Welcome to the Stoneridge fourth quarter 2016 conference call. My name is Brian and I will be your coordinator today. [Operator Instructions]. It is now my pleasure to hand the conference over to Mr. Matt Horvath, Director of Investor Relations. Sir, please proceed.

Thank you, Brian. Good morning everyone and thank you for joining us to discuss our fourth quarter and full year earnings. The release in the Company presentation as well as our 10-K has been filed with the SEC and is posted on our website at www.stoneridge.com in the Investor section. 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 statement today may be forward-looking statements. Forward-looking statements include statements that are not historical in nature and include information concerning our future result 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-K 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 Investor Relations section of our website for 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 open the call up for questions. With that I will turn the call over to Jon.

Thanks Matt. Good morning everyone. Earlier this morning we released strong results for the fourth quarter and for the full year of 2016. Our Company continues to drive financial performance through operational execution which has resulted in yet another successful quarter. On page three, let me briefly cover our consolidated 2016 results. Sales increased by approximately 8% to $696 million for the year, compared to $644 million in 2015. Gross margin improved by approximately 65 basis points to end the year at 28.1% of sales, compared to 27.4% of sales in 2015. Operating income improved by approximately 200 basis points, to end the year at 6.3% of sales, compared to 4.3% of sales in 2015. EBITDA improved by approximately 230 basis points, to end the year at 9.9% of sales, compared to 7.6% of sales in 2015. Finally, adjusted EPS increased by 73% to $1.42, compared to $0.82 in 2015. We're able to achieve this financial performance through continued top-line growth that exceeds our underlying markets and continued operation efficiency which is driving higher sustainable long term margins. This growth comes as we continue to execute on our long term strategy of driving higher content per vehicle through system based solutions. Additionally it is important to highlight the job that our team in Brazil has done in delivering the second consecutive quarter of breakeven or better operating income in our PST segment. Even more exciting is the fact that the reductions in costs are permanent solutions that will drive sustainable margins in the future. We believe our South American assets will continue to serve our Company well as a platform for profitability, rapid innovation and growth. Finally we're pleased to announce the completion of our acquisition of Orlaco, our long term strategic partner in the development of our MirrorEye product…

Thank you, Jon. On slide 11, net sales in 2016 increased by $51.2 million or approximately 8%, primarily due to higher sales at the control devices segment compared to 2015. Operating income in 2016 increased by $16.3 million or 58% to $44.1 million which was driven by operating income improvement attributable to each segment. More specifically, Control Devices net sales increased in 2016 primarily due to new product sales and growth in the American automotive market. Control Devices operating income increased in 2016, primarily due to an increase in sales volume and lower SG&A costs. Electronics operating income increased in 2016 due to a higher gross profit, as material and SG&A costs decreased. PST's operating performance improved due to lower material costs compared to the prior year. This contributed to PST's second consecutive quarter of breakeven or better operating performance. We believe that this performance will be sustainable in 2017. EBITDA increased in 2016 by $19.9 million or 41% compared to 2015. The result of our improved operating performance across each segment with adjusted EPS growth of approximately 73% year-over-year to $1.42 in 2016. This morning we're providing guidance on our 2017 financial performance. We expect continued top-line growth due to the annualization of our shift-by-wire product, particularly in the first quarter of 2017. We do expect some modest headwinds based on IHS and LMC data specific to the platforms that drive sales for Stoneridge. We're guiding 2017 revenue to a mid-point of approximately $718 million. An increase of approximately 3.1% versus 2016. As discussed previously, we expect sustainable margin improvement from 2016 to 2017, through improved operating performance and as such, we're guiding gross margins to a mid-point of 29% of sales, relative to 28.1% in 2016. Similarly, we're guiding 2017 operating income to a mid-point of 7%, relative…

[Operator Instructions]. Our first question will come from the line of Brian Colley with Stephens. Please proceed.

So my first question was just on your guidance. Is there any way you could kind of walk through your top-line expectations by segment, then maybe some of your end market assumptions between North American light auto, European commercial vehicle and light auto as well?

Sure. Sure, Brian. So let me answer that. So with respect to guidance by segment, we do not provide guidance by segment, but what I can tell you is that if you look at the data that underlies our forecast, we do use IHS and LMC data, for passenger car and for commercial vehicle. So if you look at IHS in terms of passenger car, the assumptions for IHS is North America is down 1.5%. Within the IHS data. If you look at the LMC data, North America is down pretty significantly down about 6.5% and then we have western Europe is down about 1% and Eastern Europe is up about 10%. So those are our assumptions.

And just looking at the guidance provided in January for 2017, what was the biggest driver to that increase to the EPS guidance, excluding that release of the valuation allowance?

What I would say, Brian, is what we're seeing is the annualization impact of our performance. We got better quarter-over quarter in 2016 and that's allowed us from an EPS perspective on relatively flat sales, to continue to drive bottom line performance.

And then lastly just wanted to ask about MirrorEye. Is there any update to the potential contract opportunities there and just in term of when that product could start impacting revenue? Just wondering if anything has changed there?

Yes. So, Brian, thanks for the question. We actually continue to get more and more optimistic about this. We have said that we expect some OE award decisions in the first half of 2017. Again, probably not generating revenue until the 2019 timeframe, but what we're seeing right now is some opportunities with the fleets, as we got this feedback in the fourth quarter and we continue to get the feedback. We're actually exploring and looking deeper at whether there might be a retrofit or an earlier fleet fitment activity ahead of OE needs. And we'll continue to keep everybody updated on that as we learn more, but the starting point for that certainly is the fleet trials that we're doing in the first half of this year.

Our next question will come the line of Jimmy Baker with B. Riley and Company. Please proceed.

Slide 8 is really helpful to us. I was just hoping you could expand a bit our on that. Do you have any notable imports coming from outside the NAFTA region that you're kind of evaluating?

Well, what we have been looking at is certainly, Jimmy, what we have been looking at is where we get our electronics from around the world and what is dollar denominated. Obviously there's a lot of electronics that we bring in from China, but the one where we see the greatest or the greatest need for evaluation an clarification was possible NAFTA impacts and at this point the level of materiality on that is actually fairly small, as you see in this slide.

Okay. Are you able to quantify the dollar value of the China imports?

We haven't done that in the past. Again, I would say, Jimmy, you should look at us just like any other electronics company. We do not do anything different than anybody else. Everybody sources their electronics from China and it's all U.S. dollar denominated.

Sure. Okay. Just moving towards to the guidance then. How would you allocate just on an organic basis, how would you allocate the growth between the core Stoneridge business and PST and then what Real rate is assumed in the guidance and separately should we take your comments regarding PST profitability to suggest that they will be positive at the op income line each quarter of 2017?

So let me answer number one and number three and I'll let Bob answer the currency rates. Our guidance is based on PST basically being flat from a revenue perspective year-over-year. The economy while getting a little bit better in Brazil, our sales growth is de minimis. So the growth is both in the Control Devices business and in the electronics business, we assume no top-line, limited top-line growth from a PST perspective. However, the financial improvements, the cost reductions that we have made in PST, we believe are sustainable at this level. And yes, we expect that each of the quarters this year that business will be positive at a not-profit business in Brazilian AIs.

Okay. Jimmy, on the currency side our primary exposures would be the Euro, the Real and the Peso and then what we generally use is, we use a Consensus bank forecast when we put our plan together. Right now if you look at our plan FX rates on the Real is about 3.5, the Peso we were a little favorable on the Peso. When we built the plan the Peso was down around 19. So we have got a little bit of good news on the Peso and then on the Euro we're at about a 1.10 rate on the Euro. So we have got a little headwind on the Euro, we got a little bit of good news on the Peso and the Real relative to our planned rates and net/net they kind of balance each other out.

Right. So if assumed, just so I'm understanding this correctly, if you're assuming 3, 5 on the Real and that gets you to flat year-over-year dollar revenue, I mean if it holds at current levels, you would expect some modest growth out of PST?

That's correct. Yes.

Absolutely.

Okay, understood. And then just anything else to kind of call out in terms of seasonality of revenue growth this year or maybe just cadence of your backlog and how that impacts kind of the quarterly cadence of revenue growth as we move through the year or anything on the cost front on the margin front that we should be aware of on a quarterly basis?

Yes, Jimmy. So as I referenced in my comments, we do expect strong first quarter revenue growth as a result of the annualization shift-by-wire program. So shift-by-wire basically went into production with one of our customers during the second quarter, so we will see annualization impact of that. So you will see a little bit of revenue build more here towards Q1 versus the other quarters this year.

And from a cost perspective, Jimmy, we discontinued to look at sort of quarter-over quarter and month-over-month improvement. There isn't anything that we would say specific structural announcements that would be phased in. This is just continuous improvement areas in all of our businesses and all of our plans.

Okay, understood. So lastly and I know you're not providing specific financials on Orlaco, but could you help us just kind of frame the revenue and margin trajectory there? I guess we have been getting this question, but is there anything, any particular reason for the longer delay in financial commentary there? Do you have any concerns about the integrity of their unaudited financials? And I guess lastly along those lines, it will obviously have a significant impact when you report Q1 with the two months of contribution. So can you just help frame that for investors?

So let me answer a couple pieces of that. One the revenues that we talk about, that we mentioned in the remarks 2016 revenues and those ranges. We expect to see consistent growth in their base business, both at a top-line and at a bottom line level. And this is a business that you can see from the unaudited numbers that we have given to you is highly profitable and we expect that to continue. The Orlaco numbers don't include any MirrorEye in that business either. So the growth that we look at, there is growth in the base business and then there is opportunity that is layered into it from a MirrorEye perspective, that is not in their base revenues or what we'll show you for in the future for that. We kept it out of both sides, out of Stoneridge's side and out of Orlaco side. The fact that we have known the company for two years, gives us great confidence in how the business performs and in the integrity of the numbers. This is really just making sure that we get through the appropriate closing process, that we get through all of the appropriate audits, not because we have seen any challenges.

I would just echo what Jon said. I think it's important to note that when we went through this process with Orlaco, obviously they had advisors and they had auditors that provided financial due diligence and we had our auditors that did that, that provided financial due diligence as well. So again we're very comfortable, but again, at the end of the day, the results are unaudited, so just in terms of being prudent and providing guidance, we're still working on things like our purchase price on the purchase price allocation. So there's still some work that needs to be done and it's always prudent just to make sure that we have all of the financials, before we speak about the impact of Orlaco on our underlying business.

But for the Q, just last thing on that, Jimmy, in the next quarter or at the point when we're able to talk about it, we will continue to report that separately, so you can see it's a material segment. You will be able to see what that contribution is to Stoneridge quite clearly and should be able to answer those questions.

Thank you. There are no further questions in queue. So now at this time I would like to hand the conference back over to Mr. Jon DeGaynor, Chief Executive Officer, for closing comments or remarks. Sir.

Thank you very much. Thank you for your questions today. In closing, I can assure all of you on the phone, that our Company is committed to continuing to drive shareholder value through strong operating results, profitable new business and focused deployment of our available capital. We're confident that our actions will result in continued success in 2017 and beyond. We look forward to talking to you on the Q1 call. Thank you.

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