Good day, everyone. Welcome to the CTS Corporation First Quarter 2018 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Kieran O’Sullivan. Please go ahead. Kieran O’Sullivan: Good morning. Thank you for joining us today and welcome to CTS’ first quarter 2018 conference call. The following are some notable items for the quarter. First quarter sales were $113.5 million, up 13.4% from the same period in 2017. Gross margins were 33.9%, compared to 34.2% in the same period of last year. Adjusted earnings per share were $0.34, compared to $0.26 in the first quarter of 2017. Total booked business increased to $1.76 billion. Operating cash flow was $20.2 million in the quarter, up from $9.8 million in the same period last year. The transition of manufacturing operations continues with the consolidation of the Bolingbrook site to our Lisle location expected in the third quarter and the end of production in Elkhart in the second-half of 2018. Ashish Agrawal is with me for today’s call and will take us to 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 will now turn the discussion back over to our CEO, Kieran O’Sullivan. Kieran O’Sullivan: Thanks, Ashish. First quarter sales were $113.5 million, up 13.4%, compared to the same quarter last year. Our organic growth rate was 10.8%. We are pleased with the sales improvement driven by our teams globally. Gross margins were 33.9%, which is below our expectation for the business. As you’re aware, we are transferring products from our oldest location, which has been in production since 1902. Given the resident institutional knowledge, we have implemented extra controls and incurring additional costs to ensure we protect our customers and train our teams for longer periods at the receiving side. And this has impacted our margins and we expect to see improvements as we complete the transfers. As always, we continue to focus on operational execution and quality, which are foundational for a manufacturing company. We have been patched to our sales growth. We shipped our products to five new customers with applications primarily in small cell wireless systems, revenue for new filters is expected to be in the range of $3 million to $5 million this year. We added a new customer for our EMC product line with an application in heavy…

Thank you, Kieran. First quarter sales were $113.5 million, up 13.4% versus the last year. Foreign currency rates impacted sales favorably by $2.8 million. Organic sales growth was 10.8% year-over-year, excluding sales from the Noliac acquisition. Sales to automotive customers increased by a 11.9% and sales of electronic components increased by 16.2%. Our gross margin for the first quarter was 33.9%, compared to 34.2% in the first quarter of 2017. As Kieran mentioned, we are taking a cautious approach with our product transfers and incurring additional costs to protect our customers. We expect to see improvements in margin, as we complete the transfers. SG&A expenses were $17.4 million, or 15.3% of sales in the first quarter of 2018, compared to 15.2% of sales in the first quarter last year. Included in SG&A expenses is the increase in cost from the Noliac acquisition and an unfavorable impact from non-cash pension expenses. R&D expenses were $6.5 million in the first quarter 2018, compared to $6 million in the same period last year. Our effective income tax rate in the first quarter of 2018 was 24.5%. There were certain discrete items that reduced our tax rate in the first quarter. Our updated expectation for our tax rate for 2018 to be in the range of 24% to 27%, excluding discrete items. This is slightly better than our previous estimate. We continue to work on opportunities to improve our tax rate beyond 2018. Our first quarter 2018 earnings were $0.34 per diluted share. Included in this number is a $0.03 charge for restructuring expenses, $0.01 charge for past incurred related to various tax projects, and a $0.04 gain for foreign – from foreign currency impact of our balance sheet translation. Excluding these items, adjusted earnings per diluted share remain $0.34 in the first quarter…

[Operator Instructions] We’ll have our first question from John Franzreb with Sidoti & Company.

Good morning, everybody. How are you doing? Kieran O’Sullivan: Good morning.

Hi, John.

A couple of questions here. First, I don’t know if I missed this number. But the – could you give the impact of what you’re doing as far as early rationalization on the gross margin, how much that was in the quarter? And maybe just talk a bit about what you’re doing there that’s actually weighing down gross margin?

John, what was the first part of your question on gross margin, I just want to make sure I heard it.

What was the absolute number I heard it?

I just give you the commentary, so you can follow-up the absolute number there. But, John, we’re transferring products. The sites been there since 1902. We’ve gone through a number of manufacturing transitions. And with the institutional knowledge and experience, we’ve had to put in some extra costs and controls and really make sure that we’re doing the right thing to protect the customers and train the receiving side. So, as I said in the prepared comments, this will be part of the transition, and you’ll see our margins improve as we go forward than the absolute number was. There was an impact of several hundred thousand, John.

Okay.

We expect improvement as we go through the product transitions more in the fourth quarter and a little bit in the third quarter as well.

Okay. So you’re going to incur another 700 in – on our batch Q2 that diminishes by Q3 and essentially gone by Q4, is that what we’re thinking here?

John, I said several 100. I didn’t say, 700, but…

Oh, okay.

I would expect depressed margins maybe in the second quarter to some extent and then better recovery in third and fourth quarter.

Got it Ashish. And in addition, it looks like the revenue profile in auto sequentially Q4 was roughly 12%, Q3 was roughly 7%, how much of that is increased volume or market penetration, and how much of that is FX benefit? Kieran O’Sullivan: John, on the whole market side of it, most of the growth if you look at it we break it into three buckets I would say. We had one customer which we had significant increase in demand. We also have the share gains we’ve talked about for the last number of quarters and we have the market, slightly flat to a little bit up, the FX impact, yes.

John, the FX impact that I talked about in my comments, most of that is related to the auto markets, so the total impact was $2.8 million.

Right, right, so that’s all automotive, got it. So that also suggest that you had another really good quarter in your electronics business, 16% growth versus 3Q of roughly 13%. Could you just talk, highlight what’s the biggest driver in that growth? Kieran. Kieran O’Sullivan: Yes, a few things John, first of all the organic growth rate was about 8.5% when you back out the Noliac sales. Probably four things driving the growth there, the medical markets with single crystal, we see good growth there. Also we continue to make gains in defense and industrial printing and RF filters continues to build momentum.

Perfect, got it. And what, I’m sure I’ll take a break now and let other people ask questions. Thanks, guys. Kieran O’Sullivan: Thank you.

And we’ll have our next question from Hendi Susanto, Gabelli & Company. Hendi Susanto - Gabelli & Company: Good morning Kieran and Ashish.

Good morning Hendi. Kieran O’Sullivan: Hi Hendi.

Kieran first questions, is there any potential impact of some political discussions with regard to the China-U.S. trades? Kieran O’Sullivan: What we highlighted there was the impact on tariffs and everything else, we sited [ph] up in total at about less than $0.5 million Hendi and we have some offsetting actions as well, so we feel pretty good there.

Okay and then second question…

Hendi, let me just clarify, this is based on what is in place today, if there are further actions from either of those – either from the U.S. or from China then we could have a bigger impact that we would need to assess when we get better clarity on what those changes are.

Okay, yes. And then looking at your manufacturing footprint, the best cost manufacturing location, I think the target is 80% plus the tariff restructuring, I would like to revisit that whether it’s still like 80% by mid 2018, I’m wondering where it will be by the end of 2018 and where it is in 2019? Kieran O’Sullivan: So Hendi, we always said we would target 80%, we’re on good track and hopefully do a little bit better, but we feel good about it.

Okay.

We should be over 80% when Elkhart transition is completed.

Okay, and then Kieran, I think you mentioned that you’re expecting some headwind in automotive in North America at some point in the future, may I clarify that? Kieran O’Sullivan: Yes, I mean we saw last year was over $17 million. We seen some numbers above and below $17 million this year, we’re late in the order cycle and obviously there’s some momentum out there from the tax cuts and other things, but the number of cars coming off leases is something we’re concerned about as well. So we don’t think something is going to fall off at a dramatic rate, but we think there will be some headwinds Hendi and we’re taking that into account in our planning in not just the year, but in out years as well.

And then when you look at that headcount, would you be able to partially offset that with increasing in contents and share gains, is that reasonable? Kieran O’Sullivan: Yes, we’ve always said even in a flat market we would be gaining share and so we continue to focus on platforms in expanding and expanding the customers and working on new products, so we’re not overly concerned, we just want to be cautious and also preserve our softness, we want to be ready to handle that with the appropriate actions, so we stay healthy.

Okay and then for Noliac acquisitions, do you see revenue to be stable or do you see revenue to grow this year? Kieran O’Sullivan: Hendi, what was the start of that sentence?

For Noliac acquisitions, do you expect sales to be steady versus last year or do you expect sales to grow meaningfully in 2018? Kieran O’Sullivan: We expect sales to grow, we are working hard on leveraging that capability because we now have foundries both in Europe and North America, we got the extra technology, we got new customers and we’re leveraging that into new products as well, so absolutely expect it to grow.

Okay and then any other growth drivers that we may not be aware of for 2018, Kieran? Kieran O’Sullivan: No, we pick some of the big things in terms of the sensor platforms, the accelerators and certainly on the electronic components, we’ve got some good momentum going, adding new customers and we continue to add new customers. I think our guidance range is probably a good measure of our growth.

Okay got it, thank you.

[Operator Instructions] We’ll go next to Ian Gilson, Zacks Investment Research.

The net gain in cash, was that primarily in China?

Ian, we don’t disclose cash by currency, but the cash is – the bulk of our cash is outside the U.S. as you know, but it’s a little bit more, it’s little less restrictive at this point in time. And if you go back to our earnings call from February, we did talk about roughly $50 million at that point in time in terms of the cash that could be brought back to the U.S. if we decided to do that.

Okay so when does the new tax laws, the penalties for bringing cash into the U.S. is less than it was under the older laws?

That is correct.

Okay and you talk about the auto market, however, one of the major gross companies that you’ve been involved in is Cummings, could you talk a little bit about that relationship and how the heavy duty market is likely to change? Kieran O’Sullivan: Ian, we’ve obviously got a good relationship with our customer, we’ve worked very closely on current and the next generation products and we’re seeing a good progress in that end markets and we don’t see any warning signs at this point in time. We’re actually more in discussions about how we can expand our product offering.

Okay, so to continue to grow as I presume that is primarily in the United States as opposed to Far East? Kieran O’Sullivan: Ian, they’ve got nothing to get into their – breakdown into their end markets, but they are a global company, so we’re supporting products in all regions.

Okay, so when you talk about the tax rate, you were saying any discreet items may impact that, are they going to be relatively random or are we going to be biased upwards or downwards?

Ian the discreet items, we had some favorable impact in the first quarter. I’m not aware of anything that would be significantly positive or negative, but that’s the nature of some of – sometimes the tax items that – but at this point in time I feel reasonably good about the 24% to 27% range that I mentioned on the call earlier.

Okay and finally your acquisitions, are they profitable at this point in time or are they looking for growth in profit Noliac?

Ian, yes the last couple of acquisitions we have done they are performing to our expectation from the acquisition models that we set at the time when we made those acquisitions. We have talked actively about double-digit growth we are getting in the single crystal space and the profit expectations from those businesses are being met. And we are making good progress on the Noliac acquisition as well we are seeing the top line improvements and profit improvements that we are expecting from that business as well.

Okay great, thank you very much.

Thanks Ian.

And we’ll return to John Franzreb with Sidoti.

Yes guys, I apologize if I missed this, but the book business number of 1.762, that’s up nearly 15% year-over-year and last quarter was up 14%, so you’ve had some really good growth there of late. I guess it’s two questions, one, is there one end market that is driving disproportionate amount of that growth and two, what are your thoughts about how that, that business, that book business grows or plays out for the balance of the year, it’s because the sequential numbers are kind of flat lined a little bit? Kieran O’Sullivan: So John, we are pretty comfortable in terms of how we are performing on securing business, booking business, we see a good mix across each of the product lines whether it’s auto, electronic component and there is good momentum there and we’re not seeing anything that’s causing us any concern.

John, we’ve also talked about lumpiness in our orders, just – that’s just the nature of the business, so you will see certain quarters are bigger than others and given the nature of how we are booking business, a fairly large portion of the total backlog will be or total booked business will be representative of long-term supply agreements we have on the automotive side with the automotive customers and then some of our nonautomotive customers we also have supply agreements, but most of that business is going to be deal based business.

Okay, and I guess just on a recent news about Ford, that change in their mix away from sedans towards SUVs, does that impact you at all? Kieran O’Sullivan: John, not a major concern for us or not a major impact for us. We – in the product line we ship some passive safety sense, we don’t see any significant impact coming from that at all, not a concern and we see – you had also noticed that GM added another shift and that’s a product platform that we are on as well, so always some changing dynamics out there.

Certainly is, okay thank you much Karen. Kieran O’Sullivan: You are welcome, John.

And we’ll go next to Hendi Susanto, Gabelli & Company.

Ashish, may I know how much the non-cash pension expense in SG&A line was in Q1?

So the total change year-over-year, Hendi, which is I think the underlying question you have was about $500,000, so last year we were booking a non-cash income approximately $2 million for the full year and this year we will be recording an expense of approximately $0.5 million for the full year.

$0.5 million for full year versus $2 million for 2017?

17.

Okay, yep. And then second question, with regard to SAP RPM [ph] implementation, should we expect it to drive operating margin expansion to a certain degree?

We haven’t guided to that Hendi, but I would not expect any improvements from that at least till 2020.

Okay, thank you Ashish and Kieran.

And we’ll go next to Ian Gilson, Zacks Investment.

Just one little question, in the first quarter you recorded a other income net of $2 million which is higher the other income that you reported in prior quarters, is there any extraordinary item in there, what is included in that number?

Almost all of that Ian is related to foreign currency gains when we do our balance sheet translation and we do carve it out for adjusted earnings purposes.

Okay that’s fine, thank you very much.

[Operator Instructions] We’ll go next to Hendi Susanto, Gabelli.

Ashish and Kieran one more question, so with regard to the effects positive impact on sales in Q1, should we anticipate a FX positive impact to continue in Q2 and remainder of the year, if FX have the current today’s rate?

Hendi, the impact is obviously year-over-year and you would see that we had started seeing some strengthening towards the latter half of 2017, so the impact year-over-year will probably change, but if the rates remain where they are then I would expect us to continuing seeing some favorability, but the extent of the favorability will continue coming down.

Got it. Thank you, Ashish.

[Operator Instructions] And we have no further questions in the queue. We’ll turn the conference back over to Mr. O’Sullivan for any additional or closing remarks. Kieran O’Sullivan: Thank you Sharon. Just want to thank everybody for joining the call. Again, we feel good about our strategy and gaining momentum on sales and we’re optimistic we can make operational improvements going forward, so we look forward to updating you at the end of Q2. Thank you very much.

That does conclude today’s conference. Thank you for your participation, you may now disconnect.