Welcome to Methode Electronics Fiscal Year 2016 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 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 the 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 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 pricing, concessions, currency fluctuations; customary risks relating to conducting global operations; ability to successfully market and sell Dabir services, dependence on our supply chain, income tax rate fluctuations, dependence on the availability and price of raw materials; fluctuations in our gross margins; location of a significant amount of cash outside of the U.S.; ability to withstand business interruptions; ability to keep pace with rapid technological changes; a breach of our information and technology systems; ability to avoid design or manufacturing defects; ability to compete effectively; ability to protect our intellectual property; ability to successfully benefit from acquisitions and divestitures; the recognition of goodwill impairment charges and cost 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, Michelle, and good morning, everyone. Thank you for joining us today for our fiscal 2016 financial results conference call. I'm 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 will take your questions. Year-over-year fiscal 2016 sales decreased 8.2% to 809 million with lower sales in all segments. Net income decreased, affected mainly by lower sales and the corresponding manufacturing inefficiencies but was also impacted by higher pricing concessions in the automotive segment, increased legal and other professional fees particularly related to the Hetronic litigation, the absence of the gain on the sale of Trace Laboratories last year, higher income tax expense, increased expenses for wages, benefits, and stock award compensation, costs related to the transfer of Hetronic manufacturing from the Philippines to Egypt in the first quarter, and higher intangible asset amortization expense. Partly offsetting these unfavorable factors were the absence of the impairment of a goodwill charge last year, lower tandem cash expense, the one-time reversal of accruals related to our customer commercial issue in automotive, contractual adjustments for minimum purchases and the gain on the sale of a building, favorable commodity pricing and a favorable currency impact on the purchase of raw materials and labor costs. Compared to last year fiscal 2016, consolidated gross margins as a percentage of sales increased 150 basis points, but declined on a dollar basis. Gross margins were positively influenced by a favorable currency impact on the purchase of raw materials and labor costs in foreign operations, customer contractual adjustments for minimum purchases, and the gain on the sale of a building. However, increased pricing concessions, manufacturing inefficiencies related to decreased sales of the interface and power segments, and costs due to the transfer…

Thank you, Don. I have just a few brief comments on the quarter and the fiscal year. The effective tax rate for the fiscal year was 23.7%. This was within our guidance range of low to mid 20s. As we stated in our guidance factors for fiscal 2017 we expect the effective tax rates also be in the range of low to mid 20s. As Don mentioned earlier, year-to-date we have repurchased just under 2 million shares. The 62 million released for the repurchase primarily came from borrowings under our credit facility. And at the end of the fiscal year we have 57 million outstanding under that credit facility. In the fourth quarter, the reduction in shares outstanding due to the buyback program benefited EPS by about $0.03 per share. For the full year, the benefit was about $0.05 per share. If we were not make any further share repurchases, the fiscal 2017 EPS impact of the buyback program would be between $0.05 and $0.06 per share. You’ll note that in the fourth quarter, SG&A as a percentage of sales was 13.9%. Sequentially, this is in line with the 14% in the third quarter, but higher than the 11.8% in each of the first and second quarters. In addition to the higher legal and professional fees, a contributor to the SG&A percentage increase was the award of the eperformance based RSAs and RSUs, two key employees late in the second quarter of fiscal 2016. The amortization expense for these long-term incentive awards during the first half of fiscal ’16 was only 800,000, all of which occurred in the second quarter. During the second half of the fiscal year, the expense related to these long-term incentive awards was 4.8 million, or about 2.4 million per quarter. In fiscal ’17, we expect the expense for this long-term incentive awards to be approximately 9.6 million. In fiscal 2016, we spend 23.2 million from capital expenditures. For fiscal ’17, we expect capital spending to be down slightly and be between 18 million and 22 million. Depreciation and amortization expense in fiscal 2016 was 23.9 million. For the full year of 2017, we expect it to be between 23 million and 25 million. EBITDA in 2016 was 134 million or about 16.6% of sales based on our fiscal 2017 guidance. We expect EBITDA will remain in the 16% range to be between 126 million and 141 million. Finally, for fiscal 2016 free cash flow was 85.2 million. And again based on our guidance we expect fiscal ’17 free cash flow to be between 83 and 92. Don that concludes my comments.

Thank you. Michelle, we are ready to take questions.

Thank you. At this time we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of David Leiker with Robert W. Baird. Please proceed with your question.

I guess two topics here in general; one, if we look at the segment numbers, you’re doing a nice job of pulling those margins up, what do you think the longer term targets across each of those segments are for margins and what it takes to get there?

We’ve said not so much from our gross margin standpoint, but from operating margin, our target is to grow Methode by 1% per year on average. That means some years maybe higher, some years maybe lower, but to achieve that pretty much across the board our new products have to be successful. Particularly when we look at Interface, I think that’s critical, power is to -- improvement in the industrial segment, and then Mineral [ph], we’ve seen a little bit about in Mineral. We've talked about our big data customer returning, although not as brisk of they were in '15. I think those are things that -- and our 10-gig product in interface. Some of the negative factors that are causing some headwinds, the data center business as I said in my prepared remarks, we may be looking at a new norm there as Cloud computing is becoming a little bit or is becoming more prevalent, so we may have to make some adjustments there. And then just in general, the industrial areas being down have impacted the power.

And then if we -- could you touch on just the automotive side there, in particular, how much room you have? Nice performance here in Q4 and how much room you have to push the margin in that particular part of your business?

That one is a little tougher. I mean we are on some very good areas or nice areas of the vehicle, but there is margin pressure. If you look at just the screens themselves, that was neutral to us, but that was a large reduction in sell price, the revenues, because of the reduction there we will continue to have price pressures in those areas, a little bit less when you get into transmissions. And we did benefit from favorable currency and exchange, so how much higher, we can go high, I think that’s going to be difficult. It would also be dependent on new product, so we talked about shift-by-wire, we are very excited about that, it’s a small program. But that is kind of the way the controls are going, so that would carry higher margins than the other programs, but auto's a little bit more difficult to see getting higher than what we’ve -- what I said in our prepared remarks.

Okay and then just one last item on there as it relates to auto, I mean part of the keys of success as you all know is being able to take your costs down faster than the price downs come down. What is -- how does that relationship look for you in terms of just the current tone of the business but as you look forward in terms of the ability to maintain that gap in the performance?

That’s our -- always our goals. I’ve said before, as you get towards the tail end of a program, it gets harder and harder, but if you look through the life of really the K2 program, our team has been able to do that and actually improve our margins. It's hard to forecast exactly what that will be in the future, it's -- how many changes will the automaker allow that benefits both them and us, how quickly we can implement those. Those are always factors, commodity pricing hasn’t been helpful to us that could turnaround and could also help us. So that’s a hard one to answer on a go forward basis.

And then Don just one last clean up question. As we look at the run off of the Ford centric stacked business, where are you on that, how much is left?

We're trying to look that up, we may-- it's less than 10 million.

Okay that’s fine. That’s okay great. Thank you.

And our next question comes from the line of Steve Dyer with Craig Hallum. Please proceed with your question.

Just kind of touching on David's last question, I think over the last couple of years you guys have announced a decent amount of new business that was supposed to start rolling on in fiscal '17, I mean by my math maybe close to a 100 million bucks. Can you sort of break out as you look at guidance, maybe how much overall business rolls off and did some of that new business that was announced -- did some of that slide or just kind of help walk through the puts and takes of the guidance?

A 100 million is a not the number we have, let's look that way. We have two programs that are in launch now which are -- that utilize the K2 platform, one has annual revenue of around 20 million, the other one around 16 million, 17 million, those are the two large ones for this year, they do increase next year. We've got a variety of smaller programs which I don't have in front of me but those are an additional, let's say around 10 million of new launches offset by the decline in the Ford business. That nets for a gain in auto of about 30 million, but it's nowhere near a 100 million. And then you do have to -- included in that is our contractual price reductions, which we were talking about with David, the team does a good job taking off the -- offsetting the reductions with cost reductions, but it still comes off the top line. I can't stress that enough, that even if you offset -- I would just pick a number, if you offset $5 million in the price reduction, it still comes off the sale. So, that's where we end up with our guidance range. But again it's nowhere near a 100 million.

I guess in my notes in looking back and I saw the Renault program started this year and then a couple of smaller ones Subaru, Alfa Romeo, Aston Martin things that have just been announced and maybe [Multiple Speakers].

Right, and then those are -- when I mentioned a variety of other programs in that 10 million, I do not have the launch list in front of me, but the two GM platforms are Arcadia, Trailblazer, Merdel actually launched in '16 so did Aston. BMW 7-series that was a small program that launched in '16 as well, so, we'll probably have a -- we may have a combination of '16, '17 and some '18 launches there. And there's more of a ramp in '18 then there's in '17.

Got it, okay, you've spoken publicly about the fact that you supply bus bars for Tesla's model S and X. Any indication of what the opportunity for content in the model Three might be?

We would anticipate that would be used but I don't -- we do not have an award for that.

And then just a couple of quick ones, hopping over to the Dabir, it sounds like that's getting closer to a sales ramp, any sense for maybe A, how you go to market with that and B, a little more granular as to what that sales ramp looks like, maybe how much you're thinking about for this year and then what kind of a jump you may see next year?

We haven't said anything specific on Dabir revenue for this year, it is kind of small, revenues are contemplated in our guidance towards the end of the fiscal year but the ramp -- the way we view the ramp for Dabir it is a fiscal '18 event. We get the clinicals [ph] behind us here, as you heard in my prepared remarks, there is tremendous amount of activity going on. Its knock on wood, it's hard to point something negative, we're getting very-very good results from all of the trials that are going on, it’s just a lengthy process. So, I was at -- some revenues in it and let's leave it at that, it's really an '18 event for Methode.

Got it, and then last one from me, kind of when you put those pieces together you stuck by your 9% to 10% EBITDA growth, CAGR in that, if I remember kind of started in fiscal '15. So you were down in fiscal '16, your guidance implies sort of flattish in '17 which means sort of the remaining three years would indicate a pretty good pick up, A, am I thinking about that correctly and B, where does that come from? I think you know -- is that largely Dabir driven, are there some good indications on some more center stack business, any help there? Thank you.

Dabir is in our five year plan. So that’s a factor, the other new products that I talked about earlier are in there. We are anticipating some improvement in our industrial businesses and also our more auto programs and auto programs that are launching now that will be fully ramped. The other one that's very interesting is our eBike torque sensor business which is our magnetoelastic technology. So, it's a combination of the advance that will get us there. And if you look at our prior five year plan, it was the last, really two years, I think it really started in maybe in the third year, but it was really the fourth and fifth year that it ramped. So you are right, the CAGR will have to be, for the latter, here it will have to be greater. But the stage is set for that and I also can't stress enough that, I can't say a 100%, but we've booked our renewal business on most of our automotive programs. And auto as you know, you can take a giant step backward -- forward and then have it offset by not being able to renew business. We've been able to do that, we've just announced the 276, that was also critical. So, the stage is set. It is new product dependent and of course you have to decide on what the [indiscernible] is going to be, but we're confident in that and that's what we reiterated in our release this morning.

Our next question comes from the line of Christopher Van Horn with FBR. Please proceed with your question.

Could you just comment on the pricing concessions that you saw both during the quarter and during the year, were they kind of in line with expectations or were they a little bit more aggressive than you originally thought?

No, they were in line. We made mention of them because as I said they do take from the top line, but no, they were in line.

And then you talked about being able to combat that on the operating line, can you give us anymore clarity specifically on, is it headcount reduction, is it better sourcing of materials like what are some of the things that you were able to enjoy specifically?

It is certainly that labor -- taking labor out is a key component to even if it's in a low labor area. Price reductions, favorable DPV [ph] is always a key. And the other aspect which continues to help us is our quality. I mean to ship two million parts with no defects, there is a definite benefit to the bottom line. That goes really without saying. Also, when you do have a quality problem even if it's a minor one you are scrambling and you are spending a lot of time and money to resolve it. So, the teams around the world, their ability to keep our PPM single digit is paying off dividends on the margin line, and again that also helps offset our price reduction. So it's a myriad of things that get planned, really a year in advance because we have to have, not so much the reduction in quality expenses, but anything else has to have the automakers approval. So, there is a lot of planning that goes into these offsets. And again, I always congratulate the team, on these calls because -- so they have the -- the margins we have on these programs is, compared to our peers I think is very good.

Could you give a little more detail on the shift-by-wire award, is that kind of how that was born and was it an existing customer that you kind of rolled into this new product line and what does the market look like that for going forward, is there a lot of competition or are you guys kind of first to market with your specific technology offering?

It is with the existing customer, I can't say who the customer is, but it is one of our existing customer in both U.S. and Europe. We don't have a patented design on that, but with our -- first of all, with our relationship with the customer and our quality reputation that got us really on to the bid list where there were six-seven other people on that, I think it was actually more to start with. We wanted to move in that area mainly because we could vertically integrate most of the components without really a large investment on our part. Those are really a combination of knowing the customers the market is changing. I don't have market data in front of me on where shift-by-wire is going, but for the most part we feel that's four or five years from now that'll be the norm. And it’s just an area, the vehicle that runs, often runs cross platform and we look for cross platform rather than being specific to an individual model, that way you would have to change the A surfaces of that, but the guts [ph] of bit will be about 60% will be common and then vertical integration is about 80%, so that's our first win and if there is opportunities with other, not only just the premium vehicles, but other mid-range you know with BMW, Audi, Mercedes, PSA and then potentially with the Japanese.

Got it, got it, and then just finally you know cash seems to be getting you know pretty high here. Could you just update us, do you still have the same priority between acquisitive buy backs, possible dividend raise, could you just kind of update us on your priorities for your use of cash?

We continue to pay a dividend we think that's very important, we continue to invest in our vertical integration where it makes sense and in new products those are always two high priorities for us. We have a stock buyback plan in place. I wouldn’t rule out increasing that if we did not find an acquisition that made sense to us. But really an acquisition is a key focus. I keep saying that and we've come close, but we have some pretty strict criteria and I'm confident that we will make a correct or the right acquisition, we're just being very patient, but if we don't do that you could see us take some other actions with that cash.

But I will also point out that [indiscernible] that most of that cash is overseas.

Got it, got it, thanks again for the time.

[Operator Instructions] Our next question comes from the line of Jimmy Baker with B. Riley, please proceed with your question.

Just wanted to follow up on shift-by-wire, so could you just talk a little bit more specifically about the content you're providing. Is that the UI or the underlying technology or both and I guess to the extent that you're providing the underlying tech, yet simply there is at least from our knowledge, there is a couple very entrenched competitors there with global scale that serve customers including yours, just interested in how you know on what basis you're able to compete and win against them.

People have said that about center consoles as well. We’re, first of all we're a multinational company that's vis-à-vis [ph] can have us produce products in any of their major areas. So we're a viable source for it. There are competitors, but there's competitors on center consoles too. So we're providing the entire system which like we do on the center councils. There's electronics in it which we are providing, the smarts for that is up to the OEs, the software, but everything else is no different than what we're doing on center consoles and we're able to effectively compete. I can't -- as I said earlier we don’t have a patent on it and there are some big players in it, but there's big players in almost now we do in automotive, so it's a good win for us, we think it'll get carried over to other vehicles and it's another area and it's centric to the center console, any which way we look to be in, we’re also on overhead councils where there is a whole bunch of competitors there and we're able to compete.

Okay understood and then the $13 million concession that you called out and I think you talked about that as being in line with your expectations. I guess just to be clear was that, or is that incremental to the contractual annual price downs, and I guess if so will that essentially required to stay on a successor platform or did you gain any incremental business as a function of that concession?

Now that is simply the customer -- let me back up. Generally the OE will select the screen supplier, so they will negotiate their own contract with them that will have price reductions in it and then often Methode becomes the -- or that supplier or vendor becomes the directed sub to Methode. So we actually take over the management of the supplier, we get our margin on that, we’re responsible for his quality as well. But the OE has the right to go in and renegotiate that contract and again not with us, with that supplier and what happened here is, as you know the price of screens have dropped dramatically since the launch and the customers took advantage of that and we fully expected them to, they went in negotiated a reduced amount, it was $13 million that we -- approximately 13 million depending on the volume an take rate, that gets written into that contract. We are buying those screens for essentially $13 million less and our cost of goods sold is 13 million less. So it is neutral to our bottom-line and I think that’s very-very important. It’s not the normal price concessions where we work very hard to offset that, this we didn’t have to offset in that it was essentially a pass through and that happens not often, but it does happen, but it was a large enough number that since it came off the top line we needed to mention it. So slightly unusual but not -- it’s happened before.

All that clarifications is really helpful. Just had two more here, one on Dabir, just hoping you could talk a little bit more about what you're seeing that gives you the confidence to kind of time stamp some expected financial performance here, you know, commenting that you expect sales will ramp in the latter half of this fiscal year and then further into ’18. And then when you talk about $7 million investment in Dabir this year, should we think about that as a net investment so in other words you’re going to invest 7 million in addition to whatever you can offset in incremental revenues, so that it’s a -- call it $7 million net loss business this year?

Pretty much, that’s a good way of looking at it. Let me answer your first question, some of the guidepost we look at, let's say for the next 24 months. The clinical trials will certainly help us. As it just gives us independent verification and improves our credibility. We’ve got a number of those going on that I detailed and we continue to detail. The emergent study is also important and in that it could allow us to change our claim that could help heal wounds, we can’t do that now, we don’t have a verification. That would also require us to have a different FDA certification. Mevic Care Reimbursement code is another milestone that’s not easy to get and you can get the -- you do it wrong, you can get to lower an amount, so we’ve got consultants working on that, that is a -- it’s a process. That’s key when we look at -- for nursing homes, hospitals and long-term care. The VA evaluations also are very critical. I know you are looking for specific numbers, we’re not far enough along in the clinicals and in the -- not so much clinical, but really in the sales process that I want to project that. We know -- we’ve talked about what the market opportunity is and if you just take a small percentage of that, Dabir is a good product for us or business for us, but I am not quite ready to quantify where we think Dabir can go, we will, as we have more data. As I said on the call, everything has been going well and we are frustrated by the time it is taking we’re having good outcomes but it is taking far longer than we thought, we are adding additional people as we talked about to accelerate that and I think long-term it will go into some sort of distribution, we’re just not there yet. Doug is there anything you’d add?

I think that covers all of the major guide posts.

But again we do know we have to provide some numbers on that, but we're just -- let us go a little further in our sales effort here and we’ll be able to do that.

Sure understood, and then just lastly on the Hetronic litigation. I guess firstly are you able to kind of quantify or just you know maybe put some brackets around the size of damages you're pursuing, it seems like it's been, you know it's a costly litigation I guess so far, looks like the legal expense from disclosures in the 10-K was about a $0.19 headwind earnings in fiscal '16, what are you assuming in the fiscal year '17 earnings guidance in terms of legal spend?

Similar depending on how litigation goes and Jimmy, I'd like to answer your question, but since we're engaged in litigation I can't. I've said what I can on the prepared remarks and I really can't go any further than that and I hope you understand.

Okay, fair enough, appreciate the time.

There are no further questions at this time, I would like to turn the call back over to you Mr. Don Duda for any closing comments.