Good day ladies and gentlemen and welcome to the Methode Electronics fiscal year 2020 first quarter conference call. For this quarterly conference call, the company has prepared a PowerPoint presentation, entitled Fiscal 2020 First Quarter Earnings, which can be found at methode.com in the Investor Relations section. 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 speaks only to as to 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 these statements to actual results or changes in Methode's expectations on a quarterly basis or otherwise. Forward-looking statements in this conference call include 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. Number one, dependence on a small number of large customers, including two large automotive customers. Two, dependence on the automotive, appliance, commercial vehicle, computer and communications industries. Three, international trade disputes resulting in tariffs and our ability to mitigate tariffs. Four, timing, quality and cost of new program launches. Five, the ability to withstand price pressure, including pricing reductions. Six, ability to successfully market and sell Dabir Surfaces products. Seven, currency fluctuations. Number eight, customary risks related to conducting global operations. Nine, the ability to withstand business interruptions. Ten, recognition of goodwill impairment charges. Eleven, ability to successfully benefit from acquisitions and divestitures. Twelve, investment in programs prior to the recognition of revenue. Thirteen, dependence on the availability and price of materials. Fourteen, fluctuations in our gross margins. Fifteen, dependence on our supply chain. Sixteen, income tax rate fluctuations. Seventeen, ability to keep pace with rapid technological changes. Eighteen, breach of our information technology systems. Nineteen, ability to avoid design or manufacturing defects. Twenty, ability to compete effectively. Twenty-one, ability to protect our intellectual property. Twenty-two, success of Grakon and/or our ability to implement and profit from new applications of the acquired technology. Twenty-three, significant adjustments to expense based on the probability of meeting certain performance levels in our long-term incentive plan. And twenty-four, costs and expenses due to regulations regarding conflict minerals. All lines are placed on a listen-only mode for today's call and the floor will be open for your questions and comments following the presentation. [Operator Instructions]. At this time, it is my pleasure to turn the floor back to your host for today. Mr. Don Duda. Sir, the floor is yours.

Thank you Jess and good morning everyone. Thank you for joining us today for our fiscal 2020 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. To start, I will ask you to turn to slide four. Our strong first quarter results was improved record sales as well as record EBITDA were attributable to both sales growth and operational efficiencies. The automotive segment outperformed relative to the global automotive market which continued to be weaken during the quarter. Importantly, the segment's organic revenue decline slowed to just 1.4% year-over-year below its level in four quarters versus a global automotive volume decline of about 10%. Additionally, we saw the benefit of the initiatives we took last year to reduce costs and improve profitability as well as successful tariff recovery efforts. Ron will cover this more in his detailed remarks. Also during the first quarter, new business wins and business development efforts of both and automotive and industrial segment continued to capitalize on important trends including safety and electrification. Finally at Dabir, we continue to add new customers and made significant progress in lowering the average evaluation time. Turning to slide five for a few comments on our key financial metrics. Year-over-year, consolidated sales improved 21%, in line with our internal expectations. Additionally, GAAP net income improved 19% while adjusted net income which excludes expenses for initiatives to improve operations and acquisition-related expenses in the applicable periods, improved 14%. On slide six, you can see that our automotive segment is successfully navigating some significant industry and macro headwinds. While our Asian operations affected by the decline in passenger car sales and the ongoing trade and tariff dynamics, the fact that our…

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

[Operator Instructions]. We will go first to Chris Van Horn of B. Riley FBR.

Good morning. Thanks for taking my call and congrats on the quarter.

Good morning Chris.

I just want to dig a little bit deeper, if we could, on the award activity, because it seems like you had a strong quarter in terms of awards across the board here. Any sort of drivers that stuck out to you, either from a competitive standpoint or just from a customer pickup perspective?

Sure. We have said this in the past. Methode is somewhat unique in that we are seasoned automotive manufacturer and we are in the bus bar business. And so our awards, in other words I think half probably were in electrification, come from that fact where we supplied Tesla for a number of years. We have got a good track record there. So it's not necessarily surprising that we are getting other business. We have announced wins with Volkswagen. Now we have got Rivian and several others. So I think that makes us somewhat unique. Then some of the lighting wins is just Grakon doing a good job of booking business and Methode as well. And some quarters are better than others. This was a good booking quarter. I think last quarter was a little lighter, but it was a nice quarter, $30 million of wins, hitting $21 million and $22 million, well definitely half of that were organic growth.

Okay. Got it. And then maybe on that point, I remember when you made the Grakon acquisition, there was a lot of possibilities or opportunities, if you will, to get with your existing customers who you were supplying, as well as kind of showcase some of the maybe traditional Methode capabilities to some of Grakon's great customers. Have you seen that come to fruition?

We have done that. I think we talked about it last quarter. We have done the Tech Days for many of the key customers that has given us opportunities. We have got some nice opportunities that we are working on. But at this point, nothing major to announce. But we are seeing progress there for sure.

Okay. I did notice during the quarter, it seems like acquisition-related costs and profitability improvement costs came down, almost eliminated, if you will. Do you see that coming back up in the out quarters or for the year? Or do you feel like you have kind of made all the moves that you need to make in that department?

I will just talk about acquisitions first. I mean, obviously, if we did an acquisition, we would have some additional acquisition cost. But we have nothing pending that would significantly impact the P&L. And last year, very quickly, we took actions to reduce our costs as soon as we saw the declining revenues. Again, we have nothing planned this year, so we don't anticipate any costs there. But it's a very challenging environment so I wouldn't rule that out, if things went or declined further. But we have nothing planned.

Okay. And then I guess last for me. The free cash flow profile is looking really strong. Maybe a two-part question. One, is that CapEx number that you gave us, majority growth CapEx? And then two, with this free cash, what are your kind of plans going forward? Dividend, share repurchases, et cetera?

Sure. Ron may comment on it. But the majority of the $48 million is for growth. And as you know all of the programs take a fair amount of capital to launch. And we have got launches going on throughout the year here. So that's a good portion of that. I think I am drawing a blank on that. But we will use the free cash, I mentioned that.

Yes. So we are certainly looking at just growing our business and deleveraging until we are going to support organic growth and to support the growth of the business and possible future acquisitions. And until then, just deleverage. So we pay a quarterly dividend and have for many years and we will continue to return capital to the shareholders in that regard. But mostly we would focus on future growth, organic and inorganic.

Yes. And until we find an appropriate acquisition, our mission is to reduce our debt. I think that's the best way of serving the shareholders is to let's get our debt down even further.

Yes. That's a good point. And then the 1.6 adjusted EBITDA ratio, we get it to 1.5, we then get some relief on our interest rate and unused line fees. So that's a pretty big number for us that we want to get to do as quickly as we can.

Okay. Great. Thanks so much for the time this morning.

Thank you Chris.

[Operator Instructions]. We will go next to Steve Dyer, Craig-Hallum Capital Group.

Hi guys. Ryan Sigdahl, on for Steve.

Good morning.

So you mentioned the generation two Dabir system for patient care areas outside of operating room. Do you expect a similar ramp, I guess, as the legacy product there? Or are there different structural dynamics between an operating room versus other patient care areas of a hospital?

No. Gen2 was developed, as we said, for the patient care areas, but also to go into post acute. And say, I mean, it's just a more advanced system than we had with generation one. Generation one will continue to be used in operating rooms. We are not obsolete in that. It's just we felt that we needed a smaller and a portion of Gen2 is the battery operated lithium-ion. So it doesn't really change the basic therapeutic value. It's just a different controller.

So there is no reason to believe that you could launch faster or expand into hospitals quicker with this new generation two product?

It was designed with a lot of input from post acute and what we learned from Gen1. I don't think that would accelerate Dabir's adoption. Dabir, as we have said, is a design and so you really have to go and improve the efficacy of the product, whether it be Gen1 or Gen2.

Yes. Go ahead.

Let me just make another point there. When you go into ICU, you go into med-surg, there are more, there are obviously more beds, so there's a larger available market. But again, I don't think the Gen2 enables that. It's just us doing the design and we continue to do in the operating rooms. I am sorry, I interrupted you.

Yes. No, I was just going to ask one. So presumably the Gen1 in the operating room has proved out efficacy and et cetera. Will that carry over or do you need to go, kind of start from step one here with this product? Or can you use some of that leverage some of that previous experience there with this product?

In a hospital that has used Gen1 in the operating room, no, you don't have to go through another trial. The efficacy is proven now. We are doing a trial now and in a new hospital system and they decided they wanted to use it in ICU first versus operating room and again, that's a new opportunity. So it's a new trial. But presumably, that trial will be successful. If they wanted to use it in an other area, if they wanted to go into the operating room, they wouldn't need to do another trial.

Got it. I will leave it there with Dabir. Switching over to industrial. Margins were really solid, 37.4% in the quarter. Where do you think that can go over the next few quarters kind of with all the cross currents with a bunch of synergy potential, but also a softening in the commercial market, et cetera?

That's a very good question. We are going to see softening in the commercial market. That's built into our second half. That does impact margins. We have a number of cost improvement programs going on particularly in our Chinese operation for Grakon. Some of those will offset that reduced margin from volume. But I wouldn't anticipate that we are going to see higher than what we forecasted. There's just too many headwinds. I know that may help 2021, but I don't see that. We will hold our own, let's put it that way, by the initiative, but that was our design. And Ron?

Yes. I would just add to that maybe that the product is part of that group too as well. So any headwinds there could degrade the margins a little bit. It was a great quarter, as you noted, over 37% margin and I think our target, we had low to mid 30s. So that's, we really crossed it this quarter for sure. And we have seen some softening in electronic European business now. We think that will continue into the second quarter. We will see what happens in Q3 and Q4. But we have seen some softening there. It's a very good margin on product for us. So if we see decline, then it obviously affects margins.

And maybe just to clarify, I think I heard two different things here that, this year related to all the headwinds, but potentially that margins could expand next year fiscal 2021 and going forward. But I also heard kind of low to mid 30% gross margin. So maybe, I guess --?

Well, I think, well, we have said there.

In the press release we have communicated.

Yes, we have communicated as our target.

As the target this quarter was obviously higher than that. But as I said there's pressure on that margin.

Got it. Last one for me and then I will turn it over. So on slide eight, I am showing the content on the two different EV vehicles between $200 to $300. Maybe how does that compare to a different platform, say GM's truck and SUV platform?

If I look at the average sale price and right now we are a combination K2 and T1, it's around $150 on a lot of volume. But what we have seen with PI, with Grakon and our own bus bar business, we have been able to add content to these vehicles quite nicely. Now again, it's not the 700,000 units you see from GM, but the average sale price is higher and the margin is better.

Great. Thanks guys and good luck.

Thank you.

Mr. Duda, at this time, I have no other questions holding. I will turn the conference back for any additional or closing remarks.

Alright. Thank you Jess. We thank everyone for listening and have a very safe and enjoyable Labor Day weekend.

Thank you. Ladies and gentlemen, this will conclude today's conference. We thank you for your participation. You may disconnect your phone line at this time and have a great day.