Executives:.

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John C. Corey - IR.

Justin Long - Stephens Inc Rhem Wood - BB&T Capital Markets Jimmy Baker - B. Riley & Company Cole Allen - FBR Capital Markets Irina Hodakovsky - KeyBanc Caspital Markets.

Good day, ladies and gentlemen, and welcome to the Q1 2015 Stoneridge Earnings Conference Call. My name is Joyce, and I'll be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session.

I would now like to turn the call over to your host for today Ken Kure, Corporate Treasurer and Director of Finance. Please proceed..

Good morning, everyone, and thank you for joining us on today's call. By now, you should have received our first 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 Corey Jon DeGaynor, 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 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 these actual results to differ may be found in our 10-K filed with the Securities and Exchange Commission under the 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 sale of the Wiring business, our financial reporting starting in the second quarter 2014 for Control Devices, Electronics and PST were reported as continuing operations and Wiring results were reported as a single line called discontinued operations.

In addition, our balance sheet and statements of cash flow included the Wiring business through July 31, 2014. Our forward projections for 2015 for our remaining segments only -- as our historical results including the Wiring business are not indicative of our future performance.

Jon will begin today’s call by describing these initial observations and strategies to address the near term challenges and longer term value enhancement for Stineridge. George will discuss the financial and operational aspects of the first quarter.

We have prepared and published an earnings presentation to provide more detailed schedules to help your understanding of our first quarter results, trends of our continued improvement and update you on key initiatives to improve financial performance.

A copy of these items can also be found on our website www.stoneridge.com in the Investor Relations section. After Jon and George have finished their formal remarks, we will then open up the call for questions. With that, I'll turn the call over to Jon..

Thank you, Ken, and good morning. Thanks for joining us today. I want to start by expressing how excited I am to be part of the Stoneridge team. Stoneridge is a company with a long history, celebrating 50 years in 2015, and a sound business model for the future.

The company has a good portfolio of innovative products and is poised to deliver the largest increase to organic growth from new program sales in its history in 2016. I joined Stoneridge because it's a business with sound fundamentals in both markets served and footprint and strong prospects for the future.

Since joining, I visited the majority of our facilities globally and have met a group of talented and dedicated individuals who develop, manufacture and sell products that deliver value to our customers and can generate significant earnings leverage and cash flow.

Thus far I've been impressed by the number of opportunities that I've seen regarding our products footprint and customer base. I can also see that Stoneridge faces some near-term challenges. The challenging economic environment in Brazil and unfavorable foreign exchange rates caused by a strong U.S.

dollar are affecting our financial performance unfavorably and may be masking some of the true value of Stoneridge.

Due to my limited tenure with the company I'm going to limit my comments regarding future strategies for the company, but I will address a couple of topics that represent near-term challenges and opportunities for longer term value enhancement. Our first priority as a leadership team this year is to ensure our new products are launched flawlessly.

2015 is a transitional year as the production ramps up particularly for our shiet-by-wire product and that occurs in the second half of this year. Our management team is committed to ensuring the production ramp up in turn occurs on time, on budget and meets the commitments to our customers.

Based on my recent site visit to our Juarez, Mexico facility. This is exactly what is occurring and I have confidence in our control devices team and their ability to execute. The second area of immediate focus will be executing in areas that management can control.

During the first quarter our results were impacted by unfavorable foreign exchange currency movements over which we have limited control. But we can control to varying degrees our pricing and cost activities, for example we have already moved on pricing initiatives within the organization particularly at PST to offset some of the economic headwinds.

Globally, we are evaluating opportunities to lower direct material and labors cost. As well as appropriately position and rationalize our sales and general and administrative costs.

In addition to cost initiatives, we are constantly evaluating our product portfolio and its competitive positioning in the various markets we serve, to ensure that resources are appropriately deployed. There’re businesses in our portfolio that have a strong potential for growth to grow profitably.

And we will continue to invest in those businesses for example actuation sensing and vehicle electronics. In conjunction with the focus on execution in the core businesses we continue to monitor and evaluate a variety of alliance and acquisition opportunities which maybe complementary in product customer and geographic dimensions.

Beyond the initial thoughts that I have outlined today, it would be premature for me to comment on a more extensive long-term strategy. During the second quarter call, I expect to have a more thorough insight as to the long-term strategy of Stoneridge and the direction we plan to take as an organization.

As Ken said 2014 was a transitional year for Stoneridge with the sale of the wiring business and the refinancing of the Company's debt. The leadership team intends to build on those milestone events in 2015 with a focus on consistent positive momentum through execution in all areas.

And I'll now turn over the call to George who will discuss our financial results for the quarter in the greater detail..

Thank you, Jon. Stoneridge's first quarter of 2015 adjusted earnings per share was $0.17 compared to $0.05 in the first quarter of last year.

The adjusted first quarter 2015 income from continuing operations attributable to Stoneridge was $4.7 million or $0.17 per share diluted which excluded a non-cash expense of 2.2 million for the accelerated vesting in connection with the retirement of Stoneridge's former President, and CEO.

This expense would normally be recorded over the remaining length of the grant period so this is only a timing difference in recording the expense. See slide seven for reconciliation, reported EPS and the impact of unusual items and our adjusted EPS from continuing operations.

Stoneridge's consolidated revenues in the first quarter were 162.8 million, an increase of 1.5 million or 0.9% over the first quarter of last year. On a constant currency basis though, which excludes the impact of foreign exchange translation, Stoneridge sales would have grown 9.7% compared to the first quarter of last year.

So our fundamental growth in Control Devices and Electronics remained strong. By business units, sales in the first quarter increased in Control Devices by 2.5 million or 3.3%, Electronics by 6.3 million or 12.7%.

and sales of Electronics decreased slightly by 800,000 or 1.6% after excluding sales of 7.2 million to Motherson which was previously accounted for as intercompany sales to Wiring and are now recorded as third-party sales.

In addition, Electronics revenues were negatively affected by approximately 8.7 million on translation of sales due to the weakening Swedish krona and Euro against the U.S. dollar. And on the local currency adjusted basis, Electronics sales were up 15.6% which can be seen on slide four.

Passenger car and light truck revenues were 65.1 million in the first quarter, a 4% increase over the first quarter of last year sales of 62.6 million. As volumes increased on Control Device products, which included new programs in shift-by-wire, Seat Track Position Sensors and Keyless entry.

North America automotive production continue to look very favorable in the first quarter for Control Devices, and the outlook for the rest of this year remains equally positive.

In addition, our business in China which is part of our control Device reportable segment is beginning to show tangible results and during the first quarter they recorded operating margin of 3.8% which was far ahead of our plan for them this year which is about breakeven and significantly ahead of last year’s first quarter operating margin loss of 1.7%.

And Sales in our commercial vehicle category, which are predominantly Electronics sales, were 60.5 million in the first quarter compared to 55 million, a 10% increase over the first quarter of last year, due primarily to higher volume sales of instrumentation products in Europe and sales to Motherson of 7.2 million, which were classified as inter-company sales in the first quarter of last year.

As previously mentioned, Electronics revenues continue to be negatively impacted by weakening Swedish krona and euro against the U.S. dollar. PST's first quarter sales declined by 7.4 million or 21.8% to 26.5 million compared to the first quarter of 2014.

And these results were negatively impacted by approximately 5.5 million, for FX translation as the Brazilian real devalued by 20.9% in the first quarter of 2015 over the first quarter of last year. And on a constant currency basis, PST sales were down by only 1.9 million or 5.5%.

To offset the currency impact, PST management raised prices by 11.3% in March and April in the aftermarket channel followed by audio line price increases by 10% in April and the OES dealer channel products were increased by 12% on average for all products in April.

PST has been monitoring competitive pricing actions, taking response to PST's price increases in the different channels of distribution to make sure our competitors are following PST's lead. While the first quarter results for PST still reflect the economic weakness, we remain optimistic about the remainder of the year.

PST management is taking pricing actions to maintain the profitability through the cost actions to drive and maintain gross margins by product line and channel distribution. We still expect the cargo tracker product line to grow at over 25% in 2015.

We believe we have the best cargo tracking system in the market because in addition to GPS and GSM capabilities, we have developed our own 900 megahertz systems strategically located throughout the country to provide us a better footprint to track vehicles. Our superior technology is manifesting itself an increased market share.

Recently, testing was completed by Brasil Risk, an independent agency which tests these systems for the industry. Brasil Risk reported for these tests very favorable results on our tracking system anti jamming capabilities and our recovery rate remains the highest in the industry at 82%.

The cost actions executed 2014 and the redesigned audio line will benefit PST in 2015 by about $4 million to $5 million for this year which now includes negative impact from currency changes. So far this year, the year-on-year favorable mix from higher sales of services has offset unfavorable FX impacts caused by strong dollar.

Excluding the effects of purchase accounting PST had a negative operating margin of 5.9% in the first quarter mainly due to the unfavorable Brazilian economy as GDP has now been estimated to drop to a negative 1.3% in the first quarter and the devaluation of the Brazil real by 20.9% compared to the first quarter of last year.

The real hit a record low of R$3.25 on March27, but has rebounded to R$3.06 on May 6 which demonstrates the volatility we've experienced over the last four months. We expect to see a return to profitability in the third quarter of 2015 as seasonable demand increases.

Consolidated Stoneridge operating income margin was 1.9% in the first quarter of 2015 compared to 4% in the first quarter of 2014 primarily due to PSTs performance. And see slide five for more detail.

Stoneridge's operating margins excluding PST decreased to 4.1% or 5.7 million, 5.1% or 6.7 million compared to the fourth quarter of 2014 due mostly to the unfavorable FX impacts on direct material cost in Europe Electronics.

And excluding the non-cash retirement charge previously discussed our operating margin excluding PST was 5.8%, which is a significant improvement over the prior year’s 5.1% and includes an additional 2.2 million direct material cost in Europe for U.S. dollar denominated purchases.

On a constant currency basis, our first quarter operating margin excluding PST would have been much higher. Both PST and Electronics experienced decreased profitability from excess transactional exposure to the U.S. dollar.

The Slide five in our deck has a complete P&L breakout on first quarter 2015 versus first quarter last year for continuing operations for the bridge item differences identified on slide six. Slide three identifies Stoneridge's segment sales increases and decreases versus the prior year’s first quarter.

New and replacement business awards for Control Devices and Electronics in the first quarter were 26.5 million, representing 3.9 million in new business awards and 22.9 million in replacement awards. The new awards included release switch award for North America passenger and light truck customer for its Asia Pacific market.

A temp sensor award for Asia Pacific commercial vehicle customer and a temperature sensor award for a North America passenger light truck customer. While we continue to win new business awards and focus on enhancing our long-term pipeline, our primary focus this year will be flawlessly executing our shift-by-wire launch.

Minda Stoneridge, our unconsolidated JV in India, posted first quarter sales of 10.3 million, an increase of 2.1% versus the first quarter of last year. The rupee remained stable in comparison to the first quarter of last year.

And our share of Minda's net income from operations in the first quarter was a profit of 189,000 compared to a profit of 238,000 in the first quarter of last year. China is beginning to show the results of the hard work and refocus on local business growth.

And our control device sales in China has improved in the first quarter from 3.3 million to 5.2 million or 57.6% increase. This growth has been on EGT sales of the China market, the leverage on higher profit sales has taken Control Devices in China to double digit operating earnings.

And from a geographic diversification our sales in North America represented 55%, Latin America was 16%, and Europe-Asia was at 29%. And our sales growth projection of 130 million in net new business is being driven across all regions, and this can been seen slide eight.

Our customer diversification has improved the balance between automotive and commercial customers, which also can be seen on slide eight. In addition, slide 14 shows the top line sales growth at the audio line and Track & Trace as well as other PST other products.

And for the three months ended March 31st, the company recognized income tax expense of 100,000 million on pre-tax income from continuing operations of 2.3 million or an effective tax rate of 6.5%.

The decrease in tax expense of the effective tax rate compared to the same period of last year was primarily due to higher mix of earnings with results for the US operations and lower mix of products from Europe reducing tax expense and the effective rate being offset by a smaller operating loss at PST.

Our ability to drive top line sales, reduce our cost drive profitability and generate cash flow remains our primary focus for continuing operations. In the first quarter, operating cash flow was an outflow of only $4.3 million in comparison to an outflow last year of $16.2 million.

Our cash flow in the first quarter of last year included results of the wiring business which we produced 10.1 million use of operating cash.

As indicated on slide 13, we improved our debt leverage from continuing operations as measured by total debt to EBITDA ratio from 4.1 times at December 31st 2012 which dropped to 2.8 times at December 31 of 2013 2.5 times in 2014, and we have leveraged the company now at 2.4 times in the first quarter of this year.

PST management has maintained lower inventories through the first quarter. In comparison to the first quarter of last year inventories were lower by 22.1 million and on a local currency basis inventories were down 14%.

As mentioned on our last earnings call, the inventory levels were lowered to better balance expected demand with expected new order patterns for sales in the first quarter.

While our favorable outlook for the remainder of reiterance of our guidance is based on our confidence that we have repositioned the company for improved operations and financial performance Control Devices continues to generate consistently improved operating profits by leveraging the sales growth.

They are by far the largest part of our growth story. Their disciplined approach to targeting advanced development projects in the emissions and actuation space should continue to sustain the growth trajectory for years to come.

For Electronics new programs launched in North America in 2015, coupled with advanced display technology in Europe to service the safety and fuel efficiency markets should further enhance the growth of this segment.

In addition, near-term programs reduce controllable cost, deferred non-critical investment in headcount and judicious reduction in advance development will improve Electronics contribution in 2015 despite the FX headwinds they are experiencing. PST has experienced significant currency headwinds from both transactional and translational exposures.

They have implemented pricing actions in 2015, and expect to see benefits from the costing actions taken in 2014 in head count overhead reduction and redesign of their audio line.

Their future performance has a more diverse product line; with car alarm still an important focus with a new emphasis on track trace services as well as portfolio enhancements like Bluetooth in all audio devices. PST can generate enhanced long-term shareholder value.

The company has been repositioned as a higher value market participant with the completion of the wiring transaction on August 1 of last year.

The redemption of 10% of our debt in September and the subsequent redemption of the $157.5 million of our 9.5% Senior Secured Notes using the new $300 million revolving credit facility was a significant step in deleveraging process of the company. These actions have positioned the company well to continue to enhance shareholder value.

We will now open up the call for questions..

The first question comes from the line of Justin Long with Stephens Inc. Please proceed..

Thanks and congrats Jon, on the new role look forward to working with you..

Thanks Justin I look forward to it as well..

I wanted to start with my first question it seems like over the past year or so you've been in restructuring mode you sold the wiring business to cleaned up the balance sheet you are taking out costs in Brazil but would you say we’ve hit the point where that restructuring process is over and we are now shifting to more of a focus on growth and if that's the case outside of the shift by wire business could you talk about the areas in the business where you see the biggest growth opportunities?.

Justin I will start at a top level and let George add in color given his greater history here I do think that while we will continue to tweak around the edges from a restructuring standpoint looking at areas within the portfolio I think the major restructuring areas are complete and if you look at the way in which our products are positioned and it’s not just shift by wire but it’s things like the EGT and turbocharge actuators as well as some of the things that we are doing for fuel efficiency and vehicle safety in the electronics business.

They are all in market spaces that should grow at a rate higher than the overall market. If we think about the overall vehicle market growing at about 3% compound annual growth rate, those market spaces should grow between 2x and 3x that.

So my belief is that the leadership team is really focused on executing our current launches and executing within our operations that continue to give us credibility with our shareholders and with our customers and at the same time refining our development portfolio and really focusing on those areas where we can bring the right products and also grow in the right market spaces..

Thanks..

And Justin, I have nothing I think Jon said it very well.

I think the major restructuring that we've been in is really complete I think the thing that Jon and I talked about is I think we got some more work to do on our product portfolio and we are looking at that in select areas, but for the most part I think we have the products and we have the geographic breadth now that we have the ability to cross-sell to our customers and cross-sell in geographic applications.

So for our company and I think this is one of the things that's been pleasing surprise to Jon is we have a global footprint which has its unique advantages for a company like ourselves and now comparing it to the wiring business, we can clearly focus on those technologies and those products of how we take those.

And if you look at the growth that's coming, a lot of its coming in Asia, it's coming in India and China and we are well positioned to address those issues in those areas..

Great. That's helpful color. You know second question I wanted to ask was on Brazil.

So I was curious if there was any change to your expectation for the sequential progression of operating income from PST over the remainder of the year any update to the expectation that you are kind of baking into that full-year guidance?.

You know Justin, Jon and I were just down there two weeks ago and I think we had a pretty good in-depth review of Brazil and what we see right now is and we always said we lose money in the first quarter that’s our lowest quarter. They will be close to breakeven here in the second quarter.

And it's really a combination of what we are seeing is an uplift in the market. I think the one surprise what we saw while we were there is GDP continued to drop it was running a positive 1% it was negative 1.3% in the first quarter. But I think the positive side of that is our management group has been very reactive to what's going in to the market.

And I shared with you the price increases we put in place and for the most part those price increases were established to really offset the currency swings that we are seeing. And that is how we have to recover in Brazil.

So I think the trend over the remaining quarters is very, very close to what we shared in our last call is that we should be close to breakeven should start to run in the range of probably 2% to 4% of op income in the third quarter and then it progresses and improves in the fourth quarter with the seasonal uplift in demand.

We are seeing very positively though the Track&Trace as we are well positioned in the market we actually had a leading edge product. And I think we are competing extremely well in that area and gives us a tremendous upside in Brazil than probably beyond what our forecasts are right now.

But I think they have done enough thing in other product lines and. that's why I wanted to say we are building off the strength we have in Alarm systems but we are diversifying our product portfolio and we are assessing some of the product lines there. As Jon mentioned earlier, we are looking at our audio line.

And should we be in all those lines, so that's a continuous thing that we’ll revisit with them and work with them. But we feel pretty comfortable where Brazil has managed the negative circumstance in the economy and the FX, and we're really working on things we control both on the product side and on the cost side..

Okay. Great. And last question I had, looking at the 2015 guidance as well. I guess last quarter you had talked about a negative impact from foreign exchange somewhere in that 10% to 15% range looking at EPS. Given the fluctuations in rates since that time any update to the EPS headwind you are assuming in 2015 in that guidance..

Well, I think clearly the currencies have all moved in different directions. And when we created that and advise you the rates we're looking at, the Brazil rate in that time was R$ 2.70, it hit a low at R$3.25, it's now back to around R$3.05.

But I think even if you look inside the results for the first quarter, even with that variance and what we're doing in the price increases, I think we're managing through that currency change. Europe, we actually used a rate of 113 if you remember, it dropped as low as 105, today it's trending right around 111.

So, if the euro stays about where it’s at I think we can manage through that process; and then Jon alluded the other things we need to address in the clause to help facilitate that as we move through it. I think we're comfortable with that.

And I shared with you today a lot of detail and maybe it was a little cumbersome to understand, but in the European side in the local currency terms they actually had real growth of 10%. And when you look at the currency adjusted they were actually up in the range of about 15.6%.

So I think one of the things we are seeing is not only where they forecasting the market will be down but also the negative currency. I think what we are seeing is the market is actually a bit stronger than what we originally forecasting back in that January timeframe. So I think that’s partly offsetting some of the currency impact that we are seeing.

So I think we are comfortable to where Europe is, right now. And then we have been getting favorable trends in the peso. The peso where we have a lot of manufacturing capabilities is running around MXN 15.4. So that's been a little bit on the positive side.

So I think if you put all the currencies together, they clearly have moved in a different variance than what we laid out in January, but I think it is a basket, what we are doing to manage the currencies in our exposures we are about right what we told you in the first quarter..

Great. That's helpful color. I'll leave it at that. I appreciate the time today, guys..

You're welcome, Justin..

The next question comes from the line of Rhem Wood with BB&T Capital Markets. Please proceed..

Hey, good morning and welcome, Jon..

Thank you..

Good morning Rhem..

Okay, so my first question I just want to stick on Brazil for a second, do you feel like your cost structure is right, at this point -- can you take more out there, or is it just a matter of volumes coming back. Sorry, I feel a little echo here.

And then you mentioned in the call that I think previously you said it would be around breakeven in the second quarter, but then on the call you said maybe third quarter and then you said you posted that in second quarter, so it sounds like if that is going to trend in the right direction, how much do you think revenues including foreign exchange will be down in 2015, just a little more color on Brazil? Thank you..

Yes Rhem, I'm going to take the first piece and let George answer the second piece of that. With regard to the cost structure, as George said we were down there actually just last week.

And we believe that before we take another shot at cost structure, the first thing for us to look at is exactly our product portfolio and what products we are working on and where we are spending our focus. Because we believe there are some winners beyond what we have planned as well as some areas of challenge.

So we went through with the Brazil team focused on the portfolio activities. The cost structure would then follow that. The other thing that we see from an opportunity there is we believe there are actually some opportunities probably in the second half of this year and into the future, where our footprint there can give us access to other markets.

So, we have to be careful, just with regard to discussion on cost structure, to make sure that we are doing it associated with products that don't have future potential, rather than just cutting across the board..

And then, Rhem, to sort of address your other part of the question and as you know, we have purchase price accounting, so that is always in there. So when we manage Brazil both looking at local currency and the dollar impact. And so when I say we will be above breakeven that includes purchase price accounting.

So they are actually doing better than that in the local currency aspect. And that trend looks still pretty favorable to us.

We've seen a little bit of weakness, because the currency has been moving between Argentina and Brazil, but outside of that in the dollar terms we are looking that our sales would be very close, to what they were in 2014 in the second quarter on a dollar basis.

But they will be up fairly significantly in local currency probably in the range of about 10 to 15%. And then the normal trend of succession in the third and fourth quarter we continue to see that same kind of uplift over last year.

The profitability starts to improve fairly nicely in local currency that we should be able to run in the range about 5 to 6% when you look at it in the terms of dollars it’s going to run about 3% and that's got the purchase price accounting and of which you know that cost which is I think somewhere right around 5 million for the year.

So I think the trend that we forecast what we shared with you earlier is holding with Brazil.

I think the one critical thing that Jon and I will have to stay very close to is that we put pretty aggressive price increases in the second quarter and a lot of that depends on competitive positioning where they follow and will they follow the price increase.

So far our major competitor in audio following our price increase in that sector they raised prices 10% within three or four days of when we raised prices.

So if that trend continues then I think we feel comfortable combination of our price increases and offsetting the currency then we are positioned as we do some of the other items that Jon mentioned on cost and our product portfolio evolution and review..

Thanks that's good color.

And then the second question, can you talk a little bit about the markets in Europe are you still seeing any of those market improve?.

Rhem I think this has been a little bit of a surprise to us because when we established the budget I was sharing with Justin in his question is that what we are seeing even though the currency is off about 13, 14% our dollar converted results are saying that our dollar translation is about equal to what it was last year.

So, yes, the local markets for us at least the accounts we have and the platforms we are on are showing growth and strength and we're up about 10% in local currency in Europe, which was a pleasant thing to see in the first quarter. And we see nothing that's really changing that mix of the portfolio in the second quarter.

We do have some actions as Job alluded to is we've got to sort of balance some of the cost issues we have there, but I think we'll address those fairly quickly and understand where we need to move and things we have to do. So, yes, the market is stronger than what we appeared.

And then if you probably notice the euro starting to come back, I weakened down to about $1.05 and as of the last week, its back up to about 111 and we set our budget was based on 113..

Great. Thanks, that's good.

And then can you give us some updated thoughts on bolt-on acquisitions, how big is your pipeline right now, what areas are you maybe most interested in, any thoughts there?.

Rhem Right now, we have a series of things that are, I would say in very preliminary stages from an acquisition standpoint. What we're focused on first as a leadership team is making sure that as we talked about that we're talking about execution and really knowing where we want to go with our product portfolio.

Now that we’ve restructured the business and gotten the distractions in 2014 out of the way. The first piece is making sure as I talked about in Justin's question, what are those next products that really represent opportunities for us.

And then as we refine that portfolio, then we look at where are the opportunities to spice that via the acquisitions. So I would say, we continue to scan the market both from an alliance and from an acquisition standpoint, but there’s nothing that's far enough down the path that we're ready to talk about it outside..

Okay. Thanks.

And one more and I'll turn over the 2.2 million in the non-cash expense for the share graph, is that in SG&A?.

Yes. It is Rhem..

Okay. Just want to make sure. Thanks for the time..

You're welcome..

Our next question comes from the line of Jimmy Baker with B. Riley & Company. Please proceed..

Thanks. Good morning, George and let me add my welcome to Jon..

Thank you..

Good morning, Jimmy..

First, just a couple of follow-ups on the FX front, bad echo here, I apologize. But the net new business outlook is unchanged, I know you typically update that annually rather than quarterly, but just given that we've seen some other companies in the space have to adjust those figures for FX.

Can you just kind of remind us of the geographic mix of that backlog so we can be thinking about that?.

Over this year and next year, Jimmy, I don't think it will be affected that much because most of that growth is coming in shift-by-wire and in EGT, where the currency is really not impacting that.

In fact, both of the key customers both Ford and General Motors, they are having us produce those products in Canton, Massachusetts whereas Mexico and we were selling them, we are producing them in a weak currency in peso, but we're selling to them in dollars, which like the fusion award, even though it's a 40% for China its actually produced and sold to them here in dollars so we'll not be influenced by any of the currency movement.

Clearly we've seen an improvement in EGT that we alluded to in China, but strangely enough the China currency’s actually revalued against the U.S. dollar. So we've seen some improvement there. So in the short-term in the 2015 and 2016 era I don't see a lot of the impact on our net new business by currencies..

Okay. That's helpful. And then if I think about the core Stoneridge business the control devices and electronics continues to be see some very significant gross margin pressure. I am just trying to understand exactly what's driving that.

And I guess given where you started the year on a consolidated basis 120 bps below the low-end of your full year range can you just speak to what steps you are taking that give you confidence in maintaining that full year range?.

George E. Strickler:.

The one issue we are seeing in electronics is being heavily influenced by what's going on with the currency in Europe and a lot of our dollar components are U.S. based and U.S. dollar based.

So, we are seeing a currency swing of roughly 10% to 12% on some of those imports on those dollars and so we are working and I think Jon alluded to this fact us we got to look at other ways under our control to either look at alternatives to supplies or can we change the portfolio, the product lines to try to address that issue.

So if you look at our cost structures and our margins, it's all being influenced by the U.S. dollar component cost of our raw materials in Europe. And that is an area we're focusing on very aggressively right now and attempting to develop plans on how to address that issue. But.....

Okay. So is it….

Outside of that. We believe our margins are improving, clearly on the control device side of the business. And even within the portfolio of electronics in North America they are fine I think we've got to address what's going on in Europe, highly driven by what's going on with the currency..

Okay. So that kind of dovetails into for looking out let’s say 2016 and 2017 when more of your new business comes online.

Would you say your expectation I guess particularly given where the peso has gone, whether you would expect some of that to come online and become accretive to consolidated gross margins and not only drive the segment margins higher, but actually the consolidated gross margin higher?.

Yes in fact when you look at shift by wire, it’s such a large component to ours and what you really think about is we've been developing this product line over the last two years to three years and that was all a period cost to us.

So you won't see a big uplift in gross margins, but we are going to be able to leverage op income significantly and it's in the range of 200 basis points to 300 basis points. So I think you're going to see a fairly significant uplift in marginal contribution with our net new business and especially at the op income level..

Okay. That's helpful. Thanks a lot for the color..

You are welcome..

The next question comes from the line of Chris Van Horn with FBR Capital Markets. Please proceed..

Good morning everyone. This is actually Cole Allen on for Chris this morning. Most of my questions have already been asked. But I 'thought I would touch on a couple of other things.

Could you guys just walk us through the expectations for the product launch maybe for the second half shift by wire? Is that more of a early 3Q or later 4Q story? And then I guess what are you guys seeing from demand on that side?.

Well, it’s Cole good morning. This is a business that full year run rate, next year we think about that as an 80 something million dollar business where we should get between $10 million and $15 million worth of revenue in this year. So that's really a late third quarter, early fourth quarter impact.

So the revenue impact in 2015 isn't as huge as it is laying the foundation for the ramp up and addressing 2016..

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All right Excellent! Excellent! It's a good color. And then I guess the last question I had was you said that Europe, has been performing really strong. And we've seen that in both commercial market and light vehicle market numbers that have been coming out.

Is there particular products within Europe that are doing well or is it kind of just overall demand is really bolstering everything?.

Jon DeGaynor:.

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All Right. Thanks so much guys..

You are welcome..

The next question comes from the line of Irina Hodakovsky with KeyBanc Markets. Please proceed..

Thank you. Good morning everyone..

Hi, Irina, how are you doing?.

Good morning..

I am doing well, thank you, welcome aboard Jon..

Thank you very much..

I had a couple of questions for your guys.

SG&A as a percentage of sales unusually low, what are your expectorations going forward?.

Jon DeGaynor:.

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And the other aspect to that Irina is when you have a product as large as shift by wire as an example where the development we've done in preceding years, you have a mismatch in periods between when you are spending the money to develop it, and when you are really getting the revenue against it.

So, you would see some thinning just based on the fact that you don't have to spend that same sort of development activity while you are starting to get the revenue..

Thanks Jon, thank you very much. Another question, tax rate substantially lower, you mentioned in your release driven by profitability mix. It appears that your profitability mix will shift a little bit back towards Brazil as you mentioned you should become a little bit more profitable as you go forward there.

So what are your full year tax rate expectations?.

Over the last couple of years, as you know, we've been running between about 13% and 16%. And I think what we saw in the first quarter is the profitability in Brazil was down typically and there expected tax rate is 20%. So as their profit goes up, you can assume that we're going to pay about 20% on their earnings..

As Europe improves here in the second quarter I would venture guess by the third quarter we should be back at our more traditional mix of around 13% to 15%. I think it will still be fairly low in the second quarter just because of the interest savings and Control Devices in North America continues to do very well..

Irina Hodakovsky:.

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One of the things if you understand the culture in Brazil that 47% of all their demand comes in the last five days of the month. So one of the negatives to that when you raise prices is always the dealers trying to anticipate when prices are going up what do I build in my inventories.

So we have been a little bit cautious because in the aftermarket we actually that 11.3% was two price increases, It was one at 6% in March and we put another 4%, so its compound growth rate increase of 11.3%. So we've seen a little bit of buying in March at a higher level and then little softness in April.

But I think as the dealers understand and our key competitors follow that, it will normalize itself, what we are getting in the short period when you raise prices in two different months the dealers are trying to play games with their inventories versus their debt position.

But so far we have not seen any huge dislocation where somebody or the dealer network just stop buying. And it was very encouraging in the audio line that our largest competitor actually followed us. And we would normally look at them as being a price dealer but we let that price increase and they followed within a few days..

Thank you very much guys..

You're welcome Irina..

We have a follow-up question from the line of Jimmy Baker. Please proceed..

Thanks. Yes. Thank you. Just a follow-up for you Jon.

The shift-by-wire, did I understand your response to an earlier question correctly that the offering is take rate dependent and I guess if so, is that true at both OEMs and what take rate is assumed in the backlog figure?.

Hi, Jimmy, your comment is probably -- you got an incorrect word on my part. What I'm saying is its actually going across additional platforms or additional vehicles that might be on the same platform. So were Ford had originally targeted it for one vehicle, they are actually adding it to other vehicles along the platforms.

It's not take rate dependent with any specific vehicle line, but more take rate dependent or more being applied across additional vehicles and additional platforms. I apologize for the confusion. And thanks for asking the question to clarify..

In fact Ford as you know they've started with the Lincoln, they went for the Taurus, now their Fusion. They are actually talking about adding that to another platform in North America which could be another extension on that platform..

So the message from our standpoint and that I want everybody to take away is that we see the adoption of this technology or this product as we’ve been exceeding what we had originally expected in the plan for the product..

Understood. That makes complete sense.

And then would you say it's a fair statement that as the let’s say adoption rate improves within those customers you are advantageously positioned to give in kind of your incumbent position on the existing wins?.

Yes. And that's why I made such a big deal of our execution. And the best thing that we can do to protect that incumbency and to support this growth is to make sure that we execute well on the first ones and that's why the entire organization is so focused on it and why I'm spending time and more or less checking on the launch..

Understood, thanks very much..

There are no further questions in this queue at this time. I would now like to turn the call back over to Ken Kure for closing remarks..

Well Jon’s going to take this..

John C. Corey:.

By eliminating the distraction of wiring and using the proceeds to improve our balance sheet, this business really is positioned for the future and for focus on execution and growth.

As I mentioned earlier, our products and our capabilities are in spaces in the market that we believe will grow faster than the overall market between two and three what we expect the overall market to do.

And with our global team and their dedication and capabilities, I really believe that we are positioned to execute meet exceed the commitments to our customers, and our shareholders. I look forward to getting a chance to meet many of you and to talk to you again at in the next quarter. Thank you..

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect. Have a good day..