Welcome to the Littelfuse, Inc. First Quarter 2016 Conference Call. Today's call is being recorded. At this time, I will turn the call over to Chairman, President and Chief Executive Officer, Mr. Gordon Hunter. Please go ahead, Sir.

Thank you and good morning. And welcome to the Littelfuse first quarter 2016 conference call. And joining me today is Meenal Sethna, our Executive Vice President and Chief Financial Officer. Overall, this was a strong quarter for Littelfuse within a mixed global economic environment. Our first quarter sales growth came in at about the midpoint of our guidance, while adjusted earnings-per-share exceeded our guidance. The Electronic segment was essentially flat, while Automotive and Industrial sales both increased. We're pleased with the margin improvement in both Electronics and Automotive and the continuing growth of our global sensor platforms. The highlight of the first quarter was completing the acquisition of the circuit protection business of TE Connectivity. Now that this business is part of Littelfuse, going forward, you will hear us refer to it as PolySwitch which is the key brand of the business. The PolySwitch business will be split between our Electronics and Automotive segments, as its products align with those end markets. I'm going to begin today's report with an overview of our first quarter performance, followed by an update on PolySwitch and our strategies for this business. But first, I'll turn the call over to Meenal, who will give the Safe Harbor statement and a brief summary of the news release.

Thanks, Gordon. Before we proceed, let me remind everyone that comments made during this call include forward-looking statements based on the environment as we currently see it and, as such, include various risks and uncertainties. Please refer to our press release and our 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. Now, on to the first quarter. As we mentioned in our news release, please note that our first quarter results include the balance sheet from the PolySwitch acquisition but do not include any income statement activity of the business. Sales for the first quarter of 2016 were $219 million which was up 4% year-over-year and up 6% excluding the impact of currency. GAAP earnings for the first quarter of 2016 were $0.85 per diluted share and included $13 million of primarily acquisition-related costs and non-operating foreign exchange losses. Excluding those special items, adjusted earnings-per-share were $1.38 which was a 28% increase compared to the prior-year quarter and $0.10 ahead of the midpoint of our guidance. We saw strong performance from our Automotive Sensor business and currency was a tailwind for us this quarter. Cash provided by operating activities was $9.5 million for the first quarter of 2016 which was a decline versus last year. The year-over-year decline was primarily due to the change in the calendarization of the first quarter which impacted the timing of receivable collections in the quarter. We also had transaction and integration-related costs related to the PolySwitch acquisition. In summary, we had a strong first quarter and are on track to deliver 150 basis points in margin expansion over last year in our core business. Now I'll turn it back to Gordon for more color on business performance and market trends.

Thanks, Meenal. As always, I'll start with the Electronic segment which accounts for about 45% of total Littelfuse sales. Electronic sales of $98.8 million for the first quarter were up slightly in constant currency. Sales were strong in Europe and China. North America remained stable and Japan and Korea continued to be sluggish. Channel inventories for our core Electronics business were flat at the end of the first quarter compared to the fourth quarter. And, as we indicated last quarter, we believe the channels now have the appropriate level of inventory. Next, I'll highlight a few design wins from around the world, starting with growth opportunities related to some of the global market trends that are influencing our business. LED lighting continues to be strong, with record-setting $2 million increase in shipments of our LED outdoor street lighting modules in the first quarter of 2016 versus the first quarter of 2015. One of the reasons for our success in this market is our deep understanding and active participation with the groups that set the standards for protection levels. LED lighting is gaining momentum, but still has a long way to go, so we anticipate good growth opportunities for some time to come. We've talked about the growth opportunity we have in smart metering in Europe and secured another important design win for our thermally-protected metal oxide varistor in the first quarter. The winners were two major smart meter manufacturers that will add a total of $1.5 million to revenues over the next two years, beginning in the second quarter. Another focused growth area is Electronic Sensors, particularly our custom sensors which had strong growth in the first quarter. We recently designed in a sensor that will detect the position of the kickstand in an electric scooter being produced by a…

Thanks, Gordon. Before I cover the forecast, I wanted to touch on a few capital allocation updates for the quarter. In early March, we entered into a new $700 million credit facility which replaced the previous $375 million facility. This was driven by our financing needs for the PolySwitch acquisition and also reflects the growth in the Company. Including cash on-hand and availability under our credit facility, we have over $500 million in liquidity. Also, as we announced in late April, our Board of Directors authorized a new stock repurchase program of 1 million shares which was effective May 1. This replaces our prior program that expired on April 30. As we look at our capital allocation priorities, we're maintaining the strategy we set out in late 2012. Acquisitions that align with our current strategies and meet our financial objectives continue to be our priority for two-thirds of our free cash flow. The other third will be returned to our shareholders through dividends and periodic share repurchases, as we've been doing in the past. On the acquisition front, we continue to have a healthy funnel of opportunities and the financial capacity to bring these to fruition. As we still have several resources focused on integrating the PolySwitch business, we're mindful of resource requirements for future opportunities. Now, moving on to the forecast. With the addition of PolySwitch to our portfolio, I'll discuss the forecast in two parts. First, our core business which includes our legacy businesses and our recent Menber's acquisition; and then second, our PolySwitch business. Sales through our core business in the second quarter of 2016 are expected to be in the range of $230 million to $240 million. This midpoint represents 6% growth over the prior-year. In addition, revenue from our PolySwitch business is expected to be…

[Operator Instructions]. And our first question comes from Christopher Glynn from Oppenheimer.

So, on the core 150 basis points of margin improvement, certainly off to a fast start there and a strong second quarter guidance. It looks like you will actually realize a year's worth of that in the first-half. Is there anything specific to highlight about the second-half not maybe seeing margin expansion? Or is that now conservative, given the first-half outlook?

So I would mention a couple of things. One, as Gordon mentioned in his comments, in the first quarter, we had good performance on the automotive sensor business, but part of that sales growth that we saw in the first quarter was from customers building some inventory because we had talked about exiting some low-margin businesses in the back-half of the year, so we saw some -- call it some sales shift coming through in the first quarter. So that was one which helped us a little bit from a profitability perspective. I think the other thing for us is from a foreign exchange perspective, we saw tailwinds, we talked about in the first quarter. We'll see less of that in the second quarter, just as we take a look at the mix of all the currencies that are impacting us right now. So we're being a little careful on what we might end up seeing in the second-half of the year, etcetera. And I think the third piece is, we're just keeping an eye on the end markets at this point. While our topline has been good, we've got great growth opportunities in a variety of niche markets that Gordon talked about, we're also keeping an eye on especially the industrial end markets, as well as semiconductor and just waiting to see how the second-half of the year pans out.

Okay. And similarly, I think the core topline now includes Menber's. It looks like that will add a couple of points. So, maybe the core outlook is a little bit more cautious. Is the answer kind of identical to what you just said?

Yes, are you talking about for the second quarter or--?

No, for the full-year, did you take the core down a little bit? Because the core now includes Menber's, but the low-to-mid-single digits didn't change.

Yes, as we talked about for Menber's, this is one where Menber's is going to be great for us from a strategic perspective and really expands our presence in Europe and then we hope further out into Asia. But as we bought this business, it's got -- last year, it had $23 million of revenue on the topline, but a pretty minimal level of profitability. So this is one where we've got some work to do. And so while we saw the benefit, we're going to see the benefit on the topline, very little impact on the bottom-line for us.

Okay. And any comments on how to apportion PolySwitch across the segments?

I would say it's about two-thirds electronics revenue and about a third in automotive.

Following question comes from Matthew Sheerin from Stifel.

This is Alvin Park speaking on behalf of Matt. I just had a follow-up question on PolySwitch. I think the guide was around $35 million to $37 million, but the second-half you were mentioning $40 million per quarter. I think previous discussions, it was around the $170 million to $180 million, $190 million. And I was wondering if you could give more color going forward on the battery fuse as well as the distributor inventory rebalancing? Just some further color on that for the second-half of the year as well as potential insight into the following year?

So, maybe just looking at this year with what we know to date. So when we talked about the 2015 revenue when this business was under TE, was about $190 million. I'd say keep in mind that TE has a September year-end, so those are results through September. Gordon mentioned a few things as part of his remarks. One is, we had seen this for some time, that there's been a trend in the battery protection market where mobile phone manufacturers are moving to a different solution. As that market has been converting out of the resettable fuse into another solution, that's really impacted the revenue trend on this business. So it's gone down about $10 million to $15 million and that trend has been going on for some time. So that's a little bit of the reset there. The second piece is really more one-time that we're working through. And this is more recent information that we've learned since we weren't able to share any customer or distributor information until we closed on the transaction and this is where we learned about the inventory levels at distribution partners that the business has today. We typically carry about 2.5 months of inventory. The PolySwitch business, their distributors were carrying about four months of inventory. So as we work to align that, that's going to have an impact on the 2016 revenues. You are seeing that in the second quarter. But in a little bit of that in the third and fourth quarter. But I would say maybe a way to think about this is to really think about the business of being on an annualized run rate in the 160's.

And that inventory balancing should be complete by year-end 2016?

Yes, we would expect that.

I see. And another quick follow-up. For the industrial's, the operating margin, I believe from the facility is transferred, but could you give any color on where you see margins to be at, at the second-half of the year?

We would expect margins to work its way back up in the second-half of the year. We were in the mid-to-upper-teens and that's really our objective. Some of the margin impact has been through some of the end market challenges that we have, right between the relay business with oil and gas and mining and now with the custom business, we're seeing a little bit of a decline now in the potash industry, the potash market in Canada. So I don't know if I'd call it a permanent trend, but it's been like this for a while, potash being a little new in this -- I'd call it a newer downcycle. So that's where we're saying we're working through some profitability programs to say, what are the resources we really need to make sure we're servicing our customers the way we need to do that, but really modeling our infrastructure for the lower revenue levels in the business.

And the following question comes from Tim Wojs from Baird.

I guess just a modeling question again on the PolySwitch business. You said about two-thirds of it is electronics and about a third of it is auto. How do we think about allocating the profitability of that business between the segments?

I would say at this point it's not substantially different right now. I would kind of keep the margins the same for the business. As we continue to work through things, if that changes, we'll let you know. Hut I think of it as even right now.

Okay. And then just in terms of the benefits on the sensors side and automotive, is there a way to kind of help us think about maybe what the contribution of that was to the sensors growth? And does that kind of normalize in Q2 and Q3, as some of that work falls off? And does the business that you are ramping to replace that, does that kind of perfectly ramp at the same time? Or is there going to be a little bit of a gap in that?

You know, from where we sit today, I would say there's probably -- we talked about this a little bit -- there's going to be a little bit of a gap, I would say, in the back-half of the year. We've had revenue pull in more in the first quarter. We expect it to stabilize a little bit in the second quarter. And then that revenue that came in, we'll probably see a lower growth rate in the back-half of the year, as new design wins start to take off later in the year and into 2017.

Okay. And then on the TE, just the second-half or PolySwitch -- I've got to change my lingo around a little bit. In the second-half, you said it will be profitable ex-amortization. Should we think of Q2 as really being kind of the low point from a profitability perspective? And then when should we actually see that business be profitable, including amortization?

So, on the first part of your question, yes, I would say Q2 is -- I would think of Q2 as the low point as we expect it to be accretive ex-amortization in the second-half. I think give us a little time on 2017. I think it's a couple of issues. I'd say one it's -- we really have to figure out what the amortization expense is going to be. We're still four weeks, six weeks into the close. We're in the early stages of what I call the purchase accounting, to figure out what the amortization expense is going to look like. We've been estimating about $0.50 for the year. I don't know what that's going to look like, so it's hard to tell you where we're going to hit that rate with amortization expense right now.

Okay. And then I guess just one last one. How should we think of interest expense? I guess I was a little surprised and maybe there's some timing things, but I thought actually you guys might be able to use a little bit more offshore cash to pay for the acquisition. So I'm just curious how we should think of the debt versus cash allocation on the acquisition and then how that ties into interest expense for the year?

Sure. So I would say maybe a couple things. One is, we had talked about using, for the purchase, about half of the purchase is going to be funded with offshore cash; half with debt which is generally where we ended up on that. If the question is really, hey, your Q1 interest expense looks high, because we put the new credit facility in place, we had some fees related to the old facility that we had to amortize. And so that impacted the Q1 interest expense.

Okay. So is $2 million a quarter still an okay run rate on the interest expense line?

Yes, I think that's pretty good.

And the next question comes from Shawn Harrison from Longbow Research.

A lot of clarifications, I guess. With the PolySwitch business, how much of their sales are tied to those resettable fuses? Is the first question.

The vast majority, probably more than 80%, I would say is the resettable fuse technology that's really been there. Their core technology and while they've got some other products around it, that's what we're really talking about when we're talking about particularly the battery protection and the automotive protection.

Okay. If we didn't have the distribution adjustments in the second-half of the year, what would that $40 million per quarter run rate be in terms of sales?

I think we're still in the early days of really trying to evaluate that. We've only had a few weeks of owning the business and really being able to talk to customers and talk to distribution channels. I think we're pretty comfortable saying it's sort of in the -- at the moment that it's in the 40s' per quarter, sort of the 160's that Meenal mentioned. And we think we're going to take most of this correction in the second quarter.

I guess another way to ask it is, how much does the distribution adjustment cost you on a basis this year, do you estimate?

From a topline perspective overall?

Yes, from a topline perspective.

I mean you know, our guess is in the $5 million to $10 million maybe a little closer to the $10 million range this year.

Okay. I thought one of the opportunities with the acquisition was to kind of reinvigorate distribution. So maybe you could talk about you've got the negative this year, but how you get the channel moving more in your favor with PolySwitch?

Yes. We've got a lot of programs. I think that we've prided ourselves on our relationships with our distributors. We do have selective distribution which means that we don't use every electronic distribution channel that's out there, so we have selected distribution partners around the world of what we think are the best for that particular region. So we have some global and some regional and by being selective, we spend a lot of time on training, on co-op programs. And we believe that when we take this product line through our own distribution channels and get them motivated with the training programs we have, the application engineering support, that we expect to see quite an uplift from that. We think that this is really our core competence, as our products so well fit distribution channels because of that long tail of applications we always try to emphasize in our Electronics segment. So, we're quite optimistic that working with our distribution partners that we'll see a significant benefit for this business globally.

Okay. On the core business, Meenal, how much restructuring savings are left to be realized from -- I guess you had a multitude of actions in process in the second-half of the year. So I think there was the reed switch, I believe there was something within the industrial business. I'm probably missing something else as well.

Yes, I think the few big pieces that we had talked about -- so as you mentioned, the reed switch transfer, moving the production to the Philippines, so that's in process. It's on track. We'll start to see some of the benefits here in the second quarter, but definitely the back-half of the year. So that's still assumed for our forecast and we're expecting that to come through. We had talked about between that. And I think the other one that you were referring to the -- in the Industrial segment, this manufacturing transfer related to our relay business, that one we did complete. We started up production in our existing facility and that's one we've had just the manufacturing efficiencies with the startup process. So, I would say look for the benefits on that really also starting in the back-half of the year. Between those two, it's been about $6.5 million.

So then that's $6.5 million run rate in the back-half of the year annualized?

Yes.

Okay. And then just I guess some really quick clarifications. SG&A and R&D kind of maybe a guide point for the second quarter and what is now total company depreciation as well, post-PolySwitch?

I just don't have it at my fingertips. Let me come back to you on depreciation. But I would say with SG&A, just keep in mind with the Q2, as we talked about, there's a little bit of a hiccup in the run rate in there. We've got an extra $2 million coming through in the second quarter relating to the stock compensation expense. So that's, as you are looking at a Q1 or Q2 run rate, I believe Q2 ex that is a good run rate for the rest of the year.

I guess what would a dollar figure be? I'm just trying to adjust for PolySwitch coming in, but not -- the revenue profile being a little bit different than what had been expected?

Yes. So we've been looking at the pieces. It's a little choppy, honestly which is why we've tried to bifurcate the two. Because with PolySwitch, as we talked about, when we're exiting the transition service agreements, we've got to build up our expense infrastructure first to take on all the back office work. And at the same time, we're still paying for the transition service agreements which we'll start exiting. So we've been looking at it separately and we don't really have what I would call a run rate at this point on the PolySwitch business on expenses. I think it will be 2017 before we get into what I would consider more a normalized run rate.

[Operator Instructions]. We have no further questions at this time. I would now like to turn the call over to Mr. Gordon Hunter for closing remarks.

Thank you for joining us on today's call. 2016 is off to a very good start. And while we did not perform up to our expectations in a few areas, as many of you know, we have a solid track record of improving performance and achieving operational excellence. We're addressing the issues in these areas and we look forward to updating you on the progress next quarter. Have a good day. Thank you.

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