Good day, everyone. And welcome to the Littelfuse Third Quarter 2018 Conference Call. Today's call is being recorded. At this time, I will turn the call over to Head of Investor Relations, Trisha Tuntland. Please begin.

Good morning. And welcome to the Littelfuse third quarter 2018 earnings conference call. With me today are Dave Heinzmann, President and CEO and Meenal Sethna, Executive Vice President and CFO. This morning we reported results for our third quarter, and a copy of our earnings release is available in the investor relations section of our Web site. A webcast of today's conference call will also be available on our Web site. Our discussion today will include forward-looking statements. These forward-looking statements may involve significant risks and uncertainties. Please review today's press release and our Form 10-K and 10-Q for more detail about important risks that could cause actual results to differ materially from our expectations. We assume no obligation to update any of this forward-looking information. Also, our remarks today refer to non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measure is provided in our earnings release available in the investor relations section of our Web site. I will now turn the call over to Dave.

Thank you, Trisha. Good morning, everyone and thanks for joining us today. Sustained momentum in our Electronics and Industrial segments drove solid third quarter results as we achieved 8% organic revenue growth. Our adjusted earnings per share of $2.49 was above the top end of our guidance and a 17% increase over last year. Our efforts drove another very strong quarter of cash generation. Year-to-date we’ve generated nearly $200 million of free cash flow, bringing our cash position to $500 million. Our strong balance sheet provides us with the financial flexibility to continue delivering on our five year double digit growth strategy. With that brief introduction, I’ll turn the call over to Meenal who will provide some additional color on our third quarter results.

Great, thanks Dave. Now some highlights from our third quarter of 2018. We continued our growth trajectory in the third quarter with sales of $439 million, growing 38% over last year and 8% organically. Organic sales growth was led by both our Electronics segment at 12% and Industrial segment at 10%. Our Automotive segment was up 1% as we saw market weakness in both Europe and China, both of which experienced year-over-year declines in car builds. Our IXYS also had another record quarter of nearly $100 million in sales, growing 14% over last year. Foreign exchange took a point off of our sales growth, mainly from a weaker Chinese RMB and euro. GAAP operating margins finished at 17.4%, while our adjusted operating margins were 19.9% for the quarter. We saw continued leverage from volume growth, particularly from our Electronics segment, as well as improvements from our ongoing deployment of the Littelfuse operating system. With a foundation in lean principles, our operating system continues to enhance our capabilities in our existing business operations and establishes a framework for new and acquired operations. Our GAAP diluted EPS was $2.10, which grew 12% over last year. It included $10 million in after tax charges, mainly due to restructuring, purchase accounting and the integration costs associated with the acquisition of IXYS. Adjusted diluted EPS was $2.49, which grew 17% over last year. Growth was led by the strong operating margin I noted, as well as improving operational performance and continued synergy execution across the IXYS business. Our GAAP effective tax rate was 21.5% for the quarter and our adjusted effective tax rate was 21% consistent with our guidance. Let me provide some additional performance highlights by business. The Electronics operating margin for the quarter was 24.4%. We’ve seen a continued sequential margin improvement this…

Thanks, Meenal. We’ll start with our Electronics segment. In the quarter, we recorded sales of $296 million, up 69% year-over-year, driven by strong broad-based industry demand. Organic sales growth for Electronics was 12%, led by strong performance in North America and Asia. We continue to see solid end market demand and sell through, driven by content increases and particular secular strengths in industrial electronic, telecom, data center and cloud infrastructure and automotive electronics. We exited the third quarter at a book to bill of 0.91, excluding the IXYS business. We’ve seen some recent slowing in orders across our passive components as distributors rebalance their inventories heading in the year end. While distributor inventories of our passive products maybe at the higher end of our typical range, overall inventories continue to be within our expected range. We continue to closely monitor distributor inventory versus their sell-through. When it comes to design wins for electronics products, the global megatrends for the safer, greener and more connected world remain a foundational driver of our business. Our protect, control and sensor portfolio, generated more than $27 million in design wins in the quarter, across a wide range of end markets. Appliances continue to be a growth focus for us as new features and increasing sophistication require many of our products. We had wins for sensors used to ensure safety and efficiency in a variety of light goods and home appliances. With last year's acquisition of US Sensor, our line of temperature sensors extends our reach. One of the new business wins in the quarter was for a vacuum cleaner application. Meeting the high technical standards of this global manufacturer was a very positive development and expands our capabilities to higher volume opportunities. The growth of connected devices is driving design wins across our product…

Thanks Dave. Let's move on to our guidance. Based on the current foreign exchange rates and the regulatory environment, we anticipate sales for the fourth quarter of 2018 of $408 million to 420 million. The midpoint of the guidance reflects 36% reported sales growth and 6% organic growth over last year. We expect fourth quarter adjusted earnings per diluted share to be in the range of a $1.92 to $2.06 with the midpoint representing 10% growth over last year. The EPS guidance assumes an adjusted effective tax rate in the range of 20% to 21% for the fourth quarter. We typically see slowing sales going into the fourth quarter, led by our Electronics segment. Earnings are typically impacted with the deleveraging from overall volume declines with a slightly higher impact this quarter from the distributor inventory rebalancing we're seeing in our passives business within Electronics. For full-year estimates on specific financial items, we're projecting adjusted amortization expense of approximately $40 million and interest expense of approximately $23 million. We expect the full-year tax rate of approximately 20%, slightly higher than the 19.5% midpoint of our prior range. Our full-year estimate also include about $0.20 of accretion from IXYS business after netting in the additional interest expense and share dilution from the acquisition. In summary, we're projecting another year of tremendous growth, 42% sales growth and a 9% organic growth rate. We continue to expand margins and increase our cash flow generation, while reinvesting to further grow the business. We're confident in our ability to build upon our performance to-date, executing our double-digit sales and earnings growth strategy. And with that, Trisha, let's open it up for questions.

Thanks Meenal. We'll take our first question please.

[Operator Instructions] Our first question comes from Christopher Glynn of Oppenheimer. Your line is open.

You talked a little bit about capital allocation priorities earlier in the call. Just wondering how your acquisition pipeline looks right now. What the repatriation ease or complexities are post tax reform, and if sensors is a bit of a back seat in terms of M&A strategy as you get the cost structure aligned in that group?

Chris, let me take the pipeline and acquisition comments and I'll let Meenal comment on repatriation and those sorts of things. In general, I would say our funnel is very active. We continue to explore and expand our funnel and I think our balance sheet gives us the flexibility and freedom to look at very key strategic acquisitions. So clearly, we continue in that area and are looking for the right opportunities that fit our model and our strategy. You asked specifically about sensors, does that take a backseat? I wouldn't say it necessarily takes a backseat. But I do think, particularly on the automotive side, we’ve probably narrowed our focus a bit on the specific areas we’re targeting within the automotive space, and think that's the healthier place for us to be. But overall, sensors that can sell into industrial or general electronics space we also see as an opportunity. So certainly, sensor acquisitions are still in the funnel and are part of our pipeline. Meenal, maybe you can talk a little bit about the challenge of repatriation?

So I mentioned Chris early on earlier in the year that we have put together plans as part of the IXYS acquisition we wanted to bring cash back. We did that earlier this year in the first half of this year we repatriated over $100 million of cash from overseas. Given our cash position now and the strength of the business, we’re looking at our next round of plans to be doing the same and we’ll add a little bit more color in the January call on that.

And then a very broad question on electronics. Just thoughts on the notion that the revenue base is largely recurring as it gets consumed by your downstream channel partners and therefore thought about the revenue run rates been a pretty firm baseline, and similarly for IXYS as a breakout within electronics?

Clearly, in our core electronics business, which has a heavy amount of the business flowing through distribution channels, we know managing inventories that our distributors are matching inventory positions to their sell through, rates and things like that is quite critical for us. We spend a lot of time and energy around that. And what I would say is end market demand continued to look pretty strong and the secular drivers and the content stories that have been driving that for the last two or three years continue to look pretty good. I am pretty optimistic about that. I do think at times our distributors look particularly leading into the back end of the year and challenged where they're at and do they want to rebalance a little bit. And as we talk about in the call specific to our passives, not semi conductor, we’re probably at the higher end of our normal range. So we are seeing a little bit of near-term softness in those orders, which is reflected in our guidance. But overall, we don't see problems or challenges with the sell through that we see there. IXYS is a bit different in the fact that IXYS is more a 50-50 split between distribution and direct sales. So in that case, we probably have maybe a little bit better visibility to end markets and end customers. And we continue to see very strong backlogs and orders in IXYS with some areas still constrained in a capacity standpoint. But one thing probably to give a little color on, we’re finding the pure book to bill metric as a little noisier metric to use as a true measure of exactly what the demands are, because our customer base is changing and order patterns and things are changing as we get more industrial type customers that may flow the channel, they will send a book out through the course of the year. Our automotive electronics customers who may use channels, they actually do scheduling orders -- scheduling agreements, they don’t really do orders one off in the system. So, it's a little noisier today and trying to pull from that as the exact measure of demand.

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

First question, I was wondering if you can walk through the rationale of buying in the rest Monolith and then secondly, in terms of the margin progressions quarter-over-quarter. Can you just maybe breakout what drove it, how much was related to volumes versus the acquisitions versus anything else that might have been in the puts and takes? And then I have a follow-up.

Let me cover the Monolith question and Meenal can cover the quarter-over-quarter progression. Monolith was a start-up that we invested in, started investing in a couple of years ago and really was intended as a step acquisition as a start-up. We have milestones for them to achieve, technology milestones, production milestones and we were really the only outside investor beyond the founders and so it was a planned progression as they delivered on their commitments from a technology and production standpoint. We would take on further ownership. We have very strong belief in the long-term potential of silicon carbide space. We have a very broad power semiconductor portfolio today, focused on the mid-range and high-end range of power and clearly silicon carbide is a key element in the future for the very high end side of that. And so we see it very critical and key to our strategy on the power electronics side. With that, Meenal you can cover the progression in the quarter.

On the margin progression, as we continue to integrate the IXYS business within the legacy Littelfuse business, it gets harder and harder to break out specifics, but I would generally say, it's probably around half and half, if you think about sequential margin improvement pass due to volumes in the legacy business, I'd say about half due to margin expansion in IXYS, some as we increase the operational throughput and the operational efficiencies in IXYS as well as you start to get full quarters of synergy realization as well.

Great, that's really helpful. And then just as a quick follow-up, so you cited the weakness in the auto markets in your Auto segment. But I would have imagined that you saw some of that within the Electronics segment, where you also serving the auto market? Was that that case or not necessarily?

Yes, it's a great question, Steve and and really the automotive electronics, which does roll up into our Electronics segment. We really didn't see a lot of weakness there, mainly. I think some of the reason for the driver is there's a content story. Also in automotive electronics for us, it's a market share story and opportunity as well. Whereas in our core electronics or automotive business, particularly on the fusing side, our global market share is quite steady and it's really, that's not the driver of our growth. So we have both content as well as share opportunities in automotive electronics, so really didn't see any pullback in growth in the automotive electronics side.

Thank you. And next question comes from Shawn Harrison of Longbow Research. Your line is open.

Few questions if I may, just first on the share buyback in October. Nice to see you guys stepping up here, what's the appetite to continue with that buyback through the remainder of the quarter?

As we've talked about in the past. Your buyback is absolutely a part of the capital allocation philosophy that we have. I think you've seen from our history, we are not the company that has an annual program, and we tend to be a little bit more opportunistic when it comes to share buyback and you're going to see us more likely to buy when we think our shares are undervalued or our shares take a dip. So that's philosophically how we think about it. And then in general, I would say, as we've talked with investors, we tend to prioritize acquisition for share buyback, so it ends up being a balance. If we've got maybe extra cash on the balance sheet and we'll take a look at that in the context of how the funnel is coming along, acquisition funnel and buyback.

Okay, two follow-ups, if I may. The 5 point year-over-year decline in, I believe, auto segment margins, how much of that was tied to the growth investments that you're making in other kind of longer-term initiatives versus volume dynamics?

Yes, I'd say some of both. I would say this quarter with some of the unexpected -- well some expected and even a little bit unexpected volume declines that we saw in the legacy business just with the end-market weakness that definitely drove good chunk of it. And then with the automotive sensor business, just the resource-intensiveness that we've seen, as well as we know production inefficiencies in stretch out a few quarters when you're starting up new products and maybe even longer when we think about new technology launches that we're doing. So I'd say it was probably both to this quarter.

And then lastly, if I look at both SG&A and R&D on a dollar basis, both dropped pretty significantly sequentially, how should we think of both SG&A dollars as well as kind of R&D into the fourth quarter on a dollar basis?

Yes, I don't know -- I would say that there's much difference, I mean we might see with -- either with currencies in some cases, right, with the weaker R&D, there's a little -- sometimes a little bit of FX that we see in there and then the other pieces with the synergy impact especially from IXYS as I mentioned, we're starting to get full quarters of synergy impact. So the guide I would give you really if you think about the full year, I think about R&D in the mid '80s for the full year and I think from an adjusted G&A perspective, somewhere around the 250 range or so.

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

I wanted to unpack automotive growth in the quarter, so passenger car production fell 2% to 3% globally in that context, 1% organic growth is good in 3 to 4 points above market. Can you maybe bridge that level of out-performance with the midterm 7% to 9% organic growth target which I really view as an outgrowth target as well. What's factors arose during the quarter that maybe because you to deviate from plan and i throw -- I guess two big ones in there. First off, China weaken month by month as Q3, we're on. So how much was there maybe destocking that took place beyond what you would have anticipated? And then the second thing is, in Europe, you alluded to WLTP, German production ended up down 22% in the quarter. So obviously German vehicles with high content that probably weighed as well. I'm just wondering if those explain some of the variance and maybe on -- you can quite adjust it, but on an adjusted basis, are you closer to plan organically?

And it's a fairly complex situation right now with some of these moving pieces. Clearly the China softness, that we saw in the quarter and which still remains relatively soft. Clearly, is a driver and slightly different -- supply chain in China versus the rest of the world that actually our products flow through a local distribution channel to some of these key customers. So you might see a little more inventory adjustment that might take place in China versus other parts of the world. So that probably decremented the growth, a little more than just the car build. So that probably impacted. One of the other things that -- and we talked briefly about, I mentioned it in the prepared statements, is third quarter last year we had a pretty sizable one-time effects, that was in our run rate last year for our German OEM. And so as a comparative to third quarter last year, certainly is impacted by that. And so overall, I would say our content story is still hanging in there quite good. The long-term growth prospects we have in there clearly, we feel -- continue to feel very good about, particularly if you overlay, consistent where we get the segment in the end markets that kind of -- are a little overlap, particularly with the very strong growth in automotive electronics. The automotive end market growth story is still hangs in there and we feel very confident with it.

What are you hearing from customers in Europe, in regards to alleviating some of the WLTP pressures and specifically the automakers that seem to have been most impacted, most have commented on this plant that they would expect exit the calendar year with all of their name plates, all their models certified. So maybe Q4 is still has an impact, but entering Q1 back to normal. Does that maybe support an improvement in your gross into Q4 relative to Q3 and then back to normal by Q1?

Yes, I mean there's a lot of -- you've got a lot of different inputs on WLTP and exactly how it's impacting things, the amount of inventory that's sitting as they built up ahead of, the testing that is coming on. Yes, certainly we're going for some of the OEMs that they're nearing completion of some of their model testing, which has certainly been the bottleneck. Certainly, we continue to see some weakness in the fourth quarter. In Europe, however, as we look out into 2019, visibility for us is a little bit challenged if you look at kind of third-party views, they still show in Europe specifically, car build soft in the first half of next year, down to 3% each quarter from the previous year. Overall, we do see some rebounding in the fourth quarter in our automotive numbers. And we're not seeing overly abnormal sort of demand patterns as we're moving into the back end of the year.

And if I can squeeze one more and China appears to be close to implementing a stimulus plan, and it seems like it would nearer went into place and might 15 where purchase taxes get cut and obviously that the experience in 2015 following that was really positive sales ended up growing at a mid-teens rate for the next year. Do you think your customer inventories in China, you alluded to the dynamic, but the selling being a little bit different? Are they lean at this point, so if China all of sudden flips from down double-digits like it has been in recent months to maybe flat and into next year up -- if that were to come to fruition, you'd expect some large restocking impact on your business?

Yes, I would say right now, our view would probably inventories are about right. I don't think they're lean particularly. I think they probably came down a little bit, during the third quarter, but today I'd say they're pretty normalized there, so I'm not expecting some restocking ahead of maybe some car build growth, but certainly they're not carrying weeks and weeks and weeks of inventory. It's a fairly crisp supply chain so as car build picks up, we certainly would expect to see the pull-through on that happen pretty rapidly.

[Operator Instructions] Our next question comes from George Godfrey of CL King. Your line is open.

Really nice performance out of IXYS, $100 million this quarter, and if memory serves, they were running probably $83 million a quarter before you acquired them. You've never provided a revenue synergy target. But if I say 5% growth on the $83 million for the core business. And then, but I look at the other call, $14 million or so million is the revenue synergy on a quarterly basis that you're bringing to the table?

I think when we look at revenue synergies there, the bulk of the near-term growth that we've seen in IXYS, first of all as we acquired it, they had a very strong backlog. They were very constrained on their ability to perform against that backlog. So I would say the bulk of the improvement has really been more generated by our ability to work with them and the IXYS teams and our teams to drive throughput through the factories. I think that's been the the bigger driver of the step-up and candidly, when you have some level of constraints, you can't push overly aggressively trying to target new applications and things like that. So if anything, revenue synergies have been a little bit restrained because of that, capability, but as we begin to flush through capacity constraints and things like that, we do expect to see fundamental growth, particularly kind of the industrial electronics space. I gave one example where a nice win with new IXYS product set a core Littelfuse company that's doing wind turbines.

So not to put words in your mouth, but while you are well down this the cost synergy curve, your mind the revenue synergies that you probably thought about at the time of the acquisition is still on to come, so while of $100 million lot better than the $83 million. There's still more to be add there on the top line.

Yes, over the long term, absolutely. Timing of that, it's a little hard to predict at this point in time, but we absolutely continue to be very bullish about the opportunities with IXYS portfolio, their customer base, our customer base, the real long-term potential of really strong growth is in the auto side, where IXYS really has not participated historically, that's a core part of our business. But we know in the automotive world that takes time because we actually have to get the IXYS teams prepared to handle and the IXYS factories to be setup the handle automotive types of qualifications and approvals. So, long term, we really see that as a big driver. We continue to remain confident in the revenue synergies of the two businesses.

That's great. And then my follow-up question is, the 7% to 9%automotive organic growth rate looking at it on a 3-year time-frame, say, what would be the lowest build rate that you could work with on a global level to hit the low end of that 7% range or say it in another way if we go to the midpoint of the 7% to 9%, call it 8%. What is your baseline assumption for global build rates and I'll leave it there? Thank you for taking my questions.

Yes, sure, our strategy, our baseline assumption is that over time global car build grows at about global GDP. So, we build in about a 2% car build growth into the long-term strategy when we compare that to the 7% to 9% organic growth. So that's the assumption behind the 7% to 9%.

Thank you, George for your questions. Before concluding, we'd like to mention two upcoming investor events; on November 6th, we will be presenting at Baird Global Industrial Conference in Chicago and on December 5th, we will be presenting at NASDAQ's Investor Conference in London. These events will be webcast and archived on our website. Thank you for joining us on today's call and your interest in Littelfuse. We look forward to talking with you again soon. Have a great day.