Good day ladies and gentlemen. Welcome to the Stoneridge Fourth Quarter 2014 Conference Call. My name is Matthew and I’ll be your operator for today. At this time, all participants are in a listen-only mode. We will conduct the question-and-answer session towards the end of this conference. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. Now I’d like to turn the call over to Mr. 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 received the fourth 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 John Corey, 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 on 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-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. With the sales of Wiring business, our financial reporting starting in the second quarter for control devices, electronics and PST will be reported on a continuing operations and Wiring is also reported as a single line called discontinued operation. In addition, our balance sheets and statements of cash flow include the Wiring business through July 31, 2014. Our forward projections for ’15 for our remaining segments only as our historical results including the Wiring business are not indicative of our future performance. John will begin the call with an update on the significant events for the quarter, current market conditions in the fourth quarter and our growth strategies and business development. George will discuss the financial and operational aspects of the fourth quarter, the repositioning of the company from selling the Wiring business, refinancing of the company, and the impact of significant changes in currencies due to the strengthening of the U.S. dollar. We’ve prepared and published an earnings presentation to provide more detailed schedules to help your understanding of our fourth quarter results, trends for our continued improvement and update you on key initiatives to improve financial performance. A copy of these items can be found on our website at www.stoneridge.com in the Investor Relations section. After John and George have finished their formal remarks, we will open up the call to questions. With that, I’ll turn the call over to John.

Good morning. We closed 2014 with fourth quarter EPS from continuing operations of $0.25 per share compared to $0.12 in the prior year. This performance is the fourth consecutive quarter. Stoneridge has recorded successive quarter-over-quarter profit improvement. This improved profitability is the result of actions taken during 2014 as we have discussed on prior calls. By business unit, control devices and electronics continue to perform well as the North American automotive and commercial vehicle markets had good growth in 2014 and the outlook remains positive for 2015. European markets are likewise improving in 2015. PST’s performance do not met expectations as the Brazilian market has not recovered and the outlook is for a continuation of poor economic growth. However, we expect PST to improve in 2015 and to grow between 10% and 15% in local currency turns. This improvement will be driven by the sales increases in the track and trace, which will represent approximately 27% of PST’s volume in 2015 and the introduction of the redesigned audio line representing approximately 19% of their sales volume in 2015. So even in the lethargic market, we expect PST’s return to profitability by a third quarter of 2015 and to be positive for the year. In addition to the improving markets in North America and Europe, the company will launch nearly $20 million in 2015 of new product and an additional $85 million of new business in 2016. Finally, we refinanced the company in the fourth quarter with the redemption of the remaining $157.5 million senior notes. The lower level of debt and lower interest rates will save the company approximately $11 million to $12 million in a just in 2015 over 2014. So as we exit the difficult 2014, we have repositioned the company continue to capitalize on the organic growth…

Thank you, John. With the completion of the Wiring transaction on August 1st and the refinancing completed as of October 15 of this year. We have strengthened the company. We’ve improved our risk profile and our geographic diversification will be more balanced. Our sales in North America will represent nearly 50% of our total sales, Latin America 21% and Europe/Asia 29%. Our recently revised sales growth projection of $130 million in net new business is being driven across all regions. This can be seen on Chart 7. Our customer diversification has improved with a balance between automotive and commercial customers are also can be seen on Chart 7. PST has had a negative impact in the operating performance in the last four quarters, but our PST management has been very aggressive in their cost alignment actions to correspond in the market opportunities by channel. Chart 12 was the key actions that have been generating savings for PST of $2.4 million in 2014 with an expected annualized benefit in 2015 of $12.8 million. Chart 13 shows the top-line sales growth in the audio line and track and trace as well as PST and other product lines. We have built into our 2015 guidance, a Real rate of 270 to the U.S. dollars. If the Real continues to weaken, which is currently being forecasted the value between 2.7 and 3 to the dollar for this year then this could create additional raw material cost increases offsetting some of the savings. Using the proceeds from the Wiring transaction, we paid off 10% of our existing bonds, nearly $17.5 million, the 103% of par using proceeds from the transaction on September 2nd of last year. We’ve completed de-leveraging the company by paying down an additional $57.5 million of debt and refinancing the remaining $100…

Thank you. [Operator Instructions] And your first question comes from the line of Justin Long of Stephens. Please proceed.

Thanks and good morning guys.

Good morning, Justin.

I just wanted to start off with the couple of quick questions on the 2015 guidance. Could you talk about what you’re assuming for the tax rate this year and also any expectation on CapEx?

I think CapEx will inch up a little bit Justin from where we have been, we spent roughly I think about $27 million this year, I’ll take it will be in that same range a little bit more will be for new line and the shift by wire and whereas. So it’s going to be in that same range and probably $28 million, $29 million range. In terms of taxes, our cash tax expense would be very similar to what we experience in the past couple of years that will be around 3% to 5%. I think based on the stability of Brazil and that would be profitable this year. Our tax rate should affect be in that same range historically where we talk about 13% to 16%.

Okay, great. So if you look at the FX headwind, did you give some color on the revenue impact or EBITDA impact, but it essentially works out to roughly $0.25 in EPS or so?

No, I think it’s a little lower than that, it’s probably – it’s more in the range about $0.10 to $0.15 of the impact on the currency.

Okay, $0.10 to $0.15, it’s helpful. And I also wanted to ask about the shift by wire business, it seems like some of that may have moved more into 2016 versus this year. Could you just speak to what drove that delay and are you now comfortable with the timing of that business rolling on the next couple of years?

Yeah, there is a push out from 2015 to 2016 and that was really as a customer – we’re following the customer’s cadence on that. So they’re working on their development site. So we’re pushing a little bit more into that year. We are very confident that these programs go off at our full projection to pretty solid as we said in the past and things shift by wire in total can be probably $150 million line business for us. In addition, we’re getting some early indications although it’s very early that they are maybe some other models that we might be considered for as we go forward, so we might have some – next year, might have allocation on the net new business awards on this line.

Okay, great. And last question, we’re in couple months into the quarter. I was wondering if you could comment on each of your businesses and how they’re trending quarter to-date, our things playing out relatively in line with your expectations so far?

Yeah. I think so I mean you think the North American automotive market is just still remained strong as of both very strong in February, so that’s benefiting control devices. The electronic businesses are playing at about what we expected and Brazil is playing at about where we expected as we go forward. So for the first quarter as what we know today things are at the pace that we expect. And Justin, that’s in the late two that we said, it would be more the second half because Brazil is typically lower in the first quarter. They’re trending in their normal progression as they do and then so they should be – we’ll have a loss in the first quarter, but then we will have closed to breakeven the second quarter, then we’ll go back in the profitability as John said in the third quarter and the fourth quarter. But for the year, it does appeared that we will be profitable on PST with all the actions we’ve taken in the top-line growth that we’re looking at and track and trace and then new audio lines.

Great, that’s very helpful. Thanks for the time.

You are welcome.

Thank you for your question. The next question comes from the line of Chris Van Horn, FBR. Please go ahead.

Yeah, good morning, thanks for taking my call.

You’re welcome Chris.

Just a follow-on the shift by wire, could you give me a sense of the competitive landscape for that product and kind of how the awards are expected to flow and what kind of your competitive advantages on the product?

Well, our competitive advantage, I mean the competitors in North America is probably one or two competitors walked in and they primarily are on the Chrysler platform or products that are not on the Chrysler platform. And our competitive advantage where we believe our competitive advantages on this is that we are able to package a high toward accelerator in the relatively small space. The other thing as we got – we’ve got a sizable amount of awards on this program already, so the computer finding value in our products. So its price strike and it performs well and we are launching this program as we said, we’re already on the Lincoln models. We are moving down with three or four models and we’re moving on GM models. And those models are launching in ’15 and ’16, so that’s going to be one of the key things that we have to do this year as make sure we want those models effectively and as I said earlier we may even have some additional opportunities there. In Europe, we don’t do anything on shift by wire. They have their own capabilities over there. They kind of stay over in that side of the pan and we’re competing on this side, so a good program for us. Chris, the other advantage when I shift by wire, it’s actually a bolt-on application to our existing transmission, so when you look at some of the competitive products, they are more the low cost transmission, but those tend to come when you redesign a new power train or new transmission, so what Ford and GM have done and now we’re looking at other customers gets an existing transmission configuration that they have and we can bolt-on our technologies to that. So we’re starting to see some interest expanding the two existing customers we have plus applications in Asia. So, and we seem to be very well-positioned because of our uniqueness with our product.

Great. And could you give a little bit more color on the 9.6% growth in pass car that’s a very effective growth rate given the start and just want to give a sense of what product line we’re seeing a lot of attraction with?

We are seeing it on our emissions product line on EGT product lines and also as we launched these shift by wire. We have product on the truck platforms too, which is emissions product which is driving them.

Got it. And any sense of like the mix between pass car and light truck?

Well, it’s good question because it really does very well product family, for instance shift by wires or pass car is that growth you will see a greater shift towards the mix, but you look at some of our products like Trailer Tow and our EGT products, a lot of those on the light truck platform.

Okay. So roughly half a split.

We’re probably about 40% light vehicle and 60% in pass car and it will start to switch a little bit as the shift by wires comes in so it will start influence more on the auto side and that’s not saying the enterprise, there is other platforms in light vehicle, but right now they have not done that except GM has done that with some of their [indiscernible] applications with the catalog.

Got it, got it, great. Thanks so much. Thanks for taking my call.

You’re welcome, Chris.

Thank you for your question. Your next question comes from the line of Jimmy Baker of B Riley and Company. Please proceed.

Hi, John, good morning, George.

Good morning.

Good morning, Jim.

First, I just had a question on the – as I look at the revenue guidance so at the midpoint you are looking for call at a $16 million year-over-year improvement, but you have again as a midpoint, $16 million of net new business coming online in 2015. So can you just explain why like all of your recurring business, net out the flat for the year, it seems to be something more significant than FX is triggering.

I think it really does stammer on currency, Jimmy is that if you look at and we’ve gone back and look at the 14 run rates versus ’15 and if you look at the impact in total, it’s approaching $50 million as I mentioned in our analyst speech, so a lot of this is the currencies influencing by half in Europe and half in PST is almost evenly split between that $50 million impact.

Okay, well, maybe I’m going to take on the FX team and if I look at the 26.9 gross margin in the quarter, first, have you got any unusual charges in it and then separately can you kind of help us walk through what’s driving the higher direct material cost if that’s entirely FX and did I understand your comments correctly that if this FX headwind continues into ’15 that you might be some of your cost initiatives that are outlined on slide 12 offset by those FX headwinds.

The biggest challenge we have in Brazil as you know we had the same issue in 2012 that if our competitors have inventory on stock, there is a reluctance to really raise prices, but with the Real now going at about 15% that has a direct translation into raw material cost in Brazil and our real challenge because we can’t really hedge so expensive because the interest rate differentials that we have to work on raising prices or redesigning coming out of new products like in our alarm system business we’re traditionally launching new line generally between April and June and we try to get prices up that way and then try to bring the home market with it. So we are actively working on price increases in Brazil right now. It is really being driven by Brazil right now because of the significant currency change and what’s that is doing to their imported raw material cost.

Okay, great. And then just lastly kind of a housekeeping item, just to clarify – the confusion on the adjusted EPS schedule for this year adjusted EPS include the tax benefit that you booked in your GAAP results for the fourth quarter and then did I just hear is response to earlier questions that your 2015 guide assumes 13% to 16% growth tax rate?

We’ll, for ’15, yes it does, that’s the rate that we will look at because the unusual thing in 2014, is there is a new launch in the tax loss in Brazil is that once we incurred a loss for the year which we did is the local currency levels. Then you go back and you book a tax credit base on the statutory rate, which is 34%. Now that we’re back in a profitable position for this year, we will be back including taxes in Brazil at 21% for the year, which is their benefited rate from them now, so and then in our schedule, the only adjusted items that are in there are the PST goodwill and then the cost that were incurred the premium cost and the amount of the amortization of the prior deferred cost from the previous financing, so that is what shown in the adjustments schedule for the $0.36 and $0.81 per PST goodwill.

There is same exhibit, Jimmy on the – right at the very end of the press release that ties into the P&L shows to the adjustments.

Understood, so just to be clear. Those have no impact on your tax rate for the tax benefit remained correctly.

Right, that’s right, as the goodwill was in tax, right that the goodwill has no impact and then all the financing costs and the interest is really in the U.S. or there is no taxes.

Great, very helpful. Thanks for the time guys.

You’re welcome Jim.

Thank you. Your next question comes from the line of Robert Kosowsky. Please state your company name.

Good morning guys, Sidoti.

Good morning, Robert, how are you doing?

Doing great. I was wondering on the slide 8, the 3Q to 4Q earnings rates, you had a $0.08 negative variance with control devices and electronics overhead to expand what that is and kind of stand though.

You said the slide 8.

Yes, slide 8.

Well, as I indicated – we had some – we’ve improved some higher warranty cost in there. We had some higher compensation and then we couldn’t get the reimbursement of some of the engineering, so I think the real question and they wrapped is those are not continues increased cost in overhead.

Okay, so that make sense, essentially with the one-time negative variance in the quarter and that is going to be really interesting throughout the year.

Yeah. Third quarter, fourth quarter, right.

Okay. And then also do you see any benefit from the plan on raw material prices generally speaking.

We are working aggressively on that right now to push some of – to get some of those, we have not yet seen that benefit come through on our contracts. But we will expect to look at that, as we go forward. We’ll see because strictly with the oil prices, we’re looking at all our plastic parts in our resin suppliers and looking to push them down on pricing actions. We are also looking at transportation cost in our freight carriers and looking to see if there are opportunities to drive cost lower. On electronics, we don’t see – we see the normal kind of cost recovery on those items. So, the big opportunities are on the resin prompts.

Okay, that’s helpful and then with the PST, can you talk about what the gross margin headwind might have been because you’re selling down the inventory, how much of our inventory you need to see brought down and then finally the cadence in that $13 million of cost benefits you are going to see.

The cadence for the labor and the overhead side is in place so that will be evenly over the full quarters. The other piece is the savings on the redesign of the audio line and originally and we still have about $5 million of inventory that we got to pull down and so it’s slight to that we will start and have the implementation between April and June of the new line. We factor that in today, the overall savings that you are seeing on the chart, but that’s one of the influences, Rob, of why the profitability looks much better in the third quarter and the fourth quarter because we have a fully implemented with the audio lines, track and traces in place that we’re signing contracts and moving forward. So that is a one man, we didn’t want to lower the price because all it does is take the price down in the overall market. So we’ve been selective how we’ve done that with reduced inventories as we mentioned $6.5 million and other $5 million that will happen between January and April, but we will have new product coming in to that April, June timeframe and that’s one of the big reasons why that benefits comes more in the second half.

Okay. And then did you say with the cost headwind was and the margins percent of headwind was from the chart on that for the quarter?

No, they really wasn’t any impact on that, it was more of a mix of products and then the cost increases in the raw materials where we have, so they are running the lower gross margin, they historically have done around 38, but I think with the positioning that we’re looking with the cost savings and also the new audio lines, our margins will get up in that range of 40% to 43% for this year.

Thank you very much.

You’re welcome.

Thank you for your question. The next question comes from the line of Andrew Fleming of Heartland Advisors. Please go ahead.

Good morning guys.

Good morning, how are you doing?

Doing well. Congratulations on the deleveraging the balance sheet.

Thank you.

I’m just curious, it looks like we ended fiscal ’14 with $87 million of net debt, where do you anticipate that being as we exit 2015 especially you noted in your earlier commentary that you will be able to take the inventory levels down PST, I’m wondering how much cash might be able to generate from that?

Well that will probably another $5 million, but I think as you and I talked initially at this point with our lower interest rates is not to really take debt down substantially. I think for the year we’re forecasting that – it will be a marginal reduction probably somewhere in the range of $5 million to $10 million in debt, the real challenge we have is where we’ve been invest and we’re actively looking at bolt-on acquisitions, we’re making investments to really support our growth in Asia and with the shift by wire, so that’s been a lot of the focus and we will continue to focus for this year.

Okay great and then what is your – I missed the earlier commentary, what do you expect your quarterly interest expense fee, is it the 1800, I’m sorry the $1.8 million this year is that a good run rate I think of going forward.

Yeah, I think these are the new rates we’re looking at is that our quarterly interest expense will be somewhere in the $1.3 million to $1.4 million range.

Okay. And then the guidance for ’15, what was the organic growth rate if we exclude the PST?

For the two businesses we’re probably looking somewhere right around 4% to 5% and one of the things it’s happened, Andrew is that lot of the shift by wire, we still have roughly $17 million to $20 million in new business which is coming a lot of that is shift by wire, but a lot of that is now sitting in 2016, in fact we have a largest lift over in the history of the company about $85 million of net new business in 2016 so…

Okay. And then if we are trying of think of inherit operating leverage in the business model. Is SG&A pretty fixed at about $30 million a quarter moving forward?

SG&A is going to be pretty flat this year, we’re looking at very little increase at all partly because of the one that the reduction that we’ve seen in Brazil we’ve done, so it’s going to be flat compared to last year. What we’re really going to see I think your question is we ramp-up the leverage that we’re going to get from our new products especially shift by wires is come on the apt income side as supposed to gross margin, so I don’t think we’ll see a huge lift in gross margins, but we will end up experiencing a leverage at the apt income level.

Okay. And just so you’ve guided the gross profit margin 28% to 30% looks like SG&A will be pretty flat at about $30 per quarter and then design development, are you targeting that as a percentage of sales?

Well, we have historically that we generally have spent a dollar amount somewhere in the range of $40 million to $43 million depending on what we’re doing. I think the philosophy we have within our business teams and ourselves is that, we can leverage that too, so it’s not a matter we are going to increase the same percentage for sales as our sales ramp up, and you will see our dollars stay fairly constant in that range, and then our percent of sales will go down with that. And a lot of it depends on what we see as opportunities that are coming up, you might want to – so we are already looking at what we might be doing at 2017 and 2018 timeframe, but right now, as we look the fill in those things, there might be slightly higher initially D&B expense for some of those programs.

Okay great. Well appreciate the debt pay down and the continued focus on controlled devices and all trends.

Thank you.

[Operator Instructions]. And your next question comes from the line Daniel Uribe with Varna Capital. Please go ahead.

Hi, this is Svetlana Lee from Varna Capital. Congratulations on delivering the balance sheet. Just a quick question on the PST debt, you said that’s totally nominated in U.S. dollars and how much of that is remaining?

No, you know very good to talk to you again. But our resilient debt is predominately all local currency, we really gotten out all of the dollar debt. In all of the debts that we have, 75% is really what we call state tax incentive funds that we borrow from the SUDAM and FINAME because we spend enough money on new technology that we are granted. Term loans, they generally run about three years, and our interest rates are in Reais at 4.5% to 5.5% for that debt and then we do have the piece that I talked about paying down is really working capital loans that we borrowed, and those rates tend to be in the 11.5% to 12% range. So our mission this year is to pay down the working capital of debt and then we will continue – we will pay down the maturities of the state tax incentive funds over their current maturities which are I think they pay out over the next two to three years.

That’s great. And then is there any U.S. dollar exposure there on the transaction side?

Yeah there is, I mean because we end up, we import and it varies, it’s somewhere between $1.5 million to $3 million a month, because we import a lot of components and assemblies out of China. Historically, what we have done is we’ve actually deposited the dollars as a way to head start mechanism from the currency, and so that is our one real exposure in dollars and we estimate, and when I talked a little bit earlier about the transaction cost in the change in the currency, there is built into that $0.11, but I said adjusting there is roughly about $0.4 dealing strictly with that item, the transactional exposure that we have in PST for importing dollar components and assemblies.

Okay that is helpful. And then can you talk a little bit about the M&A opportunities on that you are in a good position to help some of the cash flow to deploy here.

Yeah I mean, when we look at the controlled device products that we have set all along, we will look at things that are perhaps in the actuation space, as we might want to fill out that space, we think there was some growth opportunities in there beyond our shift by wire and some of the front axle disconnect products that we have, so we will stick there. And we’ll also look at the – in the emissions segment, we are going to look at some things in the area and the central side of the emissions segment that may offer, you know may fill out that portfolio. And as we’ve said we look at things, you know we have got a good position in North America, so we will be looking at the – see if we can enhance our position in Europe on the control of ice products. Electronics, it will predominantly be looking at maybe I’d say module suppliers that are currently competing on the smaller volumes, so that could be anything from door modules or products like that, and then we’d also look at perhaps instrumentation, and then also as we look at the emergence of what’s going on in the market, we might be looking at some opportunities in the – I’d say the – in tab enhancements that would enhance driver safety and driver visibility. You know one of the things we are seeing in the market right now is there are lot of opportunities coming up in Europe, and it seems to be driven low interest rates, and there seems to be an expectation or at least a feeling that if some privately sold firms want to monetize the piece this seems to be an appropriate time to do it, so we have seen a significant increase in opportunities in that part of the regional world.

Alright, thank you.

You are welcome.

I show no further questions, ladies and gentlemen. Well now I’d like to turn the call over to John Corey for the closing remarks.

Yeah again thank you for joining us on today’s call. As we look forward to markets as I said, North American automotive commercial vehicle market looks very good for 2015, European market is improving in 2015, and the Brazilian market, we’d essentially puts in our projection as being a flat market. But I think that the – we are going to continue to improve the performance in our businesses and we should continue to be able to improve the delivery of results. And then we’d potentially you know our ability now to invest in acquisitions for the business. I think Stoneridge has got a very good possibility of growing significantly in the near future. And with that I’d like to thank you for joining us on the call.