE programs, but what we want to make sure is that we have done our work and that we have validated the product and made sure that we've got the appropriate level of feedback from the fleets and the drivers to make sure that our product is what they need to make the vehicles safer.

And just a couple of last quick ones. You did mention some other opportunities that you have talked about I guess on buses for MirrorEye. What are for motor homes are these, we won't think that would be a very big selling point on a $150,000 to $200,000 motor home.

You're right Scott, and our challenge right now is the list of opportunities is quite long. What creative people continue to find additional opportunities, and as we talked about during the presentation earlier, it also is applicable in all five ways. It's applicable in instruction of equipment. It really builds the technology that we are developing there, builds upon the Orlaco, base end markets as well. What we are trying to make sure is that we have a platform of technology that is robust and then we apply it in as many ways as possible, but the starting point is to make sure that we have the technology platform robust and then we can execute it in multiple end markets, but you are right that the motor home base is also a opportunity for us.

Just last question on PFT. You talked about how foreign currency was largely responsible for the sales decline. What the constant currency number was and just talk about - you did talk about how you expect sales there to improve as the year progresses, maybe just talk about like.

So the impact for PST for currency year-over-year was a couple of $100,000.

Here is a list of things Scott, comparing quarter-over-quarter one thing you have to understand is PST currently is a 100% aftermarket business. So retail channels and basically consumer channels drive this and so timing of things like when counterparts happens whether it happens in Q1 or Q2 would actually change how quarter looks because of buying habits. What we see within PST is compared to where we were couple of years ago. There is a much greater stability in the base economics, I am not so worried as much about quarter-over-quarter as I am. How is the total economic progress in the country, but secondly, this connectivity award that we just got is really important because it's also a Brazilian OE program and we are incredibly excited about programs and others that are in the pipeline and that will transition PST from being solely and aftermarket into consumer business to having OE programs and us being able to support our OE customers in that important end market for them.

And our next question will come from line of Gary Prestopino with Barrington Research. Your line is now open.

Could you - was there any currency impact in electronics and is that all organic growth that 34%.

So majority of the growth in electronic, there was a little bit of currency in electronics year-over-year but the one big part of electronics was the utilization and lack of acquisition.

And then in terms of the MirrorEye is both of your retrofits opportunities right now in North America, my understanding is Europe is not going to be a big retrofit market or may incorrect there.

Our assumptions are for the near term that primarily retrofit opportunities are in North America just because of the difference of the way European trucks are certified versus the way the U.S. truck are certified. It does not mean that there won't be an opportunity there, but the starting point in Europe is an OE application whereas here we see both the opportunity for retrofit and OE application.

And then just getting back to - the new award on connectivity, I know this - is there any retrofit potential there as well overtime.

Yes. It's not considered in that business award but there is certainly is the opportunity for retrofit and it was one of the considerations for us winning the business versus some of our competitors.

And we have a follow-up questions coming from the line of Justin Long with Stephens. Your line is now open.

Just wanted to ask about park-by-wire, there hasn’t been a lot of discussion on that topic during the call. I wanted to see if you could provide an update on where we are in the park-by-wire sales cycle, and is there are any color you could give us on a reasonable way to think about the timeline for new contracts announcements on that front?

Well, so let's talk first we’re in the process of - basically finalizing the development with the ramp up of that product in 2019. Some of the announcements from our customers with regard to what they're doing on their platform choices, we actually think will create more opportunities for park-by-wire as they try to do more with hybrid powertrains and electric drivetrains. So for us right now Justin the most important thing is launching well, building the credibility with the customers and being able to demonstrate our execution as they're trying to figure out what they're doing with their platforms. So there's nothing short-term from an award perspective but it's really important of getting it started, getting it ramped up and being viewed as that supplier that can help them as they are trying to set their future platform strategies.

And I guess the last question from me, balance sheet is in pretty good shape today. Wanted to ask about capital deployment going forward. What is the acquisition pipeline look like right now and how are you thinking about allocating capital via acquisitions versus potentially a buyback?

So we have a very active pipeline. We’re looking at a number of opportunities. We’re very pleased with the acquisition of Orlaco. I mentioned earlier that nine months ahead of time we fully attributed on the Orlaco deal and that just speaks to the success of that transaction. Really the strategy, strategy is not changed. We're looking at either product extensions or we’re looking for opportunities to expand our existing product line with different customers or in different regions of the world and we have a number of opportunities that we’re evaluating. And in terms of how we look at our alternatives, we look at them like any prudent investor, we look at opportunities in terms of M&A really the same way that we look at repurchasing our own stock and whatever mix - whatever has the highest MPV for our shareholders we’ll pursue that path. But we’re very, very comfortable with the strength of our balance sheet. We’re well positioned and we are evaluating a number of opportunities we’ll hopefully have more say about the near future.

And Justin let me just add on top of that, part of our continuous improvement activities and our focus from an organizational standpoint and we believe to execute, is also our ability to execute growth inorganically with acquisitions and our confidence in the organization in order to be able to do that, so that we deliver the right returns to our shareholder, a lot goes an example of that and we will continue to look at the right things to add on to Stoneridge in order to accelerate our growth. It’s exciting for myself, and the leadership team as we talk about how to really take Stoneridge into the next phase of accelerating our growth.

Thank you. And I am showing no further questions at this time. So it’s my pleasure to turn the conference back over to Mr. Jon DeGaynor, Chief Executive Officer for some closing comments or remarks.

Well thank you and thanks everybody for your questions and the participation in today's call. In closing, I can assure you that our company is committed to continuing to drive shareholder value through strong operating results, profitable new business and focused deployments of our available capital. We're confident that the actions that we are taking will result in continued success in 2018 and beyond. And we look forward to speaking to you in subsequent quarters. Thanks very much.

Ladies and gentlemen, thank you for your participation on today’s conference. This does conclude our program, you may all disconnect. Everybody have a wonderful day.