Good day, everyone, and welcome to the Littelfuse First Quarter 2014 Conference Call. Today's call is being recorded. At this time, I would now like to turn the call over to your Chairman, President and Chief Executive Officer, Mr. Gordon Hunter. Please go ahead.

Thank you, and good morning. Welcome to the Littelfuse first quarter 2014 conference call. And as always, joining me today is Phil Franklin, our Senior Vice President and Chief Financial Officer. As you saw in the news release, we had a solid first quarter. Our record sales were driven by good organic growth in our automotive and electronics businesses, and by the Hamlin and SymCom acquisitions. I'll discuss our first quarter performance in more detail in a few minutes. But first, I'll turn the call over to Phil, who will give the Safe Harbor statement and a brief summary of the news release.

Thanks, Gordon, and good morning, everyone. Before we proceed, let me remind everyone that comments made during this call are forward-looking statements based on the environment as we currently see it, and as such, do include various risks and uncertainties. Please refer to our press release and SEC filings for more information on the specific risk factors that may cause actual results to differ materially from those expressed in forward-looking statements. Sales for the first quarter of 2014 were $207 million, which was up 21% year-over-year and consistent with our pre-announcement on April 10. GAAP earnings for the first quarter of 2014 were $1.12 per diluted share. This included purchase accounting adjustments related to the SymCom acquisition and noncash foreign exchange gains. Without these special items, earnings were $1.16 per diluted share, which was at the high end of our updated guidance. These solid results in what is typically a seasonally weak quarter were driven by strong performance in our core fuse and semiconductor businesses. As previously noted, our newer businesses such as sensors, commercial vehicle products and protection relays are not yet at these same levels of profitability. Earlier this month, we announced that we will be consolidating SymCom's New York facility into its South Dakota location, which is expected to result in savings of approximately $2 million beginning in mid-2015. In the coming months, we will be communicating additional margin improvement initiatives for other recently acquired businesses. The company continues to generate solid cash flow, as cash from operating activities in the first quarter was $12 million. This was after $13 million of 2013 incentive payouts and $10 million of voluntary pension contributions. As usual, we expect cash flow to increase as we progress through the year. Now, I will turn it back to Gordon for more color on business performance and market trends.

Thanks, Phil. I'll begin the segment reports with the electronics business, which accounts for about half of total Littelfuse sales. First quarter electronics sales of $95.7 million increased 21% over the prior year quarter. The increase was driven by higher sales of semiconductor products, which had a very strong quarter, and the addition of the Hamlin electronics sensor business. Excluding acquisitions, first quarter electronics sales were up 9%. Electronics channel inventories were flat to slightly reduced during the first quarter, which also showed solid end customer sales growth. We're comfortable that our channel inventories are at appropriate levels based on current market conditions. Now let's look at growth in some of our focused market segments. Demand for telecom equipment continues to grow, driven by the global deployment of 4G technology and its LTE base station needs. Protection for the power supply lines has been a boost to our TVS diodes, SIDACtor, metal oxide varistors and fuse products. We also provide data line protection for many of these systems. And whilst 4G deployment has been most prolific in China, the base station equipment comes from manufacturers in China, Europe and North America, so we've seen revenue increases in all 3 regions. Last quarter, we talked about kitchen appliances such as coffee machines and blenders as a good growth area for our varistor, TVS diode and Diode Array products. The designs for these appliances also use now our fuses and metal oxide varistors, as well as our reed switch sensing products. This diversity of product creates good cross-selling opportunities within our electronics business. We had positive momentum in the kitchen appliance segment in the first quarter, which has continued into the second quarter. It's been a while since we've talked about the television market. And as you may have already heard, the…

Thanks, Gordon. We expect the second quarter of 2014 to show a fairly typical sequential sales increase, mostly driven by the electronics business. We began the quarter with a strong book-to-bill and distributor inventories at appropriate levels. Specifically, sales for the second quarter are expected to be in the range of $216 million to $226 million. At the midpoint, this represents 7% sequential growth and 18% growth compared to the prior year. Earnings for the second quarter are expected to be in the range of $1.23 to $1.37. Capital expenditures for the year are expected to be in the $35 million to $40 million range, and free cash flow is expected to exceed $100 million. This concludes our prepared remarks. Now, we'd like to open it up for questions.

[Operator Instructions] And our first question comes from Shawn Harrison from Longbow Research.

This is Gausia Chowdhury calling on behalf of Shawn. My first question was just about the book-to-bill in the first quarter. It appears to be a bit lower than it's been in the prior 3 years, at least. Is that because the first quarter was so strong or is it due to tough comps?

Yes, I don't think the book-to-bill is at all out of the norm. In fact, we think that 1.11 book-to-bill going into Q2 is a pretty good book-to-bill and pretty consistent with historical trends. Now I think last year, we had an unusually strong book-to-bill, in part because we were having some, I think, some large distribution orders that were being placed out pretty far into the future. But I would not view the 1.11 as anything other than pretty positive and pretty typical.

Okay, perfect. And then second, just if you could delve in a little bit about the electrical business. First, you mentioned that despite the cold, it was still an okay quarter. So did the cold have any impact at all? And obviously, Canada had some impact. And then second, you mentioned that you're seeing some stabilization. Is there a sense that there could be a bottom the second half of this year or is that looking more like a 2015 story? Where are you with that?

Well, 2 separate things. One, the cold I referred to was really for our electrical fuse business, where a lot of those products are used in the construction industry, and with an extreme long winter, the construction season started a little bit later. So that sort of was a negative impact on our fuse business. But despite that, our electrical fuse business did very well in mainly 2 of those segments I mentioned, the HVAC, where we're selling to the OEMs that make that equipment, and also our solar program, which we've constantly talked about. So our fuse business, despite the cold weather, did very well. The second thing, I think it's always cold in winter up in Canada. But in those potash mines, which are 3,000 feet underground, the temperature's pretty stable. There's just not much activity at the moment. And we had a tremendous benefit over a few years from the potash expansion, those mines that were really expanding a few years ago. And really, that's pretty much come to the end of that cycle. And no doubt, there'll be potash expansion starting again. But quite when, I think it's very difficult for us to predict. We obviously follow the major customers, the producers of potash, the mining companies up in Canada. And I think they are talking about eventually, the mining expansion will begin again, but no one is really committing to any dates. So I think we're very much in a wait-and-see of when potash mining will start the expansion projects again, and very difficult to predict that.

Okay, perfect. And just one quick last one for me. Regarding SG&A, why did it decline this quarter? And what would be a good go-forward run rate for us to use?

I mean, SG&A's been pretty stable. We actually expect it to probably pick up some in Q2. We have some timing issues with things like stock option expense. We usually tend to take a significant lump into Q2 for accounting reasons that I won't go into. But I would -- so I would expect -- and I would expect some increase during the year as we do have some planned headcount adds to support some of our strategic growth initiatives. So I would look at the first quarter as probably being the low point of the year in SG&A.

Our next question comes from Matt Sheerin from Stifel.

Yes. A question on the electronics business. Your operating margin was very strong on sort of a flattish revenue, up sequentially and up year-over-year. On the June quarter, you're going to be coming up against some pretty tough comps where you had very strong operating margin last year. So question is, are -- were you benefiting from mix last quarter? And is there still any sort of drag from the acquisitions and integration that may enable you to continue to grow it going forward?

So, yes, a couple of things. I think that normally, and this year should be no exception, we would expect some sequential improvement in operating margins in electronics going from Q1 to Q2, largely due to operating leverage as we get those back to typical sequential ramp-up. I think, as we've said in the past, we've seen very good performance in our electronics factories due to some of the lean initiatives and some of the -- some of those plants that we had transferred products into several years ago, really starting to ramp up and hit their stride. So I think that momentum is a tailwind right now. And at some point, that trend will flatten out, but it really hasn't yet. In terms of impact from acquisitions on the margins in electronics, we do have a negative impact from the Hamlin acquisition, the piece of that, that goes into the electronics business. I would not expect any improvement in that this year, although we've stated several times that we expect significant improvements in the overall Hamlin margins. But that's going to be further out. It's going to be more of a 2015, 2016 kind of event.

Okay. That's helpful. And then in your opening comments, so you talked about a $2 million in savings from consolidation of operations at the SymCom acquisition. You also talked about other initiatives aimed at improving cost. Could you elaborate on that?

Not at this point, Matt, other than to say that those initiatives will be targeted at some of the -- in some of the areas like sensors that we know we have margin improvement opportunities. But we don't have any specifics at this point.

Okay. And just a question on the automotive business where your organic growth is very strong and, obviously, well above production and unit growth. Given the acquisitions and given your expansion of your own internal portfolio, could you give us a ballpark of the electronic content or the content opportunity within automotive at Littelfuse today versus, let's say, 3 years ago, and going forward? Because it looks like your opportunity or the dollar content continues to grow for you.

Yes, absolutely. I mean, if you go back 5 years ago, we would be talking single digit, $3 to $5 of fuse content in a vehicle. And then as we started to ramp up the Masterfuse product line, we started to think that we could get up to maybe to $10. But $10, 5 years ago, would've been a tremendous content. Now with the sensors that we have and Masterfuse products really ramping, there are examples where we have over $20, mid-20s on some major platforms. And so we've really become a much more significant part of a vehicle and much more important to the OEM. So clearly, that strategy to have much more content, still within the electrical system and very much around protection and sensing, we think that, that's really paying off.

Our next question comes from John Franzreb from Sidoti & Company.

Just to stick with the automotive theme. Can you give us a sense of how much the growth is sensor-based versus circuit protection-based? And maybe even mix-based because I know, Gordon, you mentioned that the European side benefits from exports. Put better color onto those 3 buckets there?

Yes. Well, they're all good stories. They've all had a tremendous quarter and have tremendous momentum, circuit protection, particularly this Masterfuse product line we've talked about for some years, but we often talk about that one as design win. But it's going to be 2 years before the start of production. A lot of those programs are really coming into growth now. So Masterfuse, which is the high current system that we talked about in vehicles, is really proliferated globally and has tremendous growth. And I would say the real driver of circuit protection is in the high current segment. And then the sensor platform, the Accel sensors, had a tremendous growth in the first quarter, even without the Hamlin acquisition, which obviously wouldn't have a comparison from a year ago. But year-over-year, the Accel sensors, these are the seatbelt buckle sensors and the solar sensors that we've talked about, and then we are bringing these further speed and position sensors from Hamlin. So very high growth from the existing Accel sensors, and then, of course, the acquisition of Hamlin adds even more to that. So the sensor business certainly outperformed circuit protection in total for the quarter, but the circuit protection business was very, very strong.

In fact, we said it's about 16% [ph] on an organic basis. I wouldn't take that number and run with it because I don't think we can grow that fast every quarter. But we've had several quarters in a row and obviously, in the second quarter, we would also expect at least a kind of low-double digit kind of organic growth number in the circuit protection business. And longer term, it's probably more like a high single-digit number, but certainly, significantly higher than our historical growth rates on the fuse side.

And geographically, very strong in all geographies. I mean, China has been, for many years now, from a small base, very strong for us, continues to be. And the point we've made the last year, really, that Europe has continued to be very, very strong for automotive. We have very good relationships with all almost all of the major OEMs in Europe. And although the automotive industry for sales in Europe has been weak in the last year, it's starting to pick up. But the real driver is the export of these vehicles. The high-end vehicles from Europe are very much in demand around the world, and that's what people in China aspire to have, is a high-end German car and we have a lot of content there. So that's really diving the European sales for us.

Got it. And just sticking with the sensor theme for a second here. How much is sensors as a percent of sales of the automotive business unit? And how much is sensors as a percent of sales of total Littelfuse revenue?

Well, we've said, total -- we expect the sensor business to run at about, in total, about $120 million on a run-rate basis this year. It's -- right now, it's -- of the total automotive segment, remember, we've also got commercial vehicle products in there, it's like about -- it's a little over 20% of the overall automotive segment. In fact, it's actually more like 25% of the automotive segment.

Okay. And just one last question. I guess, I want to shift to the electrical side of the business. With SymCom in the mix, Gordon, you seem to allude to the fact that you expect maybe an uptick in the second half in the mining side of the market. Maybe I'm just misreading that. But including SymCom, would you expect electrical sales to be down year-over-year based on current trends, or flat or up modestly?

Well, I think, first of all, to clarify that, I think we're just one quarter with SymCom. We're very pleased with it. We expect that as we integrate the sales forces, we think that the SymCom relays, [indiscernible] relays that we have -- we're going to have some benefit from a combined sales force and a much broader product offering. And the SymCom products are sold into much more general industrial application and very little into mining. So we're very interested to be able to expand into segments beyond mining. In terms of electrical sales, it's very much going to depend on the Canadian potash mining. We had such a benefit from that for a while, and it's really on its back right now, just not the mine expansion happening. And as I said to the question earlier, it's very difficult to predict when we're going to see potash mining expansion happen. I think we're in a very good position when it does happen, but it's very possible that we're not going to see that happening during the course of this year.

Okay. And just a follow-up. Is the competitive landscape tougher in this kind of conditions?

I don't think so. I think we've got a very strong relationship. We're actually a preferred supplier to many of the mining companies. They're just simply not doing the mining expansion right now that they had been doing before. And I think that we've got to continue our close relationships, try and diversify the product offering, maintain our capability. But I don't think the competitive environment is stronger, and we have to make sure that when we start to see the uptick that we're ready for it and we have all of our capability.

One thing I will say, John, is that as we expand outside of potash, which we're doing, and you heard Gordon talk about some of the other areas that we're targeting, both non-potash mining and outside of mining, some of those areas will not be at quite the margin levels of what we've been able to achieve in the potash market. There is more competition once you get outside of potash than we see in the potash markets. [indiscernible] margins, but not quite as high as the historic ones.

Our next question comes from Christopher Glynn from Oppenheimer.

So it sounds like electronics, we're looking at pretty normal seasonality. If we think about auto, would we just kind of, in terms of linearity, we kind of expect the 1Q run rates to kind of tell the story for the year or would that continue to ramp up a little bit?

I would say Q1 is usually one of the strongest quarters. We don't have a lot of seasonality when we start with that in automotive, but Q1 is generally among the stronger quarters, if not the strongest quarter. But we'll have a new program coming onstream in some of the other [indiscernible] -- so I would say, you're going to see levels probably fairly similar to Q1 as we go out through the year. But it could be a tad below just because there is some seasonal effects there, and Q1 is typically the strongest. But pretty linear, I guess, as to your supposition there. That gets you in the ballpark.

Okay. And then maybe I missed some of the syntax, but could we apply the same question to the electrical segment?

Well, so the electrical segment is a little bit different in that we've got a seasonality that's probably fairly similar to the electronics seasonality and the electrical fuse business. But then the relay and custom businesses, it's not particularly seasonal, and that was really going to depend on -- and it could be fairly lumpy if we could land a couple of larger custom jobs that could be -- that could give us some lumpy sales during the year. So I wouldn't necessarily look at that business as being particularly seasonal. It's really going to be more driven by how successful we are in getting new business in the non-fuse part of that segment.

Our next question comes from Tim Wojs from Baird.

Just on -- just sticking with electrical a little bit, just the margins this quarter, around 14%. Would you characterize that as a low point for the year and that margins should get better? Or how should we think about margins just relative to what you guys reported in Q1?

Yes, I mean, it's going to depend largely on operating leverage, I think. And we would expect, certainly, the fuse business to be stronger in Q2 and Q3 due to seasonal reasons. So that would help. That would be -- that would help the overall electrical margin. And then within the relay and custom piece, again, it depends on our ability to land some new jobs. But it's -- I would say, it's unlikely that the sales will be much lower than Q1. So those were pretty low levels. So I think if anything, the sales in electrical should be slightly better as we progress through the year, and that would positively affect the margins as well.

Okay. Okay, that's helpful. And then just you mentioned in your prepared remarks that April order trends in electronics were pretty solid. I was wondering if you can give a little bit more color around that maybe relative to Q1.

I think we -- only to say that we saw similar book-to-bill is what we saw through the first quarter.

Our next question comes from Gary Prestopino from Barrington Research.

Just a small or some [indiscernible] questions on the tax rate. What will tax rate be that we should be modeling for this year?

Yes, you're going to see some variation as we go through the year. But what we typically said is that it's probably going to be between 25% and 26% for the year. So I would probably model something probably closer to 25.5% rather than the 24.9% that we did in the first quarter [indiscernible] a bit lower than what we would expect for the full year.

And then I may have missed this, but when you said you're outperforming on the auto side, you said you outperformed by about 9% to bill. I mean, how are you measuring that? Is that the build versus the increase in your dollar content?

It would be the build versus our revenue increase.

Okay, build versus revenue increase?

In the automotive. In the part that goes into passenger vehicle, we have some of our automotive segment that doesn't really touch passenger vehicle, the commercial vehicle piece.

Okay. And then are you doing any direct order sales to any of the Chinese manufacturers, the domestic manufacturers in China?

Yes, absolutely yes. We have good shares with those domestic manufacturers.

Our next question comes from with Edison Chu from G2 Investment Partners.

This is Josh Gork [ph] for Edison. Just 2 quick things. One is your gross margins at 38.6, was that a function of some of the SymCom acquisition or product mix? And how should we look at margins going forward? Are we going to see an ability for you to get back to closer to 40% gross margins as we go through the year with the leverage in your model?

Yes. So, I mean, typically, we see margins that are better in Q2 and Q3 because of the operating leverage we get based off of seasonality, primarily driven by the electronics business. So yes, I would expect margins to kick up in Q2 and Q3, and then come down in Q4, again, because of operating leverage. We have -- we've talked about some of the margin improvement opportunities we have in some of our newer businesses. I would say that there may be some that will start to give us some benefit as we get towards the end of the year. But the majority of those initiatives, some of which we haven't even announced yet, will really be more impactful in 2015 and 2016. So I wouldn't expect, other than from kind of the normal seasonal operating leverage, I wouldn't expect significant margin improvements this year.

Okay. Let me just -- if I can just tease that out a little more. I mean, last year, with the Hamlin acquisition, you hit kind of 40% gross margin in the June quarter. And I know Hamlin, I think, was not accretive to your gross margin percentage. Is it fair to say that your gross margin should be at that level at least in the second quarter of this year?

No, I wouldn't say it's fair to say in large part because we're going to be substantially below last year in our electrical segment because of the weakness in the mining. The year-over-year comparison in Q2 will be pretty negative. It'll start to get better in Q3. So that would probably result in its being slightly below that number. I think we'll be -- we'll have similar margin levels, if not slightly better in electronics. Automotive should be similar, but the electrical margins will be down compared to the prior year.

And you expect electrical to pick up in the back half of the year?

Not the mining part. What we've said is we expect the fuse part of electrical to show normal seasonality, which would result in sequential improvements in Q2 and then maybe a slight sequential improvement in Q3. But the mining segment, we're not predicting any increase, any uptick there. If we land some of the jobs that we're bidding on, we could see a little bit of an increase. But we still -- we would have to land those jobs to show that.

Okay. Last question for me just on the balance sheet. It looks like your cash per share went down. Was that a function of the SymCom acquisition? How much did you actually pay for that versus some of the pension funding and some of the other things that you spent on this quarter?

Yes, so the SymCom acquisition, I think -- I believe was $52 million. And that all came out of either cash or off our bank line.

Okay, great. How much was SymCom growing when you acquired them?

How much were they growing?

Yes.

I mean, I think how much -- what we've said is we expect that, particularly, as we start to integrate that with our sales organization and get leverage from our distribution relationships, that SymCom really didn't have -- we expect substantial growth there. But it's going to take us a lot to achieve that. So I think this year, I wouldn't expect tremendous growth there. But going forward, that should be a faster-than-average growing business, give higher-than-average margins once we execute on some of the integration activities.

[Operator Instructions] All right, we have no further questions at this time. I would now like to turn the call over to Mr. Gordon Hunter.

Thank you for joining us on today's call. We are pleased with our first quarter results and our strong organic and acquisition growth. And we look forward to updating you again next quarter. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.