Welcome to Methode Electronics Fiscal 2015 First Quarter Earnings Conference Call. At this time, all participants are in a listen only-mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. This conference call does contain certain forward-looking statements, which reflect Management's expectations regarding future events and operating performance and speak only as of the date hereof. These forward-looking statements are subject to the Safe Harbor protection provided under the Securities Laws. Methode undertakes no duty to update any forward-looking statements to confirm 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 could 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 communications industries, investment in programs prior to the recognition of revenue; timing, quality and cost of new program launches; ability to withstand price pressure; including price concession, dependence on our supply chain; dependence on the availability and price of raw materials; customary risks related to conducting global operations; currency fluctuations; income tax rate fluctuations; fluctuations in our gross margins; the recognition of goodwill impairment charges; ability to keep pace with rapid technological changes; location of a significant amount of cash outside of the United States ability to successfully benefit from acquisitions and divestitures, ability to avoid design or manufacturing defects; ability to protect our intellectual property; ability to compete effectively; ability to withstand business interruptions; a breach of our information technology systems; and costs and expenses due to regulations regarding conflict materials. It is now my pleasure to introduce your host, Don Duda, President and Chief Executive Officer of Methode Electronics.

Thank you, and good morning, everyone. Thank you for joining us today for our fiscal 2016 first quarter financial results conference call. I am joined today by Doug Koman, our Chief Financial Officer and Ron Tsoumas, our Controller and Treasurer. Both Doug and I have comments and afterwards we'll be pleased to take your questions. As reported this morning, Methode was awarded a contract from a major North American OEM who currently constitutes a substantial portion of the Company's annual automotive revenue. This award is for the next generation of an existing program with this customer. When we are able to, we will provide more details on this program. Additionally, the Board of Directors has authorized the repurchase of up to $100 million of Methode’s outstanding common stock over the next two years. We are pleased to be in a position to consider our stock repurchases given our long-term outlook for growth, strong balance sheet and cash flow generation. Moving onto financial results, fiscal 2016 first quarter sales decreased 6.8% driven mainly by lower interface sales and the effect of currency translation partially offset by slightly higher Automotive and Power Products sales. However, net income improved nearly 10% driven by consolidated gross margin growth of 300 basis points; positively impacted by favorable currency translation on raw materials and labor costs, favorable commodity pricing of raw materials, refund of import duties from prior periods and manufacturing efficiencies due to increased Automotive production at the company’s lower cost manufacturing facility in Egypt. Partially offsetting these favorable factors were costs and inefficiencies in our Interface segment due to transfer of manufacturing from the Philippines to Egypt. Year-over-year first quarter selling and administrative expenses as a percentage of revenues increased to 11.4% from 10.2% due mainly to lower sales, along with higher legal, professional…

Thanks Don. Good morning, everyone. Looking at taxes, in the fourth quarter we released the valuation allowance related to Malta’s previously generated investment tax credits. So going forward Malta’s portion of the effective tax rate will be affected both up and down by the amount of actual investment tax credit generated in the period. Therefore, based on our guidance this fiscal 2016 effective tax rate is expected to be in the mid-20% rate. For the first quarter of fiscal 2016 the tax rate was 23.9%. Moving to capital expenditures, in the first quarter we spent $5.9 million for the fiscal 2016 period we are increasing expected capital spending to be between $25 million and $30 million. Expense for depreciation and amortization in the quarter was $6.2 million for the fiscal year we expect depreciation and amortization to be between $23 million and $26 million. Moving to EBITDA that was $36.9 million in the quarter were just over 18% of sales. Based on our fiscal 2016 guidance we expect EBITDA to be in the 15% to 16% range of between $132 million and $143 million. Lastly, free cash flow for the quarter was $23.8 million based on our guidance and the increased capital spending estimate we expect fiscal 2016 free cash flow to be between $80 million and $90 million. Don. That concludes my comments.

Doug, thank you very much. We're ready to take questions.

Thank you. At this time we will be conducting a question-and-answer session. [Operator Instructions] Our first question today is coming from David Leiker from Robert W. Baird. Please proceed with your question.

Good morning, everyone.

Good morning, David.

I want to start with and understanding the sensitivity with the customer, the large contract award, can you give us any qualitative commentary in terms of the relative content of what the new contract was versus the current one if there is any volume changes, what we’re seeing on some of these are what were sole supplier are getting split among multiple people and if there’s anyway if you could provide some color on those, thanks?

David, I appreciate you would like some more detail on that but our customer was very gracious in understanding that we had to make some announcement because of the scale, but I must respect the customer’s confidentiality and I really can’t comment any further.

Okay. I understand. I figured that was the answer. What about other automotive center stack opportunities, bidding activity for that, what does that outlook look like for you?

We continue to make presentations, continue to bid generally, if we're on the hunt for something, we are fairly closed lip on that for competitive reasons. As we announced today the HVAC unit for Renault that starts out slow, but that’s only a major win for European group that will ramp to the $10 million and could lead to other programs. The larger programs are the touch screens and the integrated center consoles, but there are a number of customers that are starting to split that up a bit and so we're on the hunt for those as well. But I do want to point out the Renault win. That's a long program that likely will go over more models.

So that $20 million is kind of amassed if you’re across multiple vehicle models there?

It’s ramping to $10 million I think what we said.

$10 million.

Right. But those are the booked business. It could go higher, but it goes on to more vehicles, that’s the $10 million is the contract award.

Okay. And then lastly, what’s your thoughts in terms of the pace of buybacks as you go forward here?

I don’t know that we want to discuss that because that could influence the stock, but do have our authorization and we’ll proceed accordingly.

Okay, great. Thank you much.

Thank you. Our next question today is coming from Christopher Van Horn from FBR Capital. Please proceed with your question.

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

Thank you.

Could you just comment on – I know you’ve got now $100 million buyback in place, but there is still some cash left over and you’ve got very solid free cash flow outlook. Could you just comment on what you are seeing in the acquisition space and where if you can comment where you're focusing and where possibly you are looking at your portfolio from a divestiture standpoint?

So let me answer the second question first. It’s difficult to comment on that Chris without making a lot of operations in Methode very nervous. What I’ll say is we constantly look at our portfolio of companies and as appropriate we would divest them. We have no plans at the moment, but that is something that at least once a year we review with our Board of Directors and where that would make sense we would certainly take that action even though it was a small divestiture, we did sell the Trace Labs last year. But in terms of what we’re looking at and what we’re seeing in certain ways you could say we’re at the top of the cycle and so when we look at maybe some automotive properties, those are pretty pricey because where we are with the SAR. Our focus is more on industrial and medical and ideally something that would augment our Dabir surfaces that give us a quicker path to market is a target there. And then the industrial market which we have seen from our experiences with Hetronic has very good margin and the market somewhat lacks a Company like Methode where we can design engineer and furnish to very high quality on a global basis. We feel an acquisition in that area wouldn't be as pricey as perhaps medical and we are concentrating on that. We did retain a New York firm to seek out acquisitions for us and we've been engaged with them for probably maybe about a year and we are – our pipeline has improved significantly. Nothing to announce, but that is our key focus; in addition to our dividend and now the stock buyback and of course investing in our businesses.

Got it, great. And then just a couple of mechanical questions if you don’t mind. So the European auto business was down about 6% and you said it's primarily due to currency. Do you have kind of an organic number for that region within auto?

I'm not sure, organic.

Just kind of ex-currency?

I don’t know that we actually breakout…

Okay.

…of that.

Okay and could you just comment on the strength in Asia within auto, very good numbers, and was it one program on the lead frame and on the steering angle sensor was it just a cumulative effect of all the programs over there?

It can be a little spotty, but our big program there is the lead frame so that is driven by our end customer sales so that’s a core automotive that kind of drives the bus there.

Okay.

That was up and then steering angle sensor to a lesser degree.

Yes. And then the steering torque sensor you mentioned on the new business…

Yes.

Are you seeing the opportunities for that that’s a fairly new product if I’m not mistaken; are you seeing the opportunities for that really starting to ramp up or and is this a significant kind of flagship win to start or how do we think about that?

It’s actually the product has been out there for a while, we’ve been on the Bombardier I think they call it the Spider, the three wheel motorcycle with the two wheels upfront, we’ve done steering torque sensing for them for quite sometime and that was really our first major win for being on a vehicle and this is another platform not with that customer, but so it’s not new, but we are starting to see it becoming somewhat well accepted in off-road and the Spider was over the road vehicle. So I wouldn’t call it new, but it’s I guess it’s a confirmation that that technology truly works for that application.

Got it. And is it safe to say this is more of a recreational type vehicle versus a on the road automobile?

In this application it is recreational off-road.

Okay, great. Thanks again guys.

Thank you.

Thank you. Our next question today is coming from Jimmy Baker from B. Riley & Company. Please proceed with your question.

Hi good morning and congratulations on the large automotive wins.

Good morning.

Could you just tell us when you learned that you had won that major program?

Jimmy I can’t. Probably not something we can discuss.

Okay. Could you and I’ll try one more could you discuss why I guess the last time you won a mega program you independently you press release that award and were actually you are able to quantify the revenue opportunity can you just speak to maybe what’s changed or if anything is changed and forced you to wait for the quarterly press release?

I can answer that. In the sense the announcement of the prior program and we really have on to announcing wins on these calls, but also our customer has tightened up there over side of what suppliers can say and can’t say and that award was awhile ago and things have changed since that time and as I said earlier that customer was understanding of our needs but I also want to be understanding their request for confidentiality.

Okay, sure. And then maybe just revisiting your 9% to 10% five-year EBITDA CAGR target in light of the win, could you just speak to how that impact your conviction in that target realizing there is several puts and takes and not just within automotive, but in your other segments and maybe you could just kind of give us an updated holistic view on what remaining major factors are our here that you need to hit and execute to your targets?

Yes, that said we look out five years in great detail and that’s because of the nature of our businesses. And when we talked about that goal we were very confident that we could achieve it now, the new business announcement does give us increased confidence in hitting that goal and certainly this was a key factor, but in addition to automotive there is number of new products probably the most that Methode has ever had on the docket 10-gig and I talked about Active Energy, Dabir and torque sensing and others that we continue to work. And so the combination of that and again our look out five years, what we are seeing in center console opportunities whether it would be a full center console or just a module as we talked about with Renault. And then again new products give us confidence and obtain that goal.

Okay. And then just sticking with automotive for a second can you quantify the impact of the import duties refund that benefited gross margin I assume that's non-recurring. And then just circling back on the torque sensing award, any update on getting that technology into the holy grail into the transmission with the automakers and can you mention if the Powersports OEM you won was a North American OEM or Japanese?

The Powersports was a European based that has operations here in the United States and we’ve done business with them in the past. On the torque sensing and transmissions, the progress continues, but I’ll say at a slower pace we would like it, transmission design is a little – takes let say much longer than perhaps some of the other areas of the vehicle. So it continues to move forward, but again, no announcements that we can make at this point. I’m pleased that the technology in general is seeing more and more applications and we’ve talked about the off road vehicle, but we’ve got the BMW ARS launching that hopefully will go through other platforms. So I’m pleased with the technology, we continue to make improvements in the technology, improvements in the manufacturing of the product, but as at this point no transmission award to announce. Doug you can answer of the…

Sure, Jimmy the import duties we – that was $1.3 million.

Okay, understood. Last question and I just hope you could provide visibility into the next major mile marker we should look for look for on the Dabir side of the business and I guess I'm a little surprised you aren't spending more there right now to accelerate the business you see that spending that rate of spend increasing going forward before you would see material revenue or is this kind of $2 million to $2.5 million a quarter run rate to the appropriate spend?

You must been talking to our Dabir group. We will increase the spend and we may do some of that this year I want to have a few more hospitals and some additional data and then I think you’ll see us do that once we get to that point I think it would be very appropriate for Methode to spend more there, but that would come either later this year or in our fiscal 2017 and certainly we understand the need to do that.

Okay, great. Thanks very much for the time.

Thank you. [Operator Instructions] Our next question today is coming from Steven Dyer from Craig-Hallum. Please proceed with your question.

Thanks for taking my question. Good morning guys.

Good morning, Steve.

I don’t want to keep hitting the dead horse and with respect to the new award I’m just wondering should we think about it in terms of – it’s for the same thing that’s you have right now the same I don’t want to say dollar content, but in other words currently if I’m thinking about this rightist for the integrated center stack and this is not a step down to just an HVAC interface or something like that?

Yes, you are thinking about it correctly.

Okay, great. And I think the existing award at least has that customer has explained that I mean the existing award would go through something like 2018 before redesign and so does this give you visibility then out to 23-ish something like that is that in the ballpark?

That is in the ballpark.

Okay. And then last question, as it pertains to that from a cost standpoint, I appreciate that you guys end-up taking that a lot of development cost before ever recognizing revenue is that something we need to think about in the gross margin line maybe not quite this early, but in the not too distant future?

Not necessarily because when we were launching the first program we did not have a lot of offsetting revenue for our engineering expenses and engineering expenses for us is in cost of goods sold. So we don’t anticipate that we would have to add I think we have to add some engineering talent, but we won’t to be – it shouldn’t be affecting our gross margins just because we’ve got existing business to offset those expenses.

Yes, okay that’s helpful. And then as it relates to Dabir can you remind us maybe what you have built-in from a revenue perspective to your fiscal 2016 guidance and maybe ballpark how we should think about that growing into the out year?

Very little in built into our guidance we have tasked the team to get on a certain rate likely the latter half of the year probably even into the fourth quarter. But that we expect that Dabir will be a revenue generator and income generator let me back up. Our revenue generator when we may choose to take that income to Jimmy’s point to reinvest in the business, but we do expected to be a revenue contributor in our fiscal 2017.

Okay and then I was pleased to see the buyback as I think probably a lot of people where I know most of your cash is held overseas, as your plan sort to pay taxes on the repatriation there or you going to kind of pursue it at the rate in which you generate free cash flow or take a bank line or any color there would be great?

Yes, Steve we’ll release just available like cash balances but also we’ll borrow on the credit line and that’s relatively reasonable it’s LIBOR plus 1.5 and again we are paying forward I think 4% for the commitment – 25 basis points on the commitment anyway so.

Yes, and then just to be clear there is no buyback assumed in your EPS guidance for this year. Is that right?

No.

No.

Okay. Thanks a lot guys. I appreciate it.

Thank you, Steve. End of Q&A

Thank you. We’ve reached end of our question-and-answer session. I would like to turn the floor back over to management for any further or closing comments.

Thank you, Kevin. We’ll close out the call and wish everyone a very enjoyable and safe Labor Day holiday. Take care now.