Good day everyone and welcome to the Littelfuse Inc. Third Quarter 2017 Conference Call. Today's call is being recorded. At this time, I will turn the call over to President and CEO, Mr. Dave Heinzmann. Please go ahead sir.

Thank you, and good morning. Welcome to the Littelfuse third quarter 2017 conference call. As always, Meenal Sethna, our Chief Financial Officer, is joining me on the call. We continued our positive momentum with a strong performance in the third quarter across all three of our segments. Revenues and adjusted earnings, both grew 13% for the quarter. In addition, we generated a record $88 million of cash flow from operations, a 36% increase over last year's third quarter. The Electronics segment once again led our strong performance with solid contributions from automotive and industrial. Adjusted operating margins for the company crossed 20% this quarter and of particular note, our Industrial segment achieved double-digit operating margins. Before we get into the details of the quarter, I'd like to review our overall strategy where you can see how our progress in the third quarter aligns with our strategic objectives. Our goal is to achieve double-digit top line growth and sustained profitability through a combination of acquisitions and organic growth. We have positioned our business to benefit from the global megatrends such as safety, energy efficiency, and the connected world with a focus on growth initiatives to take advantage of these megatrends. All three of our segments are focused in higher margin strategic growth areas and I'll highlight some of these later in the call. It all comes down to execution. Our teams around the world are doing an excellent job of leveraging our well-established global presence, industry-leading products, diversified markets, and strong customer relationships and the results we are discussing today. With that overview, I'll turn the call over to Meenal who will give a brief summary of our third quarter results.

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, adjusted operating margin, 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 third quarter earnings release filed on Form 8-K today and available on our website. Now, some highlights from our third quarter of 2017. We continued our strong momentum in the third quarter, finishing above the midpoint of our guidance range for both sales and adjusted earnings per share. Sales in the third quarter were $318 million, up 13% over last year. Organic sales growth was 9% which excludes revenue from acquisitions closed in the past 12 months, the 2016 e-house divestiture, and foreign currency effects. Our GAAP operating margin finished at 18.4% and our adjusted operating margin was 20.4%, a 270 basis point improvement over the same quarter last year. Our adjusted operating income was up 31% over last year, creating strong positive leverage over our sales growth. GAAP diluted EPS was $1.87 and included $6 million of after-tax costs primarily related to the acquisitions and restructuring activity. Excluding these items, adjusted diluted EPS was $2.11 which increased 13% over last year. Our tax rate was 22.4% this quarter versus 11.2% in the third…

Thanks, Meenal. I'll begin with our electronics segment. In the third quarter we saw sales of $176 million, an increase of 19% with 11% organic growth. Sales were strong in all geographic regions, led by Europe and Asia and across most major product lines. We saw growth across a variety of end markets including building and home automation, data and telecom, LED lighting, and automotive electronics. We've now crossed the one year mark of the robust electronic cycle. Our lead times have remained stable and channel inventories are generally growing in line with sales. We are closely monitoring our order rates and distributor sales to end customers and believe they are at reasonable levels. Strong electronics growth cycles like we've seen in the past four quarters have historically corrected with a pullback in channel inventory correction. However we have not seen signs of this. We finished the third quarter with a book to bill of 1.0 and continue to run at seasonal levels so far in the fourth quarter. We're also continuing our focus on the strategic areas that we believe provide exceptional growth opportunities for our electronics segment. These include automotive electronics, industrial electronics, appliances, IoT, and cloud computing. Our automotive electronics business continues to grow with more than $5 million in new business wins in the third quarter. Many of these wins are related to electric vehicles in the U.S. and China. $3 million of the new revenues at peak are with customers for electric vehicle systems that will use our products in their chargers, inverters, and power converters. The new business includes a win for a small form factor electronic use that has been qualified for automotive applications. It will be used by a Chinese OEM for an electric vehicle battery monitor system and inverter circuits. The…

Thanks Dave. As noted earlier the fourth quarter last year was the beginning of the robust electronics growth cycle. While end market demand remained strong, our electronic book to bill is running at seasonal levels at this point in the fourth quarter. As is typical with our fourth quarter seasonality, we're expecting a sequential revenue and margin decline across all of our businesses. Based on the current foreign exchange rates and the regulatory environment, we expect sales for the fourth quarter of 2017 to be in the range of $292 million to $304 million. The midpoint of the guidance reflects 5% reported sales growth and 2% organic growth over last year. Our fourth quarter sales growth is affected by some comparisons versus last year. Organic sales growth in our electronic segment peaked at 19% last year, partially due to additional customer sales from the earlier Chinese New Year. Growth across our auto segment has also been unfavorably impacted by the auto sensor product line exit during 2016 as well as customer delays in current year product launches. On earnings, we expect adjusted earnings per diluted share to be in the range of $1.58 to $1.72. The midpoint of the guidance represents a 5% growth over last year. We expect our fourth quarter operating margin to remain strong with our typical bottom line leverage. But we expect our fourth quarter EPS growth to be unfavorably impacted by higher interest expense due to the rise in interest rates versus last year. Our guidance also assumes a full year adjusted effective tax rate forecast of 18% to 19%. The midpoint of the full year rate equates to a fourth quarter tax rate of approximately 18%. Overall, we're pleased with our performance this year, a result of our strong execution globally. Looking at our results in the first three quarters of the year and the midpoint of our fourth quarter forecast, we expect 2017 total revenue growth of 15% and a 7% organic revenue growth. We expect to generate adjusted EPS of $7.56 at the midpoint, a growth of 21% over last year. We're off to a terrific start delivering our goals of double-digit revenue and earnings growth. This concludes our prepared remarks and now we'd like to open it up for questions. Michelle?

[Operator Instructions] Our first question comes from Matthew Sheerin of Stifel, Nicolaus & Company

Thank you. Good morning, Dave and Meenal.

Good morning.

A question on the electronics business and the guidance, sort of trying to back into the revenue guide for electronics, it looks like it's going to be down, I don't know, 8% or 10% or so sequentially which equates to very modest, maybe 1% growth year over year. So I'm trying to figure out, going back 2 to 3 years it looked like back in '14 or '15 you were down around 10% sequentially. So that perhaps is a return to more seasonal levels although if you look at other component and semiconductor suppliers that are guiding to Q4 they sound a little bit more optimistic in terms of seasonality. So I'm trying to figure out what it is that you're seeing that may be different from others?

Okay, Matt, obviously a great question and we spent a lot of time around this issue. What we would say is first of all fundamental end market demands still looks pretty robust for us. A lot of it goes back to an extremely robust fourth quarter last year. If you remember Chinese New Year this year was a little earlier so kind of demand pulled in. that was the early upcycle of demand as well in the overall electronic space and our business compared to some others was not particularly capacity constrained. So our ability to respond to that demand increased, was pretty strong. So we had an exceptionally strong fourth quarter last year with organic growth rates of 19% which was certainly well above the growth rates we've seen overall in electronics and so I think a lot of it is in that imperative. When we try to look at the - is it a normal seasonal downturn into the fourth quarter? Yeah. It's in that range of what we would say is normal. It's a little hard to say what is normal over the last two to three years but we don't think it's an abnormal situation and again the sell through and end market demand still looks okay.

Okay. That's helpful. And then on the margin, it looks like the operating margin in electronics, you're coming off of two very strong, really record margin quarters, and it looks like backing into the margin for the electronic segment, it looks like that could be flat to down year over year. Is that just also a function of tough comps?

Yes. That ends up being also a function when you asked about the sequential growth and when you've got sequential growth declining, we've always talked about very profitable, positive contribution margins coming from the top line. And so with the sales declines that we're looking at sequentially, that would explain the bulk of it. It's not really any resets or anything unusual going on in the business.

Okay. And just lastly for me, just in terms of the automotive business, Dave, you talked about several wins with Japanese customers and I know traditionally, particularly on the fuse side of the business that you haven't had as much exposure and I know the PolySwitch acquisition gave you a solid presence there. So are you starting to see some traction there in terms of relationships and cross selling opportunities into that customer base in Japan?

What I would say Matt is that certainly our ability to engage in an engineer a relationship with the Japanese OEMs has improved significantly in the last couple years, so there's really good progress there. A couple of the wins we talked about, one was actually in our sensor business and our ability to sell that into a Japanese OEM application. So I would say the activity level has certainly increased and we're beginning to see some wins there but we still view that as a bit of a long-term, penetrating the Japanese OEMs particularly on the fuse side. Progress is coming but it takes some time to really - even if you win the business it's a couple years out before you start seeing the revenues. I think things are progressing as we expected and we're pleased with the level of increased engagement.

Okay, all right, thanks very much.

Thanks Matt.

Our next question comes from Christopher Glynn of Oppenheimer. Your line is open.

Thanks, good morning.

Good morning.

Good morning.

Hey, just wonder if we could talk a little bit about the pathway for the sensors product transitions and when that might emerge as something that is helping pull the automotive segment organic?

Sure, Chris. We've talked a lot about over the last few quarters the exit of the legacy business and so we know that well and that's going to be a story that unfolded as we expected. What we have seen is a little bit kind of dragging down our timing on return to growth how that business is actually a couple of key customers who had had delays on their side in launching their products and their systems. And so maybe the return to growth is a little slowed from what we had planned for or hoped for during this year but our activity level and designing activity continues to be extremely robust. So I think the design winning and winning of new business is going as anticipated and as expected. So I think, yeah, we would expect next year we would begin to start seeing a return to growth in the automotive sensor side.

Okay. And then overall for automotive as you look at your kind of matrix of position wins and platform launches, do you expect the automotive segment to be in the long-term corridor in 2018?

That last piece I didn't catch, sorry.

Yes just wondering given the sensors commentary, do you expect automotive next year to be in the long-term corridor for organic growth that you laid out at the investor day?

Yes, sure. We certainly see long-term growth in the automotive segment continue to be a very good opportunity for us. Certainly we're looking at next year on car build to be 1%, 2% growth. So it's not a big car build growth driving next year and still watching very closely on the commercial vehicle side. It's been a very robust year particularly in North America in commercial vehicles. Will that continue at the same rate next year? I think in the next year the balance between automotive sensor being less of a drag on growth for us perhaps commercial is not as robust, we'll see. We were kind of surprised this year it was so robust. So it may continue longer than we anticipate. But overall the fundamentals of our ability and the electrification of vehicles, the number of sensors in vehicles, all the long-term trends continue to be very strong for us and we believe we're well-positioned for it. So we're certainly not backing away from our long-term view of growth in automotive.

Great, thank you.

Our next question comes from Steven Fox of Cross Research. Your line is open.

Thanks, good morning. A couple of questions from me first.

Good morning.

Good morning. First of all, in terms of just some of the new wins you've cited, there seems to be a fair amount related to electric vehicles and electric charging infrastructure. I was curious given all the news flow we've seen over the last couple of months out of that technology segment whether you have seen a pickup either on the vehicle side or the charging side? I know the vehicle wins are more for programs years out, but how about the charging side also and what kind of timing would we see that start to filter through to your revenues?

Good question, Steve. Certainly electric vehicle opportunities in the near- and long-term continue to be quite good. I think our view of on vehicle, we have tremendous amount of activity with many, many OEMs in Asia, Europe, and North America. So the activity level there is extremely high. And the vehicle counts and when they're launching are still relatively low. So that's kind of - it's going to be high growth rate but it's going to be over time. What we are seeing is a strong push on the charging side and we see that as quite positive and our activity levels there, we're beginning to see some of that hit a little faster, particularly in Asia. There's a lot of activity in Asia but also in North America and Europe there's activity there. Our content in EV charging is quite strong and when we're able to close on the IXYS acquisition, it's quite complementary for us in that space as well. So we're pretty excited about that opportunity and think that's a solid growth area for us.

Great. That's very helpful. And understanding all the puts and takes of seasonality and some of the specific issues you guys are citing for the fourth quarter, is there anything on the flip side that maybe is doing a little bit better in Q4 or maybe leave room for more momentum as you go through the quarter relative to sort of your seasonal assumption at this point?

Yes, I mean we're certainly well into the quarter already, so I think our visibility is reasonable. I think we could get surprised in some areas with demand levels that are a little higher than anticipated. But right now I don't see any particular drivers for that. As you know in our electronics business we have a pretty heavy distribution centric model in electronics. We're watching turns there and inventory positions there. And the reality is when we look at the turns of our inventories and our channel, we saw a reduction in turns, meaning some inventory increases that took place actually in fourth quarter 2016. It's really been very stable in a turns basis through the quarter so far this year. So what we see is although inventories are up a bit, sell through is up and we're pretty comfortable with it.

Great, that's very helpful. Thanks so much.

Our next question comes from Shawn Harrison of Longbow Research. Your line is open.

Good morning. I was wondering if there was a way to size kind of what the auto sensors business is right now after some of the transitioning away from that low margin business?

Sure, Shawn. We had talked about the business historically being over $100 million, call it, let's say, $110 million or so. But then our overall sensor platform if you include the electronics piece, it puts the entire sensor platform at more like $150 million, $160 million or so on an annual basis.

Got you and then the industrial business, good to hear that you continue to expand outside of I guess the US and Canada, but what is international, I guess, or non-US and Canada represent right now? Is it a meaningful number? Is it sub-10% of sales type dynamic?

Yes, it's from a small base so it is sub-10% of the revenues in industrial. So from a percentage growth it's quite high percentage growth in our activity there but it's coming off a small base. So the good news is our ability to begin to have products that have applicability in international applications and we have a very strong presence particularly with our electronics sales force in reaching some of those customers. So we think it's early days of that but we're excited about making progress there.

And I guess, within Canada it sounded like you were seeing potash mining begin to rebound, but I don't want to put words in your mouth.

Yes, I would not say that. I would say general mining, and some of - if you set aside the custom piece, so custom electrical gear for potash mining which by the way is less than 1% of our revenues these days, so that is not rebounding in any meaningful way. We size our business so that it's doing okay with that. We don't see that changing dramatically any time soon. But what we have seen is our relay products have a pretty strong application into more general mining and we've seen some pickup and some improvement in the demand out of kind of general mining applications.

Perfect and then lastly, if I may, a clarification, Meenal. $3.5 billion of interest expense for this September quarter? Is that probably a good run rate for the December quarter?

Yes. That would be a good run rate.

Perfect, thank you.

Our next question comes from David Leiker of Baird. Your line is open.

Hi, this is Joe Vruwink for David.

Hi Joe.

Hi Joe.

Is it possible to maybe put a number or size what sensors had for an impact on automotive growth in the quarter? And where I'm going with this, other companies in the automotive electrical supply chain or infrastructure tended to see high single digit, low double digit type growth this quarter. And so I'm just trying to bridge maybe that rate of growth being seen across the industry to the mid-single digit rate of growth that Littelfuse reported this quarter.

Yes, Joe. I think that's probably a good way of looking at it. We would say in rough number the decline - the intentional decline, if you will, of the automotive sensor business has put about a 3% drag on the organic growth rate of our overall automotive business. So I think probably if you do that math, it gets closer into what you're probably seeing from others.

That's helpful. And then presumably auto makers still plan to introduce your product on some future platform. There's just been a delay in the interim which would argue maybe as we get into 2018, the 7% to 9% growth parameter, if these sensor programs do launch, would you expect to actually be above the 9% high water mark on the automotive guidance?

Certainly there's no indication that our customers have lost the opportunities we've designed into our sensor business is a little different model than our fuse business where we design in, in our fuse business, specific platforms. What often happens with our sensor products is they're designed into systems that can be impacted by mid-model changes. They can be impacted by even selection rate of end customers who take options differently. So it's a little less predictable maybe than what our core has been historically. So we do expect that those will launch. If it's delayed from a couple of our key customers, we think they will launch. We'll get some return to growth there. The only caution I would give you on the overall growth rate is I'm not sure how good our visibility is here to the commercial vehicle side of what demand patterns are going to look like through the course of next year.

Okay, I got you, and then my last question on auto, good margin improvement in the quarter. If I just think about normalizing for mix which maybe this quarter is a good indication of what the future looks like it was a 25% incremental margin. Is that kind of - I know that's above the guidance you've provided for the company but is that maybe the right incremental as the legacy sensor business has gone on a go forward basis that product portfolio is capable of generating that type of incremental margin?

Yes, Joe. I'd say that's fairly reasonable. We've always historically talked about when it comes to the margin profile of our automotive business, our legacy fuse business tends to be at the higher end along with our commercial vehicle business, maybe mid- to higher end of that and our automotive sensor, we're still working on the profitability around that as we made choices to invest heavily up front in that business as we're growing. So the reason I point all that out is depending on where the growth comes from in any one particular period of time, if it's more in automotive sensors, the incremental would be a bit lower than something like, hey, we have a good fuse quarter or a better commercial vehicle product quarter.

Okay, great. Thank you very much.

[Operator Instructions] There are no further questions. I'd like to turn the call back over to Dave Heinzmann for any closing remarks.

Thank you for joining us today on today's call. With our strong momentum in the first three quarters we expect that 2017 will be another successful year for Littelfuse. We look forward to talking to you again next quarter. Have a good day, thanks.

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