Welcome to the Methode Electronics Fiscal Year 2019 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. This conference call does contain forward-looking statements, which reflects management's expectations regarding future events and operating performance and speak only as of the date hereof. These forward-looking statements are subject to a Safe Harbor protection provided under the securities laws. Methode undertakes no duty to update any forward-looking statements to conform the statements to actual results or changes in Methode's expectations on a quarterly basis or otherwise. Forward-looking statements in this conference call involve a number of risks and uncertainties. The factors that cause these actual results to differ materially from our expectations are detailed in Methode's filings with the Securities and Exchange Commission, such as our annual and quarterly reports. Such factors may include, without limitation, the following, dependence on a small number of large customers, including two large automotive customers, dependence on the automotive, appliance, computer and communication industries, investment in programs prior to the recognition of revenue, timing quality and cost of new program launches, uncertainties surrounding the completion and success of the Grakon acquisition, ability to withstand price pressure, including pricing reductions, currency fluctuations, customary risks related to conducting global operations, changes in U.S. trade policy, ability to successfully market and sell Dabir Surfaces, dependence on our supply chain, income tax rate fluctuations, dependence on the availability and price of raw materials, fluctuations in our gross margins, ability to withstand business interruptions, ability to keep pace with rapid technological changes, breach of our information technology systems, ability to avoid design or manufacturing defects, ability to compete effectively, ability to protect our intellectual property, successfully benefit from acquisitions and divestitures, recognition of goodwill impairment charges, success of Pacific Insight and Procoplast and/or our ability to implement and profit from new applications of the acquired technology, significant adjustments to expense based on the probability of meeting certain performance levels in our long-term incentive plan and costs and expenses due to regulations regarding conflict minerals. It is now my pleasure to introduce your host, Don Duda, President and Chief Executive Officer of Methode Electronics.

Thank you for joining us today for our fiscal 2019 first quarter financial results conference call. I am joined today by Ron Tsoumas, our Chief Financial Officer. Both Ron and I have comments and afterwards, we will take your questions. Year-over-year fiscal 2019 first quarter sales increased 11% to $223.4 million and earnings per share increased from $0.55 to $0.63. First quarter earnings benefitted from higher sales in the Automotive and Power Product segments, decreased stock award amortization and acquisition related expenses, lower legal fees, and a favorable currency impact from the weakening of Mexican peso. First quarter earnings were negatively impacted by selling and administrative expenses and increased intangible asset amortization expense, both attributable to the fiscal 2018 acquisitions and customer price reductions. Compared to last year, consolidated gross margins decreased 70 basis points in the first quarter to 26.9%, negatively impacted by sales mix in the Automotive segment related to the fiscal 2018 acquisitions and price reductions. This will substantially offset by a favorable mix in the interface segment and higher sales volume in the Power Product segment as well as a favorable currency impact. Year-over-year fiscal 2019 first quarter selling and administrative expenses decreased due primarily to lower acquisition related stock award amortization expenses. This was partially offset by selling and administrative expenses from the fiscal 2018 acquisitions which did not occur in last year's first quarter. Year-over-year fiscal 2019 first quarter pretax income was $28.2 million compared to $24.8 million First quarter operating margin was 12.9% this year compared to 12.6% last year. Moving on to review of our segments. Year-over-year Automotive segment sales increased 12% in first quarter due to sales from the Procoplast and Pacific Insight acquisitions, and increased hidden switch sensor and human machine interface product volumes. The improvements were partially offset by…

Thank you, Don. Good morning everyone. I have a few brief comments on the quarter. Before I begin my commentary, I want to clarify that my comments do not include the impact of the acquisition of Grakon. As Don mentioned in his prepared comments, the Company will incorporate Grakon into its guidance after the third-party evaluation is finalized, the analysis of the projected income is complete and transaction related costs are settled. For the first quarter, the Company reported an effective tax rate of 16%. This was primarily driven by the composition of the pretax income in regions with lower effective tax rates and the full benefit of lower rates in the U.S. due to tax reform, partially offset by some more favorable discrete adjustments in the fiscal 2018 period. The final impacts of tax reform may differ from the amounts estimated, due to among other things, changes in interpretation of tax reform and legislative guidance. The Company currently anticipates finalizing and recording any resulting adjustments within the one year allotted re-measurement period, which will occur in our third quarter of fiscal '19. We anticipate that our effective tax rate will normalize for fiscal year 2019 and estimate it to be in the range of 16% to 18%. Turning our attention to SG&A, you will note that in the first quarter SG&A, inclusive of intangible amortization, as a percentage of sales was 14% compared to 15% in the prior year, resulting in a decrease of $1.1 million. During the quarter, selling and administrative costs, excluding intangible amortization decreased to $100,000. However, the first quarter of this year included $3.6 million of costs associated with the Pacific Insight and Procoplast acquisitions. Absent these costs, selling and administrative costs decreased $3.7 million due to lower acquisition related and stock award amortization and lower legal fees. Partially offset by increased expenses for outside consulting fees, travel, wages and benefits. Amortization of intangibles increased $1.2 million due to the amortization expense related to Pacific insight and Procoplast acquisition, neither of which were included in the first quarter results of fiscal 2018. Moving on to capital expenditures, in fiscal '19 first quarter, we invested $18.2 million in the business mainly to support programs and launches in North America and Europe. We are estimating capital investment in fiscal '19 to be in the $52 million to $58 million range. Depreciation and amortization expense for the first quarter was $8.4 million. For fiscal 2019, we expect full year depreciation and amortization to be between $34 million and $36 million. Shifting to EBITDA, the Company generated $36.8 million in the quarter or 16.5% of sales. For fiscal 2019, we expect EBITDA to be between $161 million and $170 million or in the 16.5% to 17.5% of sales range. Free cash flow for the first quarter was $13.9 million. We expect fiscal '19 free cash flow to be between $85 million and $90 million. Don that concludes my comments.

Ron, thank you very much. Rhonda we are ready to take questions.

Thank you. [Operator Instructions] Our first question comes from the line of David Leiker with Robert W. Baird.

Let's see where do I want to start. The automotive contract awards, I guess a couple of things that we could find a way of kind of roll this together, but it looks like the pace of new contract awards are winning and the breadth of the customer and products is happening. Is this something in that ramp up? I mean I guess the question is, how sustainable is kind of that trajectory and this broadening customer product mix in terms of launches or that contract awards?

It's always hard to predict from quarter-to-quarter what the awards are going to be. And as you know we tend to buck them in 75% probability, 50% inorganic and 70% to 75% sometimes all the way side and you find something in your embryonic that takes its place. So, that's hard to predict, but we have deliberately moved into overhead consoles, so we're talking about four wins there. And they're not center consoles average sale price, but also don't have displays. So, we deliberately did that. We're very pleased with what we've seen in electrical vehicle particularly award on Volkswagen and that really says that we are a global supplier of products to EV. Some of the wins we've got with Renault can continue, but it is very hard to predict. But center consoles which now they've been around for quite a while are on a second major program. And there is price pressures there so we've branched out so where we think we can sustain our margins.

And then within that context, it seems like they are doing a great job of taking the existing --almost seems like you got a product and that's kind of an anchor with that customer and then cross sale different technologies into that same customer. That seems to be accelerating as well. Is that the right way to look at that?

If you're talking about anchor product being center consoles?

Well, I mean in center consoles but in some cases there might be something different like a busbar?

Yes, that's our base strategy is to bring our technology to our customers and help them make their products better, saving money, solve a problem, that's really our core strategy and then that does work.

And then the opposite, go ahead, sorry…

No, we're just we're pleased that we're seeing that. I was also very pleased to announce touch screen in Asia with the Great Wall. That's a nice win for our Asian group.

Yes, that is -- I agree that is nice. And on the opposite side of this then, what's the pace of contracts going and the license rolling off on the back end? Is that a fairly stable number then next year or two? Or is there some changes in the way that that closed?

We're going to see our steering angle sensor go into life in Asia, not this year but next year. Last quarter I commented on our lead frame business. That has always had peaks and valleys, but now we've seen several quarters of decline there and that T76 transmission were Tier 2 to Continental that four pass cars. At this point, we see that being down in the 20% range. And that's not scheduled to go end of license. So I think 24, but it is pass car. So we have to take that number.

Okay, I'm going to sneak one more in here. Similar kind of question on the on non-automotive side, I mean if you look at that pool of assets that you have, the revenues are generating outside automotive business that's also accelerating. How much of that is structural and repeatable and how much of that might be timing or mix related issues?

Let me talk about power first. It's hard to predict that business. We've seen some great quarters. And then we've seen them because maybe [indiscernible] spending down or our big data customers slowing down on their spanning capacity and cloud computing. So it's hard to predict that we're going forward for the duration of this year, we feel very confident. And that we've also taken costs out of that business. And so, the margins have improved nicely. Volume also helps in that business, it gets to a certain point and it has very good point in sales that has very good flow through from that. Hetronic, obviously, we spend a lot of money defending that business. And we did that for a particular reason. And we want to protect that, that channel to market and we've done that and that we're seeing the results of again, some structural changes of Hetronic, we now produce both in Monterrey, Mexico and in Egypt. So, it's taken cost out, we've taken lead times out of all the stuff that Methode does very well. And they're kind of the people to beat in that market right now. Plus, with the acquisition of Grakon, we feel -- we can bring some Grakon products to their customer base. So for example Manitowoc Cranes that might be -- I am just picking in customer. So, we do believe it's sustainable with the caveat that busbar can be a little spiky.

Thank you. [Operator Instructions] Our next question comes from line of Chris Van Horn with FBR.

Just to kind of continue on the path of these new awards. Any additional details, one of my questions was on the door activation switch. Is that just one program? Or is that going to be across the fleet for that customer? And then, is this your first overhead win with Ford?

Let me answer the second question first, no it's not. But on the door activation switch, we can't speak for the customer, but we hope they carry it over other platforms of course, but it is one award and we'll have to see what will happen. That's the question you got to ask our customer.

Okay got it. The initial award is just for one program. Is that correct?

Correct.

Okay, got it. And then the EV win with VW, is that similar to the work you're doing with Tesla similar product line?

Yes, I mean each OEM has their own particular battery design, but that's essentially at an end. There is a distribution module. It's -- loosely you can call it a lead frame. It's complex insert molding which we do very well, so it's a combination of the two. That -- we're very pleased with that win.

Okay. Yes right. Obviously expands that EV opportunity. And then the China win I think was really impressive. And what's kind of your domestic China exposure now? And then what does this kind of do to that?

This is I'm going for memory, but I'm fairly sure this is a largest award we received from a domestic OEM in China. Great Wall has been the good customer. We had a good relationship with them. So, our exposure is really with Great Wall. We have some other smaller business with some of the other OEMs but it's really Great Wall. And then of course we do business with GM and Ford and others, which has then the majority of our call it domestic Chinese businesses. Now with Great Wall that kind of starts to turn at the other way. So we're very pleased with that one.

Okay great. Thanks for the additional color on that. Moving over to margins, how do we think about margin cadence for the rest of this year as you kind of get Procoplast and Pacific Insights more into the Methode margin profile? And then I apologize if I missed it. But did you ever give any sort of Grakon synergy opportunities that you see there?

Again, let me answer the second one first. No, we haven't given anything on synergies yet. We need to operate the Company. And we know there is synergies and there is, no. The synergies and products I mentioned about that with David's question on Hetronic. We also know that as we institute the Methode manufacturing system there's costs that we can take out of the factory and cost of quality and leading out the fact. They were in a good factory this is not a, we're an automotive supplier, so we're implement our Methode manufacturing systems. There are still these things that we will talk about. We just we haven't operated it at this point.

And if you don't mind, just kind of how we think about the margins and getting Procoplast into…

Pacific Insight and Procoplast, really the margin improvement is really at 2020 event. Something at the end of the year, but it's really more 2020. And I would say the same on Grakon. That's not something that we're going to come out of the box and immediately improve. That's probably more of a '22 event when you -- when you think about it. So, it's about and back then 18 months, before we see. And we, we're cautious, we don't want to go and screw something up either so. So we've kind of take stock of where we are and before we start implementing anything.

Okay, got it. And then last one for me, I'll jump back in the queue. The radio remote control business just continues to perform very well. Any specifics going on their new customers, new wins or just continued business with existing customers, what's the dynamic there?

I have all of the above there, there are new customers that reduce their lead time and that's something we do across the board in our non-automotive businesses that we want them to improve their lead time. So if their lead time was six weeks, we want to get down to two weeks. Because generally the customer is not as concerned about the price obviously if you're doubling the price you have an issue, but we have price, you get the business. And we've seen that in and we've implement that and Hetronic team has done an excellent job of getting their lead times down. But we've also introduced new products, different styles of remote controls. We've upgraded the display. So, there is a number of things that we've done that has taken us a couple years to get there to improve the product offering which has improved the business.

Thank you. We reach the end of our question-and-answer session. I would like to turn the floor back to management for closing comments.