Stoneridge Inc (SRI) 2016 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Stoneridge second-quarter 2016 conference call. (Operator Instructions). As a reminder, this conference may be recorded.

I would now like to introduce your host for today's conference, Mr. Kenneth Kure, Corporate Treasurer of Finance. Sir, you may begin.

Good morning, everyone, and thank you for joining us on today's call. By now, you should have received our second-quarter earnings release. The release and 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 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 those statements that are not historical in nature, and include information concerning our future results or plans. Although we believe that such statements are based upon reasonable assumptions, you should understand that these statements are subject to risks and uncertainties, and actual results may differ materially.

Additional information about such factors and uncertainties that could cause actual results to differ may be found in our 10-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 a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures.

John will begin the call by addressing the strategies discussed during our previous earnings calls and our progress on new business wins. George will discuss the financial and operational aspects of the second quarter. George will also review our sales and earnings guidance based on the trends that we have seen through the second quarter.

We have prepared and published an earnings presentation to provide more detailed schedules to help your understanding of our second-quarter results, trends for our continued improvement, and update on current 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'll then open up the call for questions.

With that, I'll turn the call over to John.

Thank you, Ken. Good morning. I'm pleased to report that we recorded a strong second-quarter financial performance which represents another quarter-on-quarter improvement, and is the best earnings per share performance in the past 10 years, excluding the fourth quarter of 2011 when we purchased a controlling stake of PST.

Our control devices and electronic segments continued to perform well in the second quarter as their combined operating margin, including unallocated corporate charges, reached 8.8% to net sales in the second quarter. This is an improvement from 7% in the second quarter of last year, and 8% in the first quarter of 2016.

The improvement in operating margins was driven by conversion on higher sales at control devices; continued strength in European commercial vehicle sales, offsetting some softness in the US commercial vehicle market; improved operating efficiencies in all of our businesses; and some currency tailwinds. At PST, both sales and operating income improved from the first to the second quarter. And we recorded positive operating earnings, excluding purchase accounting, in June for the first time since August of 2015.

The financial performance by the Stoneridge team continues to demonstrate the resolve of the management team to deliver on our commitments. This quarter, we continued to deliver to our commitment of increased earnings, excluding unusual items, compared to the prior year. George will provide more detail in his section on the financial performance of the second quarter.

During previous calls, I described focus areas for the organization: predictability, launch execution, top-line growth, organizational competence, and strategic clarity. The diligent efforts of our management team in these focus areas helped us deliver consistent financial performance.

Let me highlight a few specific items. Our primary focus in 2016 has been, and will continue to be, the flawless launch of each of the new shift-by-wire programs. Our launch continues to go as planned. And the activities in our Canton, Massachusetts, and Juarez, Mexico, facilities have met all customer commitments. Control devices sales increased by $24.5 million over the second quarter of last year; and sales of shift-by-wire were a significant part of this increase, and performed close to our expectations. Our shift-by-wire outlook for the year remains on target. We're also looking to build upon the success of shift-by-wire by extending onto additional platforms with existing customers as well as other customers.

An important foundation of predictability and performance is definitive action in challenging situations. At PST, our management team's aggressive actions to adjust their cost structures and inventory levels in the face of the Brazilian economic uncertainty has yielded positive results. Local currency sales were marginally higher in the second quarter in comparison to the second quarter of 2015. And PST management has lowered their SG&A costs by more than 10% in the same period; lower SG&A and D&D expenses, PS -- lowering -- would lower SG&A and D&D expenses.

PST's operating losses improved in the second quarter over the first quarter. And in June, PST reported in operating income of 3.3% net to sales of local currency, excluding purchase accounting. Despite the economic challenges, we still expect PST's operating income trend to continue in the second half of the year. In fact, we can expect PST to be near breakeven in Q3, and generating operating margin of over 4% in Q4, which includes purchase accounting.

The diligent efforts of the management team to take out cost, improve supply chains, reduce inventory levels, improve pricing, and pursue new top-line contracts has enabled PST to survive in the current economic environment, and has positioned PST to thrive in the recovery.

Profitable sales growth continues to be an important focus for the entire Stoneridge team. During our last call, we discussed an increase in our net new business due to business wins during the first quarter and earlier part of the second quarter. New and replacement business awards for control devices and electronics in the second quarter were $71.4 million, representing $35.2 million of new business awards and $36.2 million in replacement awards.

More specifically, these new business awards include a $23.4 million telematics award for a European commercial vehicle customer that starts in early 2017; an $8.6 million secondary display award for a European commercial vehicle customer, and a $1.5 million switch award for a European commercial vehicle customer. These three new programs represent over 95% of the new business awards in the second quarter.

The instrumentation cluster, telematics, and secondary instrumentation cluster awards mentioned above were part of the incremental $53 million in net new business discussed during our first-quarter call, though they were actually won in early April. These awards are indicative of our efforts and capabilities to leverage existing technology into new products, leading toward organic growth.

We continue to review our leadership team with a goal of improving the efficiency and effectiveness of the organization. In May, we announced the appointment of Tony Moore as Vice President of Operations. Tony brings deep experience in our industry along with strong capabilities in global operations, integrated supply chain, quality, and product development. He will play an important role at Stoneridge as we continue to enhance our operations and strengthening our manufacturing capabilities.

Another important step as we deepen our customer relationships, expand our strategic exploration, and position Stoneridge for the future, is the headquarters consolidation in Novi, Michigan. This move is progressing according to plan, and we still expect to have the consolidation and move completed in the fourth quarter.

As previously mentioned, this move will provide a platform for collaboration between teams and enhance our capabilities to address corporate strategic initiatives. The location will also facilitate more frequent interactions with customers, suppliers, and technology developers, allowing us to continue to develop products and systems that anticipate the needs of our customers. Finally, the facility will also help us attract and retain talent as we prepare for future growth.

With the continued diligent efforts of our employees, along with the enhancements to the team that have been and will continue to be made, we have great confidence that the organization is prepared to successfully execute the next phase of growth in improved performance.

Finally, let me the address possible impact of Brexit on Stoneridge. From our business mix, less than $25 million of sales are in the UK, most of which are in the CD sector. So the potential drop in the UK economy that is being forecasted should not materially impact Stoneridge's sales or profitability profile. We continue to monitor our larger customers and their production schedules for any changes so that we can address our cost structure appropriately if we deem it necessary.

With this introduction as a backdrop, George will now provide some specifics as to our financial performance in the second quarter.

Thank you, John. Stoneridge reported strong adjusted earnings per share from continuing operations of $0.41 in the second quarter of this year compared to earnings per share from continuing operations of $0.25 per share in the second quarter of last year, an improvement of $0.16 per share or an increase of 64%, by combining strength of North American control devices automotive performance, European commercial vehicle performance for our electronics segment, and improving financial results of PST over the first quarter of this year. The financial results were achieved by growing our topline sales and maintaining key costs: direct labor, manufacturing overhead, and SG&A expense slightly above 2015 levels.

By business unit, sales in the second quarter increased in control devices by $24.5 million or 29% and were flat in electronics in comparison to last year, with sales of $57.8 million. Electronics revenues were negatively affected by lower volumes in the North American truck market.

PST sales were unfavorably affected by $2.9 million due to the weakening of the Brazilian real to the US dollar. Please see side 5 for more details.

Passenger car and light truck revenues were $90.2 million in the second quarter, a 37% increase over the second-quarter 2015 sales of $67.3 million, as volumes increased in control device products, which included new programs primarily for shift-by-wire. In addition, the North America passenger car market continued to show significant growth in the second quarter of 2016 compared to the second quarter of last year. From a geographic diversification perspective, our sales in North America represented 61%. Latin America was 11%, and Europe/Asia was at 28% of our sales in the second quarter 2016.

The geographic detail can be seen on slide 8. Our customer diversification has improved, with a balance between automotive and commercial customers, as also can be seen on slide 8.

Our business in China, which is part of our control device reportable segment, has continued to show improvement with an operating margin of 18.9% in the second quarter as operating income increased from $400,000 to $1.3 million in comparison to second quarter of last year. This is a significant improvement over last year's second-quarter operating margin of 7.3% and even higher than the first-quarter operating margin of 17.4%.

Sales in our commercial vehicle category, which are predominantly electronic sales, were $66.9 million in the second quarter compared to $67 million. Revenues were negatively impacted by lower volumes in the North American commercial market, but the sales decline was less than $2 million.

Due to the strength of the control device and electronics business units, Stoneridge's second quarter of 2016 operating margin was 7.3%, which is a 280-basis-point increase over second quarter of last year's operating margin of 4.5% due to the leverage of our SG&A and D&D cost structures.

Second-quarter operating margin excluding PST was 8.8% to net sales for the second quarter. This is an improvement over the second quarter of last year, in which we recorded operating margin of 7% and higher than our first quarter of 2016 as our highest performance of the last six quarters, which includes the 8% operating margin in the first quarter of 2016. See slide 6 for further details.

PST's second-quarter sales declined by $2.7 million or 12% to $20.1 million compared to the second quarter of last year. These results were negatively impacted by approximately $2.9 million for FX translation as the Brazilian real devalued by 14.1% in second quarter of 2016 compared to the second quarter of 2015. On a local currency basis, PST sales were marginally higher by about 1%. In addition, PST are also experiencing negative transactional impact of $1.3 million in the second quarter in direct material, which is ofsetting some of the restructuring benefits.

The Brazilian real improved revaluation from the first quarter has alleviated some of the negative transactional impact that we've experienced during the last nine to 12 months. And PST imports most of its electronic components from Asia, and 70% of their imports are in US dollars.

Consolidated Stoneridge operating income margin was 7.3% in the second quarter of 2016 compared to 4.5% in the second quarter of 2015. And it was our expectation that we could leverage our cost structure to lift our operating income margin in 2016. As of today, we are raising our guidance by 170 to 300 basis points in 2016 over 2015 levels on slightly lower sales estimates, which were driven primarily by PST. See slide 14 of our earnings deck.

Our sales were slightly lower than our second-quarter expectations due to lower commercial vehicle sales in North America and unfavorable currency. In spite of this, our sales were 13.1% higher than the second quarter of last year due to the expected increased shift-by-wire sales in North America and shipments to US customers in China and increased volumes in the European commercial vehicle market.

Stoneridge's operating margins excluding PST improved 8.8% or $14.7 million in the second quarter 2016 in comparison to 7% in the second quarter of last year due mostly to leveraging SG&A, D&D expenses, lower overhead, and raw material costs. PST experienced decreased profitably from raw material FX transactional exposure to the US dollar, with sales in local currency marginally higher, while electronics profitability was negatively impacted by lower volumes in the North American commercial vehicle market.

Slide 6 of our deck has a complete P&L breakout on second quarter of this year versus second quarter of last year for continuing operations, with the bridge item differences identified on slide 7. Slide 4 identifies Stoneridge's segment sales increases and decreases versus the prior-year second quarter.

Minda Stoneridge, our unconsolidated JV in India, posted second-quarter sales of $11.4 million, which was an increase of $0.5 million or 5% in comparison to second quarter of last year. And the rupee weakened by approximately 12% in comparison to the second quarter of last year. Our share of Minda's net income from operations in the second quarter was a profit of $153,000 compared to a profit of $143,000 in the second quarter of last year.

China continues to show the improved operating performance as a result of the focus of SRI product lines for the Asian market. And our control device sales in China, $5.9 million, increased in the second quarter by $1.4 million or 32% in comparison to second quarter of 2015.

Like the first quarter of 2016 and fourth quarter of last year, the leverage on higher-margin sales has allowed control devices in China to achieve a double-digit operating margin.

For the three months ended June 30, the Company recognized income tax expense of $1.4 million on pretax income from continuing operations of $12.3 million or an effective tax rate of 11%. The increased tax expense and the effective tax rate compared to the same period for last year was primarily driven due to the overall increase in earnings and the PST operating loss, for which we can no longer provide a tax benefit due to the full valuation allowance we began providing at December 31, 2015.

The 2015 projected annual effective tax rate, which was used to calculate our 2016 guidance, is based upon maintaining the valuation allowances that are currently provided against our US and Brazil deferred tax assets throughout 2016. The exact timing and the amount of the valuation allowance reversal are subject to change on the basis of the level of profitability that we are able to actually achieve, as well as earnings that can be reliably forecast.

We will continue to maintain a full valuation allowance on our US and Brazil deferred tax assets until there is sufficient positive evidence to support the reversal of these allowances. The other and most important thing to remember about this subject is that the timing and amount of any reversals does not change the intrinsic value of Stoneridge, nor does it change the amount of cash taxes we pay in this year and the next couple of years. It merely affects the amount of book taxes we would recognize and thus EPS for the period affected.

The other focus for our team is free cash flow and return on invested capital. We are still projecting to generate free cash flow for the year at the top of our range of 3% to 4% of net sales. And in the second quarter, operating cash flow was an inflow of $16.6 million in comparison to an inflow of $5.9 million during the second quarter of last year. Our free cash flow for the quarter was $11.5 million compared to a negative $800,000 during the second quarter of 2015.

Our cash balance at June 30 was $55.3 million, an increase of $6.1 million from March 31, 2016. The increase was primarily due to increased profitably as a result of higher sales in our control device segment in the European commercial vehicle market.

As indicated on slide 12, we continue to improve our debt leverage from continuing operations as measured by total debt to EBITDA ratio, which has now been reduced to 2 times at the end of second quarter of 2016.

And another important metric that we've been tracking is our ROIC, which was at 12.6% in 2015. And our guidance implies that our return on invested capital will improve to the range of 17% to 19% based on our ability to increase our profitability by leveraging our sales and cost structure.

We are very pleased with our second-quarter results and our ability to build on the progress we made through 2015. Having repositioned Stoneridge to be a high-performing company based on topline growth with a focus on cost reduction and maintaining flat SG&A and D&D levels, our earnings illustrate our ability to increase our profitably and also leverage our sales increases, resulting in our improved profitability in comparison to last year. We are very excited at the opportunities which will add to our revised net new business number of $232 million over the next five years for each one of our businesses. And we have a number of ways to increase topline sales. Our content per vehicle has increased for products like shift-by-wire for control devices. Electronics has the opportunity to do the same with mirror replacement. We have the opportunity for growth by cross-selling our products and technologies in other markets such as in Europe and Asia and especially India and China. This applies to PST as well.

We have developed a sustainable technology process that is a pipeline for new products and technologies that will continue to drive organic growth over a five-year planning horizon. And in our existing pipeline for future opportunities, we are focused on soot sensing, turbo actuation, high temp sensing and shift-by-wire to name a few product families for control devices. In electronics we have opportunities such as MirrorEye, a new and exciting product in the commercial market and the ELD legislation recently approved for the North America commercial market, which provides the opportunity for Stoneridge to utilize capabilities developed in Europe and PST for expansion in our North America market.

Our plans are to continue to invest in our opportunities for organic growth. We are actively pursuing M&A opportunities to put our needs to support our growth in our control devices and electronic business units. And we are excited about our potential for 2016 as our first and second quarter demonstrated our improved profitability and financial results.

Our ability to improve our profit conversion while controlling our cost structure and lower-than-expected sales of PST have prompted us to revise our guidance as shown on slide 14. Our revised projections indicate that our sales will grow greater than 10% a year. Our operating margin will improve by 1.7% to 3% to net sales by leveraging our cost structure, and our earnings-per-share guidance has been raised to $1.25 a share to $1.40 a share, which is a 52.4% to 70.7% increase over our reported EPS of $0.82 in 2015.

We will now open the call for questions.

(Operator Instructions) Justin Long, Stephens.

Thanks. Good morning and congrats on a great quarter. So I just wanted to start with a few questions on the guidance. It looks like the midpoint of your consolidated operating income expectation for the full year really didn't change that much. I think the implied midpoint went from about $46 million of EBITDA to $47 million, but the increase in EPS guidance was a lot more substantial. So I was wondering if you could speak to how the assumptions changed in the guidance below the line and whether it's a change in the tax rate or something else that is causing this gap?

Well, I think, Justin, there's two things. One, in the second half down to the operating income level that you've raised as we have, there's two things affecting our SG&A and some of these are not recurring. We have the relocation and transition costs for the new head office. Those always have been in our guidance, and they are clearly being recognized in the third and fourth quarter, and those are slightly over $2 million.

In addition to that, with our performance, with our incentive pay, that is increasing that by roughly about $0.5 million in the second half. So those are the two items that are really affecting the overall operating earnings in the second half and really left the op income very consistent with that.

In terms of the earnings per share, that is really just a natural result of the effective tax rate. You know, our taxes have gone up slightly. Because of PST, we are no longer able to take a tax credit. So, it's going to be fairly consistent over the first half and the second half, and I think those reasons are what's really driving the inherent guidance in both operating earnings and then in EPS.

Okay. That's all really helpful. So would it be fair to say that on an operational basis, if you just kind of put everything together, you know performance has been relatively in line?

Very much so. In fact, our operating earnings continue moving in the same pace that is in our original guidance. So we feel very positive about what the results are.

Okay. Great and one minor detail in the guidance, too. I just wanted to clarify, I think in the prior guidance range for 2016, you were using first-quarter GAAP EPS of $0.26, and now it looks like you are using first-quarter adjusted EPS of $0.31. Am I correct that you made that change?

Yes, we did, Justin. That is what everybody externally was using was the $0.31.

Right. Okay. Good to know. You know I also wanted to ask about shift-by-wire. I was wondering if you could comment on the year-to-date shift-by-wire revenue that you booked in the first half, and it sounds like you said your expectations on that front haven't changed. But could you talk about the cadence or the ramp you're expecting in the back half of the year?

We are on track for the shift-by-wire. We were down roughly about $6 million to $7 million in the first quarter. We've actually picked that up and a little bit more. I think the little uncertainty that we are seeing right now is where the second half goes. Our order book is strong in the third quarter, but we've seen a little shift in July and August. But I think everything that we see with EDI releases and that we are running very consistent with the uplift. And we set our net new business was $83 million. It's still in that range for the year. So I think that seems to be intact.

The only real difference in the sales, if you are looking at that, is primarily that whole difference is really PST between the currency change and the lower economic and that's been approaching somewhere around $20 million difference in sales. But I think that's why we are very clear and pointing out that we've adjusted our cost structure to match that lower demand in PST. So their earnings are actually improving on much lower sales.

Okay. Great. That's helpful. And last question. Maybe on that same topic of shift-by-wire, I know you're very focused on selling this product onto additional platforms. Could you just provide an update on how some of those discussions are going, and as you look into 2017, is there an opportunity for that $83 million of shift-by-wire revenue to ramp to something higher as you start to sell onto additional platforms? I just want to get a sense for the potential timing of that ramp if you are successful.

So, Justin, good morning. Our shift-by-wire, our base business for shift-by-wire is still going to have an additional growth next year because we are through a ramp. So George mentioned $83 million, and this year that will peak over $100 million next year.

We talked about in our first-quarter earnings call the hybrid [part pall], which is basically an application of the shift-by-wire technology into a hybrid vehicle. We've won one program, and we continue to work on other programs with customers there. There is no new news from Q1, but we continue to look at that. We continue to feel optimistic that there's going to be follow-on programs.

So we see the base business growing, we continue to pursue other customers there, and we also continue to pursue other opportunities to take that technology and apply it in other applications.

Okay. Great. I'll go ahead and pass it on. I really appreciate the time.

Jimmy Baker, B. Riley & Company.

Nice quarter. Just given your improved balance sheet and now accelerating cash flows, I was hoping you could speak to the M&A environment. I guess particularly when you look outside the US with some of the geopolitical uncertainty and other factors that are out there, I'm just curious if you are seeing any increase in the number of potential sellers coming to market or any notable change in the activity you are seeing.

Jimmy, as we've talked in multiple calls, we are regularly looking for things that are consistent with our strategic direction and things that will support both either our electronics or our control devices business with where we want to take them. We are in fairly advanced talks in at least two activities, but we continue to proactively look for opportunities.

I wouldn't say that we've seen a material change on, shall we say, on a quarter-over-quarter basis, but we are also pretty selective in the things that we will look at because they have to be the right strategic fit and solve a problem for us, getting access to a new technology or a new customer or really continuing to rebalance our footprint.

And I'm sure you can't provide much detail, but can you help frame the size of those two potential opportunities you mentioned?

Well, I guess we'll frame it a little at a higher level, Jimmy, is that most of the opportunities we are looking at tend to be in the sales side of $30 million to $80 million. The two we are looking at are probably somewhere in the middle of those, so. Then what we are seeing is many of them are related to either electronics or control devices, and they tend to have operating earnings somewhere around 10%. It's just fairly consistent with the industry and the market, so. And both of those are probably in the middle of those ranges.

Okay. That's very helpful. And just interested, as some expectations for the domestic SAAR have come down a bit and at least one of your major customers seems to have warned a need to right-size production with demand and I guess some would say with inventory, but it sounds like your shift-by-wire remains very much on track. So maybe that's a function of program exposure. But just hoping you could speak to any changes you've seen or are seeing in your customer schedules or if that's a potential incremental risk that we could see in the back half?

Excuse me, Jimmy. The numbers that we are providing you are based on the latest data that we have both from outside sources, as well as from our customer sources of so we balance between what guys like IHS or others are saying, as well as what we are seeing in EDI releases. So those numbers have already factored in any sort of softening from many of our customers. But what we try to do is we look -- on an every week basis, we look at what are the releases. We look at customer inventories for specific risk areas, and we are aggressive in adjusting our own build levels and our own cost structure as we look if we see anything over a couple weeks worth of change in sales outlook.

So, right now, based on what we see and what we know in the marketplace, our guidance considers all of that.

Understood. Just lastly, you mentioned or George mentioned the progress that you are making on ROIC and the expected continued progress this year. I'm interested if you -- Jon, now that you have had a little bit more time around the business, if you have established kind of a target ROIC business profile for the business on a fully tax basis longer-term.

Our goal is to make sure that we are over [20] on a consistent basis. And so we look at each project that way, and we look at the businesses that way. Where we are really focused, Jimmy, is more on both how are we driving operational performance, but also what are we doing to gain more leverage out of our D&D, as well as more leverage out of our capital so that we are controlling both the numerator and denominator of that calculation. And there are opportunities on both sides of that.

And Jimmy, I would add this, that all the projects that we evaluate inside, whether it's quotation for a new business or a piece of equipment or that we use a threshold of 20% as the basis.

In addition to that, our ROIC is going up significantly, and if you give the really the thought and you look at our two businesses control devices electronics, they are both performing well above that 20% range now. So our effort has been really to give Brazil PST back where we think it can be. And so it's got a negative ROIC as of today. So you are going to see as Brazil starts to improve, our ROIC will continue to improve a pretty nice trend.

That's great. Very helpful. Actually if I could just sneak in one more. Any color about the back half cadence kind of between Q3, Q4. Should we expect that Q4 has a more seasonal uptick in the PST business, or are you seeing pretty even progress between the two quarters?

Jimmy, we really haven't seen the PST historical level, and so I think we are actually forecasting fourth quarter is going to be a little down from the third quarter. The third quarter will be down from the second quarter slightly and fourth quarter will be slightly down from the third quarter. And it's generally because our European commercial accounts tend to take more days out at the end of the year, so we tend to see a much weaker December out of Europe. So I think, if you sort of trend along that direction, I think it will put you right where you need to be.

Makes sense. Thanks very much George. Thanks Jon.

(Operator Instructions) Christopher Van Horn, FBR & Company.

This is Dan Drawbaugh on the line for Chris. If I could just go into the operating profit line, 8.8% ex-PST, that's a pretty strong number. Can you give any color on where that could potentially go or if there's any seasonality that's been developed in there that we should expect going forward?

There's really -- as you can imagine, a lot of this is being driven by control devices right now with their significant uplift. It's been fairly consistent though because we've held the line on SG&A and D&D in the first half versus last year. That trend will continue except for what I mentioned we'll be up in SG&A roughly about $3 million in the second half. Some of those are one-time expenses which will not continue into 2017. And we'll come out later in the year with guidance and we'll give you a fresh look at what that looks like in 2016 versus 2017 in terms of a normal run rate.

But in terms of control devices, it's really driving this impact, and then electronics has been fairly strong in the first half. We are looking a little lower in the second half because the primary -- we won a lot of new business in Europe in the commercial side and their SG&A, or their D&D is going to be up a couple million dollars to represent those new wins that we've had. So they will be a little bit affected then in the second half. Control devices will continue running at the pace they are running.

Okay, great. That's helpful. Thank you. And then, secondly, I wanted to turn to the new business backlog. You said I believe $71 million in awards during the quarter. Is that right?

That's right.

And so is any of that falling within the 2016-2017 time frame? I'm looking back at the 1Q presentation and I'm seeing that $116 million net new business 2016, 2017. I was wondering if there was any update there.

It hasn't changed really from our original forecast. In fact, when we came out with the $232 million, what you did see was an uplift in 2017 and that was really the Telematics award that Jon mentioned earlier. And the others are longer-term. They are out in the 2018, 2019 time frame, so there's really no change to the cadence.

And Dan, just for color on that, we tried to be clear in our first-quarter review that we were actually talking about some things that were not at a bright line break between Q1 and Q2. So we gave you a little more detail in this call on what were things that were in that $232 million.

Okay, great. Thank you guys. That's helpful.

At this time, I'm showing no further questions. I would like to turn the call back over to Mr. DeGaynor for closing remarks.

Well, thank you. It's a very exciting time at Stoneridge. The progress that we have made is manifesting itself in both topline growth and bottom-line improvement. The strategic positioning of our products and technologies is showing positive results in our topline sales, the diversification of our customers, and growth across geographic regions. As such, our reported financial results are showing the benefits. Topline sales growth in the range of 12.5% to 14% for control devices and electronics, and over 10% for Stoneridge, including PST, in 2016. Our net new business over the next five years has increased and implies an organic growth rate of over 6% for the five-year time horizon. We have our seventh quarter-on-quarter increase in earnings compared to previous quarters, and our reported earnings-per-share in Q2 represents the best reported quarterly earnings in the past 10 years, excluding Q4 2011. Based on our 2016 guidance, we estimate that our free cash flow should exceed 4% in sales, providing ability to invest in future growth and opportunities.

I want to thank you all for your time and have a great day.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day.