Littelfuse, Inc. (LFUS) Q1 2017 Earnings Report, Transcript and Summary

Good day, everyone and welcome to the Littelfuse, Inc. First Quarter 2017 Conference Call. Today’s call is being recorded. [Operator Instructions] At this time, I would now like to turn the call over to President and CEO, Mr. Dave Heinzmann. Please go ahead, sir.

Thank you and good morning. Welcome to the Littelfuse first quarter 2017 conference call. Here with me today is Meenal Sethna, our Chief Financial Officer. We are off to a strong start in 2017 with strength in our electronics segment driving both sales and adjusted earnings per share to the high-end of our guidance range. As expected, the strong first quarter for electronics was partially offset by lower organic sales in the automotive and industrial segments. We were encouraged by the sequential sales growth in the commercial vehicle products business and the industrial segment as certainty key end-markets began to stabilize. With that introduction, I will turn the call over to Meenal, who will give us a brief summary of our first quarter results. Meenal?

Thanks, Dave. Before we proceed, let me remind everyone that certain comments we make on this call contain forward-looking statements. These forward-looking statements are not guarantees of future performance and may involve significant risks and uncertainties. We refer you to the company’s Form 10-K and 10-Q as well as other SEC filings for more detail about important risks that could cause actual results to differ materially from our expectations. In addition, our remarks today refer to the non-GAAP financial measures, adjusted earnings per share and adjusted tax rate. These non-GAAP measures are intended to supplement, but not substitute for the most directly comparable GAAP measures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure is provided in our first quarter earnings release filed on Form 8-K today and available on our website. Now, some highlights from our first quarter of 2017. Sales for the first quarter were $285 million, up 30% year-over-year. Organic sales growth was 5%, excluding acquisition revenue, the e-house divestiture and currency effects. You can find sales growth by segment in the press release we issued this morning. GAAP diluted EPS was $1.69. Adjusted EPS was also $1.69, which increased 22% year-over-year. Strong sales in electronics drove our EPS finish at the high-end of our guidance. Commodities had about a 100 basis point unfavorable impact to our company margins this quarter compared to last year as prices for copper were up 30% and zinc was up 75%. We expect commodities to remain a headwind for us based on current prices. The adjusted effective tax rate for the quarter was 18%, a 400 basis point reduction versus last year. Cash provided by operating activities was $23 million for the first quarter of 2017, which was an increase versus last year. Capital expenditures were $12 million and free cash flow finished at $11 million for the quarter. Also as noted in this morning’s press release, 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. In summary, strength in our electronics business drove performance above expectations for the quarter. Now, I will turn it over to Dave for more color on business performance and market trends.

Thanks, Meenal. Starting with the electronics segment, first quarter sales of $154 million increased 56% and grew 15% organically. Our strong fourth quarter performance continued into the first quarter despite the typical impacts of the Chinese New Year. Sales were strong in Europe and Asia and picked up in North America towards the end of the quarter. All of our product lines showed strong growth. First quarter margins remain strong due to leverage from the higher revenues as well as favorable mix. Sell-through by our distributors and electronics channel inventories both increased about 10% year-over-year. At this point, we believe inventory levels are in line with market conditions. As we have been in a robust electronics cycle for two quarters now, we continue to keep a close eye on distributor ordering patterns and inventory levels as there is a risk of inventory pullback late in the cycle. As part of our updated strategy, each business is focusing on several end markets that offer exceptional growth opportunities. I will talk about progress in four of these markets across the electronics segment. They are battery protection, cloud computing and the Internet of Things, LED lighting and automotive electronics. Looking at battery protection, we are expanding into other markets outside of mobile devices. One of these is gaming machines, where our PolySwitch resettable fuse has been selected by a major manufacturer in Japan to protect the battery pack on their new equipment. Another opportunity in the battery market is the trend towards energy storage for home-based solar systems. These systems store power in a local battery system that can continue providing support when no solar power is being generated. During the first quarter, we were successful in getting our TVS diode designed into these systems to provide protection when the power is converted from the solar panels to the batteries. We also have electronic fuse products designed into these systems. Last quarter, we mentioned the opening of our new Silicon Valley technology center. Our team there is facilitating collaboration with several global OEMs and battery suppliers in the power tool category, which is the new focus area for us. A nice win in this new area is with a leading North American manufacturer of power tools that will contribute about $1 million in incremental revenues. Our ability to offer sensors, over-voltage, over-current and over-temperature protection at a systems engineering level is a distinct advantage for Littelfuse. Datacom and cloud computing is another targeted market with excellent growth opportunities. We provide protection for various consumer devices as well as the infrastructure that supports these products. For example, sales of our high-powered TVS diodes that protect the power supply in cell phone base stations contributed over $3 million in first quarter sales. The key driver for this growth is regional 4G build-outs, most notably in India where people typically access the Internet through their mobile devices. We also added new business with telecommunication equipment suppliers globally for a protection thyristor that provides over-voltage protection for high-speed telecom circuits that transmit data through telephone lines. We expect revenues from this growing market to exceed $1 million in 2017. We are also well-positioned in the data center infrastructure market with two recent wins that will add nearly $1 million of new sales. One of these wins is with a leading backup generator company in North America, where our technical expertise enabled us to increase the capacity within the same size fuse, winning us the business. The second win is with a major enterprise router maker in North America and India for its enhanced outdoor router design for harsh conditions. Products from both our passive and semiconductor portfolios were selected for this application, highlighting the strong portfolio synergies within the electronics segment. Protecting high-speed data ports is a targeted growth area for our diode array products. We are well-positioned in a number of high-end consumer applications and expect to realize more than $4 million of revenue in 2017. In addition, we had multiple wins in the first quarter for applications such as smartphones and Ethernet ports that are expected to add another $3 million of revenue this year. LED lighting, in general, is proving to be a very successful growth area for us, with our total annual sales into this market now approaching $20 million. India was our strongest region for outdoor lighting sales in this first quarter, with sales of about $1 million. New business for our temperature-protected varistor and surge protection module with a leading lighting OEM in India will add another $350,000. We are also seeing more activity in both North America and Europe, reflecting an uptick in demand and the restarting of some government programs. Our automotive electronics business is growing at a fast space, with $3 million in new business wins in the first quarter. Wins related to the products we acquired from ON Semiconductor last year include $1 million of new revenues at peak with a major Tier 1 supplier for our TVS diode applications in electric vehicles. We also secured design wins for ignition IGBT programs at two major Tier 1 suppliers that will add an additional $1 million in annual revenue. Other automotive electronics design wins include fuses and varistors at two major U.S. OEMs for electric vehicle battery management and charging. We have talked in the past about our strategy to develop a stronger position in power control semiconductors through the silicon carbide technology being developed by Monolith Semiconductor. In March, we made an incremental $15 million investment in Monolith, giving us majority ownership of the company. We believe silicon carbide is a game changing technology that enables power control devices, such as power inverters and motor controls, to switch faster and provide more efficient power control. Our additional investment in Monolith is a significant step in developing our position in this market. The next major step is to begin releasing products and we will keep you updated on our progress in future calls. In summary, we believe our broad and deep product line, established relationships with more than 100,000 customers worldwide and our focus on targeted growth markets will continue to drive the future growth of our electronics segment. Next is the industrial segment. With sales of $24 million in the first quarter, sales were down 17% versus last year. Excluding last year’s e-house business divestiture, sales were down 10%. The decline versus a strong first quarter last year reflects the weaknesses in the oil and gas, mining and solar markets we previously discussed. However, we are encouraged by the 6% sequential growth across the segment, with some signs of stabilization in these end markets. We continue to pursue growth opportunities focused on increasing safety and improving productivity. During the first quarter, we launched a revolutionary motor protection relay with a first in the industry Bluetooth-enabled interface. Operators can use a smartphone to remotely change a device’s settings or analyze data. This increases operator safety by not exposing the worker to arc flash hazards or dangerous live wires and also increases productivity. A key priority is improving profitability in this business to get back to a double digit operating margin by year end. Our first quarter profitability was impacted by costs related to our legacy e-house business. As part of last year’s divestiture of that business, we retain responsibility for a few projects and as a result, incurred costs in the first quarter. We expect some additional costs in the second quarter. Excluding these costs, the industrial segment would have finished the first quarter with a mid single-digit operating margin. We are encouraged by the early results we are seeing in our growth strategy across the industrial segment as well as signs of end market stability. We remain focused on initiatives to improve profitability. That brings us to the automotive segment, where first quarter sales of $108 million were up 17% over the prior year quarter. Our passenger car fuse, PolySwitch and commercial vehicle products businesses all had a positive quarter. As expected, our sensor business was down as we continue to transition customers out of low margin legacy programs. Total passenger car fuse sales grew in excess of car builds, excluding currency effects. Strong performance in China and Europe was partially offset by lower growth in North America. In China, we benefited from the continued tax incentive for smaller cars and also from orders that carried over from last year. In North America, we were impacted by timing of certain programs ending and also saw Tier 1s reducing their inventory levels. In the automotive sensor business, sales declined due to transitions out of low margin legacy programs and related last time buys during the first quarter – or the first half of 2016. We also saw some delays in our customers’ program launches. Organic sales of our commercial vehicle products or CVP, increased slightly over last year. On an encouraging note, we saw solid sales growth sequentially as well as increased demand in the construction markets in North America and Asia. The automotive team made good progress on several of the strategic growth areas we highlighted at our December Analyst Day. These include the electrification of vehicles, expanding our presence in Japan, growth opportunities in sensors and power distribution modules in commercial vehicles. The increase in electrical features and systems in vehicles has been a positive trend for Littelfuse over the past few years and our position in this market continues to grow. Many of today’s vehicles need higher power capacity to support their electric features and performance requirements. This in turn continues to drive sales of our Masterfuse, ZCASE and other high and medium current fuses that are designed to protect these sensitive circuits. We won new high current fuse business across all geographies during the first quarter. These include a new Masterfuse program with GM in China for a line of compact vehicles and Masterfuse wins in North America for Ford and Cadillac. We also had a very nice win with Daimler in Europe for our high current ZCASE and MEGA Fuse as part of a short-term retrofit program for 1.4 million cars that will add about $5 million in incremental revenues in the back half of this year. We are making good progress in our strategy to expand our presence in Japan. During the first quarter, we won new business for a new small car platform with Mazda for our MICRO2 and MCASE+ fuses, which are the new standard for high volume vehicle circuit protection. These subminiature fuses are designed to protect more circuits while utilizing less space. As we discussed last quarter, there is increasing focus among global OEMs on 48-volt systems. This provides excellent growth opportunities for Littelfuse and we are continuing our design-in activities with customers. In sensors, we won new business with a leading Chinese manufacturer of dual bus transmissions and with a North America automaker for our seatbelt buckle sensors. Additionally, we secured a new business win with our powertrain sensor with a North American OEM that will strengthen our position in hybrid and electric vehicles. Our PolySwitch product line continues to be well received by customers, resulting in several new business wins during the quarter. Another win in Japan with Mazda is for a customized PTC for the front and rear window lift motors in the new Mazda 2. We also won new business for our low profile PTC for applications in Audi, Renault and Ford vehicles. This PTC will be sold through electronics distributors, an example is synergies between our electronics and automotive segments. One of our target markets for CVP is power distribution modules, where we secured a strategic win, new business opportunity with a global agricultural manufacturer for a sprayer platform. We are also progressing on our strategy to grow the CVP business beyond North America. Our most recent win is with a European division of an existing North American customer that produces heavy truck refrigeration systems, where our module will help manage the battery charge in the systems. Overall, we had a strong quarter of new business design wins that will support the growth of our automotive business. Despite some lower growth rates near-term, we remain confident in our long-term growth opportunities that will drive 7% to 9% organic growth in the automotive segment. Across the company, we are executing on the growth strategy outlined at our Analyst Day and gaining traction across our strategic growth areas. The examples we discussed show how we are leveraging global mega trends, including the safety of people and equipment, energy efficiency and the connected world. We have confidence we can drive double digit revenue growth and earnings per share growth to deliver significant value for our shareholders. On that note, I will turn the call back to Meenal, who will provide the outlook for the second quarter. Then we will take your questions.

Thanks Dave. As we look ahead to the second quarter of 2017, we expect a continuation of the strong demand across our electronics segment. With stabilizing trends in some of our heavy industrial markets, we also expect stronger revenue contributions from our businesses that sell into those markets. In the auto segment, we expect stronger organic revenue growth in the second quarter. This will be tempered by a decline in automotive sensors due to the legacy product exits and related last time buys from last year impacting our year-over-year growth. As I mentioned earlier, we expect commodities to remain a headwind for us, which has the greatest impact to margins within our automotive segment. Based on the current economic environment and foreign exchange rates, we expect the following for the second quarter of 2017. Sales are expected to be in the range of $301 million to $311 million. The midpoint of the guidance reflects a 13% total sales growth rate over the prior year. This equates to a 10% organic growth rate, excluding the ON product portfolio acquisition, the e-house divestiture and currency effects. Adjusted earnings per diluted share are expected to be in the range of $1.83 to $1.97. Similar to prior years, the second quarter also assumes about $2 million of additional stock compensation expense due to accelerated expensing of equity granted in the quarter for all those of retirement age. And as a reminder, our financial results now include Monolith Semiconductor. Our earnings per share forecast, includes about $0.04 of expense to fund development activity with Monolith. This concludes our prepared remarks. Now, I would like to open it up for questions. Eric?

Thank you. [Operator Instructions] And our first question comes from Christopher Glynn from Oppenheimer. Christopher, your line is now open.

Thanks. Good morning. On the commodities side, we haven’t talked about this for a little while. But I know you have contractual price downs in automotive, but what’s the situation in terms of ability to offset with price over time?

Yes, Chris, good question. And certainly, commodities are bit more of a headwind than they have been in the last year. In the automotive side, in most cases, we have long-term contracts that really preclude us from making major changes in pricing during the periods of the contract. However, in some of our higher current products, where we have a very high copper content, in most of those cases, we will have a copper clause that will allow us to adjust pricing to – for increases or decreases in the copper costs. But as a company, that only impacts a portion of the exposure.

Okay. And is that copper clause reflected in the 100 basis points or is there a lag?

No, that’s reflected in there. There is a relatively short lag in the contractual agreements we have with our customers.

Okay. And then I was just wondering about your sense of the automotive margin for the year as you start to lap some acquisitions and the segment has been a little pressured lately. How are you looking at the full year comparison for margin profitability in automotive?

Yes. Chris, we would expect a little bit of improvement this year in the automotive margin. I think there is a couple of puts and takes that are the bigger ones. One, we have been talking about the sensor product exit. And while these are low margin businesses, still we are absorbing some overhead, so that’s depressed or I’d say slowed down our margin improvement trajectory that we are working on with the sensor business. So, that’s one. And then secondly, we just talked about commodities and that’s also – the biggest impact across the company is really due to automotive business and it’s got somewhere around a 200 basis point impact to margins right now on a year-over-year basis.

200 basis points commodities for the full year for Littelfuse total.

Based on – for the automotive segment, as Dave mentioned – so I mentioned in my comments about 100 basis point impact to the total company, but the bulk of that is within automotive and that has about a 200 basis point impact to the margins there.

Great. Thanks for clarifying.

Sure.

And our next question comes from David Leiker from Robert W. Baird. David, your line is now open.

Yes, thank you. Good morning, everyone.

Good morning, David.

I wanted to start on the industrial business. Some of those end markets have been going through some pretty good cyclical declines and they are bottoming here. Is there anyway to look at the business portfolio you have today – and I am assuming it went down less than the market. But is there anyway to look at that and give us some sense of how the growth of that was or how the revenue decline of that was versus the end market and if you outgrew that decline at all?

Yes. I think it’s a bit of a mixed bag. Because the custom portion of our industrial business, it’s very much aligned with mining and specifically potash mining in Canada. So that has kind of an unusual effect that’s even greater than maybe the impact of mining to the overall market, because potash mining in Canada is very depressed and the level of investment is quite low there. So, if we set that aside and we would say the remainder of our industrial products, are selling into fairly broad-based industrial, but a meaningful exposure to oil and gas and mining. And clearly, when you look at the data, market data in the last year, you are correct, our business did not decline at the same rate that those end markets declined, but we do see that – it feels like we are kind of bouncing along the bottom now and kind of bottomed now. We are not seeing further decline and saw nice sequential growth in the industrial side in those spaces from fourth quarter to first quarter. So we are encouraged that we are not going to see further downward pressure at this stage is our current view.

So do you think that the business that you are doing a couple of points better or mid single-digits better than what the markets are doing, I don’t know if there is a way to really dig into it that way and look at it like that?

It’s a little challenging to define it in that way, because even when you think about oil and gas, if you – our exposure was actually higher than we thought it was to oil and gas. When you realize how many customers we are selling to who are selling equipment to equipment manufacturers, it’s two or three steps down the chain, so it’s a little challenging to kind of pull that out.

Yes, yes, I understand. And then on the automotive side, can you talk a bit about what the bidding activity is like that the customers you are working with the products, what kind of step up in content you might be seeing as you are looking at new contract awards there?

Certainly. And actually, although overall growth in automotive as a whole was a little depressed in the first quarter because of some of the reasons we talked about it. It was a very active quarter in bidding and winning new business in our automotive applications both in our traditional passenger car fuse world, automotive electronics and certainly in the sensor side as well. So, we see – continue to see very robust quoting activity and winning of new programs. So, we do expect to continue to have the opportunity to outgrow car build. So, certainly, as car build is kind of flattening out or the growth is slowing on car build, we do expect to continue to see content increases for our products.

And then one more – one last item there on your automotive side. If you look at the hybrid electric vehicle and the EV with the higher voltage there, what kind of step up in content will you see for your products on those types of vehicles versus new and traditional internal combustion vehicles?

Sure. If we look – and we have talked about this before if we look at a mild hybrid like a 48 volt system, for us and our traditional circuit protection content, that’s about a 30%, 35% step up in content for a 48-volt system. We think 48-volt systems maybe the volume drivers for us in the nearer term. If you go to a hybrid and full EV, it is multiples of our current opportunity. So certainly, although they are low in numbers, it’s a meaningful increase in content opportunity for us in hybrid and full EVs.

Great. Thank you for taking the call.

Sure.

And our next question comes from Shawn Harrison from Longbow Research. Shawn, your line is now open.

Good morning.

Good morning.

Wanted to just dig into the book-to-bill ratio in the electronics business, I had to scroll really far to the left in my model back to 2010 to find a book-to-bill that was this robust. And I guess the concern would be is that at some point in time, this corrects. But you had good stats of inventory being relatively in line with order rates and things of that nature. So, maybe if you could highlight just are you seeing very long lead times for your products or any signs of double ordering or anything that would be worrisome that we see some type of second half correction?

Sure. It’s a good question and we spent a lot of time looking at that ourselves. And certainly, as we ended last year and coming into the first quarter now heading into the second quarter, our book-to-bill numbers are quite strong. So, those are always concerns for us. That – how long is the cycle? What’s the point in which the momentum begins to change and perhaps there is an inventory pullback watching very closely? With the data we have got now in the first quarter, we don’t see a problem yet in the inventory position of our key distributors globally. However, we continue to watch. And certainly, for our own products, our lead times have not extended dramatically. However, we certainly see others in the industry, in particular spaces, extended dramatically. And so we are always concerned, how distributor is reacting to other components extending in lead time, worrying that ours might or our categories might and begin to double order or increase their inventory position. So we are watching very carefully. We have some of the same concerns that you have. We haven’t seen it yet, but we will continue to watch. Sometimes in the past, you would understand or see that there were particular applications that were really driving in a lot of the growth, but it seems to be pretty broad based from the end customer and end markets its serving. So we are continuing to watch.

Okay, it’s helpful. And then just on the automotive business, I know you said North America was a little bit weaker in the March quarter, have you seen any change in expectations for the full year in terms of production out of any of your customers in any region, it’s a pretty big point of contention on whether we are – are they going to stabilize, are we going to see any further weakening as we get into the summer months and into the back half of the year?

Yes. I think when we look at the full year car build projection, we don’t see it dramatically different than what we saw coming into the year. First quarter was maybe a little stronger in car build than maybe we would have modeled and so therefore, it flattens out the back end of the year a bit more. In North America, where we talked about it being a little weaker, I think some of our Tier 1 customers, as they saw car builds beginning to soften, made sure their inventories were pretty lean. And that probably had a little bit of an impact on our numbers during the first quarter. But we aren’t seeing kind of warning signs that there are significant changes to expectations yet.

Perfect. And lastly Meenal, if I may have a clarification, where are you accounting for the investment in Monolith and what was the decline in SG&A for the March quarter tied to?

Sure. So maybe to simplify on Monolith, it’s basically being treated as an acquisition for us. So it’s basically showing up in – or it would show up in every single line of the P&L, is how it is, because we now have a majority ownership and there is other accounting aspects to it. So it’s mainly in OpEx right now, R&D and a little bit of SG&A expense.

And the decline in dollars in SG&A sequentially, what was that attributable to?

Just some general spend controls. Usually, in the fourth quarter, we tend to see maybe a little higher spend. There are some more trade shows, some other activities that are going on in the fourth quarter. And then you see, especially with the Chinese New Year, you see maybe a little bit less travel going on at certain times and things like that, just a little bit of normal seasonality for us, nothing out of the ordinary.

Perfect, big help. Congrats on the good start to the year. Thanks.

Thanks.

Thanks.

And our next question comes from Steven Fox from Cross Research. Steven, your line is now open.

Thanks. Good morning. A couple of questions for me, on the Q2 guidance, you talked about targeting about 10% organic growth rate, which will be up sequentially from the 5% you just reported, can you sort of dissect that a little bit in terms of how much is sort of easier comparisons versus maybe true growth versus some of the markets that have been growing pretty well the last few quarters. And then can you talk about some of the puts and takes that go into gross margins for this current quarter relative to last quarter?

Sure. So let me start on the sales side a little bit. Clearly, we talked about with the strength that we have seen in electronics, both from the fourth quarter carrying on the first quarter and even as we have looked into April, we have gone through April, the strength of the organic for the quarter is being led by electronics. I would say the other thing organically is automotive will be better. We are expecting it to be better from what we are seeing today versus what it was like in the first quarter. But I would say, tempering that is still – we will have another difficult comp year-over-year, because in the sensor, the automotive sensor side, we had some last time buys, pretty significant last time buys last year in the second quarter as well. So that growth rate is a difficult comp for us there. And then overall, from an overall margin perspective, I would say the big puts and takes are really the higher electronics volume is helping from overall volume leverage that we are seeing. And even with a little bit more in automotive, etcetera, we are just going to get a little bit more favorable leverage, that’s one. And then we talked about commodities going a little bit the other way from a year-over-year perspective. Based on where the prices are now, that’s going to be a drag for us right now.

Thanks. And then can you just remind me, when do you see sort of the end of the tough sensor comparisons again?

Yes. I would say, for the first and second quarter, we have some fairly difficult comps because of heavy last time buys. I would say it was less heavier in the third quarter, but that one is going to be tough as well. So I think really as we get through the full year, for the most part, it’s going to be a decline year-over-year. And so we would expect probably for 2018 that things would get back to a more normal run rate. What really ended up happening last year was the exit process just took a lot longer than we were expecting with our customers. And they did a lot more last time buying and they have stayed in with us for a little longer than we were expecting.

Great, it’s all very helpful. Thank you very much.

And our next question comes from Gary Prestopino from Barrington Research. Gary, your line is now open.

Hi, good morning everyone. Dave, you did mention that your car fuse sales were greater than car build, could you put a number on that?

Yes. We haven’t given a specific guidance and breaking it out that way. Certainly, we have in the past, we have seen that multiple percentage points of content increase. It’s a little messy in the first quarter because of some of the pullback in inventory in North America from some of our customers. So maybe the content growth that showed up and ran through our numbers in the first quarter was a little less than we have seen in the last year. We expect that to kind of bounce right back and as that correction is kind of done. So yes, it’s a few percentage points of content increase.

Okay. And then going forward in automotive, you said you expect Q2 to be obviously better than Q1 and then – but in what regions of the world are you particularly – are you looking for some kind of a rebound versus where you were in – what happened in Q1?

I would say kind of across the businesses, it varies whether we are talking about our commercial vehicle products or our passenger car fuse or PolySwitch products selling in. The commercial vehicle business, while we are certainly focused on growing it in Europe, North America is still the biggest driver for us there. So the good news is kind of heavy truck has stabilized a bit now. And in the con/agg side, we are beginning to see a little bit of growth globally. So I wouldn’t say there is a particular region we are expecting that. We have pretty strong market shares across the – across all three regions.

Okay. Thank you.

And your next question comes from George Godfrey from C.L. King. George, your line is now open.

Thank you. Good morning Dave and Meenal, excellent job.

Thank you.

Thank you.

Yes. Dave, you are off to a nice start as CEO for the company. I just wanted to dig in on the book to bill of 1.2 on the electronics segment again, so there was nothing inorganic, that was purely an organic build in the book there of 1.2?

That’s correct. That’s an organic view.

Outstanding. And then on – I didn’t hear anything about CapEx plans for the year, can you remind me what they are going to be?

Sure. We had touched on it as part of our fourth quarter call in early February. But we talked about a capital plan of $70 million or so, higher than normal, than we would typically spend, mainly because of the ON product portfolio acquisition that we made back in August. And we are moving all the manufacturing out of ON’s facilities and their foundry partners into our footprint. And so that’s about $20 million of the spend is what we are expecting this year of that $70 million.

Understood, okay. Thank you. And then I heard what you said about the SG&A here in Q1, down several hundred basis points from the compare a year ago and then even below, if we go back to 2 years ago, just 16.4% on the revenue, that seems outstanding, there was nothing unusual, I am guessing the headcount had to higher than it was in comparable periods, but nothing specific that pushed that to such a low rate one way or the other.

Probably, two other things. One of the things, when Shawn asked the question, we were still going through the integration process for PolySwitch in the fourth quarter, so we still had more spend going on, just a lot of activity as we were going through a lot of the last system integrations as well as just other synergy activities that were going on. And so a lot of that was done in the fourth quarter. So, that’s another part of the expense decline. And then if you go back a couple of years versus now, we acquired $250 million of annualized revenues last year with the acquisitions we did. And so appropriately so, we are getting better leverage from that perspective from an SG&A perspective as we have grown.

Understood. Thank you for taking my questions.

We have no further questions at this time. I would now like to turn the call over back to Mr. Dave Heinzmann for closing remarks.

Thank you for joining us on our call today. 2017 is off to a great start. We look forward to talking with you again next quarter. Have a great day.

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