Gordon Hunter - Chairman, President & CEO Meenal Sethna - EVP & CFO.

Christopher Glynn - Oppenheimer Alvin Park - Stifel Nicolaus Tim Wojs - Robert W. Baird Shawn Harrison - Longbow Research.

Welcome to the Littelfuse, Inc. First Quarter 2016 Conference Call. Today's call is being recorded. At this time, I will turn the call over to Chairman, President and Chief Executive Officer, Mr. Gordon Hunter. Please go ahead, Sir..

Thank you and good morning. And welcome to the Littelfuse first quarter 2016 conference call. And joining me today is Meenal Sethna, our Executive Vice President and Chief Financial Officer. Overall, this was a strong quarter for Littelfuse within a mixed global economic environment.

Our first quarter sales growth came in at about the midpoint of our guidance, while adjusted earnings-per-share exceeded our guidance. The Electronic segment was essentially flat, while Automotive and Industrial sales both increased.

We're pleased with the margin improvement in both Electronics and Automotive and the continuing growth of our global sensor platforms. The highlight of the first quarter was completing the acquisition of the circuit protection business of TE Connectivity.

Now that this business is part of Littelfuse, going forward, you will hear us refer to it as PolySwitch which is the key brand of the business. The PolySwitch business will be split between our Electronics and Automotive segments, as its products align with those end markets.

I'm going to begin today's report with an overview of our first quarter performance, followed by an update on PolySwitch and our strategies for this business. But first, I'll turn the call over to Meenal, who will give the Safe Harbor statement and a brief summary of the news release..

Thanks, Gordon. Before we proceed, let me remind everyone that comments made during this call include forward-looking statements based on the environment as we currently see it and, as such, include various risks and uncertainties.

Please refer to our press release and our SEC filings for more information on the specific risk factors that may cause actual results to differ materially from those expressed in forward-looking statements. Now, on to the first quarter.

As we mentioned in our news release, please note that our first quarter results include the balance sheet from the PolySwitch acquisition but do not include any income statement activity of the business. Sales for the first quarter of 2016 were $219 million which was up 4% year-over-year and up 6% excluding the impact of currency.

GAAP earnings for the first quarter of 2016 were $0.85 per diluted share and included $13 million of primarily acquisition-related costs and non-operating foreign exchange losses.

Excluding those special items, adjusted earnings-per-share were $1.38 which was a 28% increase compared to the prior-year quarter and $0.10 ahead of the midpoint of our guidance. We saw strong performance from our Automotive Sensor business and currency was a tailwind for us this quarter.

Cash provided by operating activities was $9.5 million for the first quarter of 2016 which was a decline versus last year. The year-over-year decline was primarily due to the change in the calendarization of the first quarter which impacted the timing of receivable collections in the quarter.

We also had transaction and integration-related costs related to the PolySwitch acquisition. In summary, we had a strong first quarter and are on track to deliver 150 basis points in margin expansion over last year in our core business. Now I'll turn it back to Gordon for more color on business performance and market trends..

Thanks, Meenal. As always, I'll start with the Electronic segment which accounts for about 45% of total Littelfuse sales. Electronic sales of $98.8 million for the first quarter were up slightly in constant currency. Sales were strong in Europe and China. North America remained stable and Japan and Korea continued to be sluggish.

Channel inventories for our core Electronics business were flat at the end of the first quarter compared to the fourth quarter. And, as we indicated last quarter, we believe the channels now have the appropriate level of inventory.

Next, I'll highlight a few design wins from around the world, starting with growth opportunities related to some of the global market trends that are influencing our business.

LED lighting continues to be strong, with record-setting $2 million increase in shipments of our LED outdoor street lighting modules in the first quarter of 2016 versus the first quarter of 2015.

One of the reasons for our success in this market is our deep understanding and active participation with the groups that set the standards for protection levels. LED lighting is gaining momentum, but still has a long way to go, so we anticipate good growth opportunities for some time to come.

We've talked about the growth opportunity we have in smart metering in Europe and secured another important design win for our thermally-protected metal oxide varistor in the first quarter. The winners were two major smart meter manufacturers that will add a total of $1.5 million to revenues over the next two years, beginning in the second quarter.

Another focused growth area is Electronic Sensors, particularly our custom sensors which had strong growth in the first quarter. We recently designed in a sensor that will detect the position of the kickstand in an electric scooter being produced by a European OEM.

The sensor will prevent the user from engaging the drive system while the wheel is off the ground which is both a safety and a warranty concern. These scooters will go to market this summer. The strength of our Electronics business is our ability to design into a broad variety of end markets and market segments.

For example, other design wins in the first quarter ranged from providing ESD protection on a Wi-Fi router to supplying a custom sensor for a household blender, with many others in between. Looking at our semiconductor products, we continue to win new business with Chinese manufacturers of 4G LTE base stations.

And in Europe, we're benefiting from our distributor partnerships that provide opportunities over a broad range of customers across the region. We also won new business for our diode array products that protect against electrostatic discharge. Recent wins will provide an estimated $2 million in new revenues in 2016.

Last quarter, we talked about the role of our ultralow capacitance diode arrays in HDMI ports and the new 3.1 USB ports. We have a leading position in this market and expect sales of these diode arrays to add an additional $2 million to our total sales this year.

As part of our strategy to expand into the power control market, we recently launched a line of ultrafast silicon carbide diodes tailored to the high switching speeds needed for power supplies and other applications.

Another market we have targeted for growth is automotive electronics, where we have opportunities for our electronic fuses and TBS diodes in hybrid and electric vehicles, lithium-ion battery pack protection and charging station applications.

Our semiconductor diode arrays are being used to protect radio and GPS antennas in a number of applications for OEMs in North America and Korea. We're winning new business for both our fuse and semiconductor products across all geographies, as we increase our penetration into key OEMs and battery pack and charging station manufacturers.

Recent design wins in China include fuses for a battery control board and a win for electric vehicle charging stations with a major power supply OEM. These two wins will generate about $800,000 in incremental revenues for Littelfuse.

To wrap up this section, the Electronic segment is performing well, including in China and Europe, where there are concerns in the market about these economies. With our diversified product line, including the new PolySwitch products, strong customer base and broad geographic footprint, we anticipate another good year for this segment.

Next is our Automotive segment which accounts for approximately 42% of our total sales. First quarter automotive sales of $91.9 million increased 11.4% in constant currency. Passenger car OEM fuse sales were up 3% and automotive sensor sales increased 41%, while sales of commercial vehicle products were down about 4%, all in constant currency.

Passenger car fuse sales continue to outperform global car production which was up less than 1% for the quarter. In the Americas, passenger car fuse sales were down slightly, but sales of our Masterfuse product for the popular Ford F150 were strong. European sales were up slightly in constant currency.

We saw increased electronic fuse sales to a manufacturer of battery management systems that will be used in hybrid platforms, including the Chevy Malibu and the Impala, the Buick Regal and the Cadillac CTS and XDS.

Sales of BF Inline fuses for the VW Polo and the Skoda Fabiano and Masterfuse sales for the Opel Corsa, also contributed to the overall increase. Our strongest growth in passenger car fuse sales this quarter was in Asia.

The increase was driven by higher fuses sales for battery management systems for the Renault Zoe electric car in Korea and sales of Masterfuse and standard fuses in China for the GM compact car platform and the Fiat K4 SUV.

A big win for the fuse business in China during the first quarter was for the new Geely Volvo compact car platform which is expected to generate sales of nearly $2 million at peak. And although the growth rate has slowed a little, China is the world's largest and fastest-growing automotive market.

And in addition to Geely, we have a strong presence with many other Chinese OEMs. Sales of SUVs and crossover vehicles are a big driver in this market now and we're well-positioned to continue to grow our sales with this key customer base. This was another strong quarter for the automotive sensor business with a 41% increase in sales.

As we mentioned last quarter we're working to exit some of the low-margin legacy business we acquired with one of our sensor acquisitions. A portion of our first quarter sales growth was related to inventory build by these customers in anticipation of this exit.

We saw increased sales of sensors for powered tailgates and solar sensors for climate control applications. Sales in China for speed, position and direction sensors used in dual clutch transmission boxes were higher than expected. The operating margin also improved significantly and is on track with the profitability targets we established.

The increasing volumes gives us greater manufacturing leverage and, in turn, helps to improve margins. We continue to win new business with first quarter design wins that will contribute $9.4 million in annual revenues at peak and approximately $50 million over the life of the programs. These wins highlight the breadth of our sensor offering.

One win is for a sensor that will be used by a leading OEM in passenger car diesel emission fuel reduction systems and the other is in China for dual transmission box sensors.

So, as you can see, we're growing sales in multiple segments of the automotive sensor market with recent wins in the passenger comfort and efficiency and emission-related segments. We also continue to increase our global occupant safety business which includes seatbelt buckle sensors.

We have integrated the sales and R&D teams from the Sigma acquisition we announced in October and we're now leveraging our strong global customer relationships to achieve new design wins. So, overall, we have a solid funnel of new business opportunities and look forward to long term growth and continued margin expansion in our sensor business.

Sales in the Commercial Vehicle Products group or CVP, were down in the first quarter. As we discussed on previous calls, the North American heavy-duty truck market is a key driver for this business. And after a record year of vehicle sales in 2015, market demand has slowed considerably.

We're helping to offset the decline in the core North America heavy-duty truck market by targeting new customers, winning new business in other markets and expanding the business internationally. We're making progress on all three fronts.

And while it represents a smaller portion of our total CVP sales, the European commercial vehicle market remains stable and our sales were up double-digits. This growth was driven by a new program launch in the second half of the year by one of our large agricultural equipment customers.

We also had a significant new business win in Europe with a global forklift manufacturer for a custom power distribution module. This will generate peak annual revenues of over $1 million beginning in 2018. We also took a big step forward in our international CVP expansion with the acquisition of Menber's last month.

Menber's is an Italian-based designer and manufacturer of manual and electrical battery switches and trailer connectors for commercial vehicles. This acquisition gives us a European presence that will drive additional global channel access and adds both engineering resources and advanced product technologies.

Menber's had approximately $23 million in sales in 2015 with a minimal level of profitability. While we don't expect the business to have a material impact on 2016 earnings, it brings us a broader presence in Europe, as well as expansion opportunities with Asia commercial vehicle parts suppliers who prefer European form factors.

In summary, our passenger car fuse business remains strong. Automotive sensors continues to grow at fast pace and we have initiatives underway to help offset the decline in North America heavy-duty truck sales. That brings us to the Industrial segment which accounts for about 13% of our total sales.

First quarter industrial sales of $28.7 million increased 8.8% in constant currency. Fuse sales were strong and we saw growth in Custom Electrical Products while relay sales remained soft. However, we were disappointed with the decline in operating margins in our relay and custom businesses.

The higher fuse sales were driven by the continuing strength of the solar market and higher distribution sales, as we continue to expand this important sales channel. We won several new solar projects during the quarter, including a $350,000 win with one of the larger European solar companies that will start to ship in the second quarter.

On the distribution side, we continue to increase our market share, with new distributors added in the first quarter, giving us additional customers in North America. During the quarter, we extended our fuse portfolio into a new category with the launch of our high-speed fuse line series.

These fuses provide circuit protection at the fast speeds required to protect high-power semiconductor devices such as power converters, drives and control circuits found in various heavy industries and large factories. This is our first product in the growing high-speed fuse category, a $400 million market.

In the Custom Products business, we saw a mix shift with increased sales of E-Houses used in the heavy industrial and utility markets and lower sales to our potash mining customers. Profitability of our potash mining products is greater than our E-House products.

So while our overall Custom Products revenue increased, our first quarter operating margin declined compared to last year. The potash industry is seeing a decline in market pricing which, in turn, is causing a slowdown in investment.

One of our significant customers shut down operations at one of its potash mines earlier in the year which will impact our Custom Product revenues in 2016. Revenue in the Custom Products business is very project-specific, so we're working to find the right resource level to continue serving our customers while improving profitability.

Sales in our Protection Relay business remained soft in the first quarter, due to the continued weakness in both the mining and oil and gas markets. Given the sustained weakness in these two major markets, we've been focused on diversifying into other end markets, such as the data center applications we've discussed on prior calls.

As mentioned last quarter, we've completed the relay factory consolidation into our South Dakota facility. The transfer covered a large mix of products and some changes in our manufacturing processes. The complexity of this transfer led to some manufacturing inefficiencies which negatively impacted margins for the first quarter.

The team is working diligently to improve performance and we expect to see the cost savings from this transfer starting in the second half of this year. The combination of lower revenues from weak end markets and challenges in the plant transfer led to lower margins for the relay business this quarter.

This is another area of where we're focused on margin improvement. In addition to realizing savings from the plant transfer, we're also looking for additional opportunities to increase profitability while continuing to invest in future technologies for this business. So that concludes the review of our three business segments.

Now I would like to update you on the PolySwitch acquisition. As previously announced, we closed the acquisition in late March. We're excited to welcome the talented PolySwitch team and the business into Littelfuse.

The addition of this business rounds out our circuit protection portfolio and increases our growth opportunities in a variety of areas, especially automotive electronics, motor and battery protection. PolySwitch has a strong presence in Japan, with deep customer relationships and a world-class manufacturing facility.

Since the close, our electronics and automotive teams have been meeting with customers and distribution partners to better understand customer and market trends and their views of our product portfolio. Our senior management team was in Asia last month to welcome PolySwitch team members to the Company and conduct business reviews.

We're especially encouraged by cross-sell opportunities across the Littelfuse and PolySwitch portfolios, both with existing customers and new end market customers. We're pleased with the PolySwitch automotive business and are very excited about expansion opportunities in this growing market.

Together, our global customer relationships across the Littelfuse automotive fuse and sensor portfolio and the automotive electronics and motor protection products in the PolySwitch business, are a powerful combination. The portfolio review also included the battery market, where we've seen a broader market transition taking place over the past year.

Within the mobile phone industry, some manufacturers have been converting from a PPTC fuse to another solution for battery protection. This product conversion has reduced the annualized revenue run rate of the PolySwitch business by about 10% to 15%.

We're still in the early stages of meeting with customers and understanding emerging technology trends and market dynamics in the battery protection market. With the depth of talent and technology we have in this space, coupled with evolving battery protection needs, we continue to believe that this is a good market for us in the long term.

Our business review also included the electronics distribution channels. Littelfuse distributors typically carry about 2.5 months of inventory. In our recent discussions, we learned that PolySwitch distributors have been carrying an average of about four months of inventory.

One of our near term focus areas will be to align distributor inventory levels to the Littelfuse model which will have a one-time unfavorable revenue impact this year. Another key priority is achieving the integration milestones we established.

Our initial focus has been on aligning the combined sales force and distribution partners, as well as IT system implementations. All of our integration activities are on track and we expect to achieve an annual run rate of over $10 million in synergies in the second-half of next year.

While we're seeing some negative revenue trends in the electronics portion of the business, the automotive side of the business continues to grow at rates similar to the core Littelfuse automotive fuse portfolio. We remain confident that our strategy and focus will drive longer term growth rates similar to our electronics and automotive businesses.

Combined with the synergy plans we're executing, we expect to see margin expansion that aligns PolySwitch profitability levels with those of our Electronics segment. Overall, we're continuing to make significant progress on our integration efforts and we remain excited about the strategic fit and long term prospects of the PolySwitch business.

Finally, we have good news to share about our plant in Matamoras, Mexico. We've worked very hard to improve the performance of our plants in Mexico and have made excellent progress.

As a result of our initiatives and the outstanding teamwork of our associates, the Matamoras plant recently received the 2015 General Motors Supplier Quality Excellence Award. This award is given to only the top performing suppliers who have demonstrated the highest levels of quality performance over the previous 12 months.

This award is especially meaningful as it recognizes our strong execution and commitment to our customers. So, on that high note, I'll turn the call over to Meenal, who will provide a capital allocation update and the second quarter outlook. And then we'll take your questions..

Thanks, Gordon. Before I cover the forecast, I wanted to touch on a few capital allocation updates for the quarter. In early March, we entered into a new $700 million credit facility which replaced the previous $375 million facility. This was driven by our financing needs for the PolySwitch acquisition and also reflects the growth in the Company.

Including cash on-hand and availability under our credit facility, we have over $500 million in liquidity. Also, as we announced in late April, our Board of Directors authorized a new stock repurchase program of 1 million shares which was effective May 1. This replaces our prior program that expired on April 30.

As we look at our capital allocation priorities, we're maintaining the strategy we set out in late 2012. Acquisitions that align with our current strategies and meet our financial objectives continue to be our priority for two-thirds of our free cash flow.

The other third will be returned to our shareholders through dividends and periodic share repurchases, as we've been doing in the past. On the acquisition front, we continue to have a healthy funnel of opportunities and the financial capacity to bring these to fruition.

As we still have several resources focused on integrating the PolySwitch business, we're mindful of resource requirements for future opportunities. Now, moving on to the forecast. With the addition of PolySwitch to our portfolio, I'll discuss the forecast in two parts.

First, our core business which includes our legacy businesses and our recent Menber's acquisition; and then second, our PolySwitch business. Sales through our core business in the second quarter of 2016 are expected to be in the range of $230 million to $240 million. This midpoint represents 6% growth over the prior-year.

In addition, revenue from our PolySwitch business is expected to be in the range of $35 million to $37 million for the second quarter. This revenue forecast reflects the trends in the battery protection markets and some of the one-time impact from the distributor inventory alignment that Gordon discussed earlier.

This results in total company second quarter expected revenues in the range of $265 million to $277 million. Second quarter adjusted earnings for our core business are expected to be in the range of $1.48 to $1.62 per diluted share. The forecast includes some tailwinds from currency, but at a lower level than what we saw in the first quarter.

And similar to prior years, the second quarter also includes about $2 million of additional stock compensation expense due to accelerated expensing of stock options granted in the quarter for all those of retirement age. For the PolySwitch business, second quarter adjusted earnings are expected to be about breakeven, excluding amortization expense.

Amortization expense is expected to be $0.13 for the quarter. This forecast reflects the lower revenue levels as well as the investments we've started to make in advance of exiting transition service agreements. This results in total company expected second quarter adjusted earnings to be in the range of $1.35 to $1.49 per diluted share.

While we continue to see some challenging end market trends, our full-year view for the core business remained unchanged from our February earnings call. We believe we can grow our core business revenue in the low-to-mid-single digits over last year and we're on track to expand our core business operating margins by 150 basis points for the year.

From a cash perspective, while we had some timing shifts with receivables this quarter, we expect our full-year cash from operations in our core business to be strong and at the typical run rates we've seen for the business. Looking at the PolySwitch business, we're continuing to meet with customers and distribution partners.

With what we've learned to date, we expect the business to generate approximately $40 million of revenue per quarter in the back-half of 2016. This reflects work we're continuing to do on the distributor consolidation and inventory alignment, as well as managing the battery protection revenue trends.

For the second-half of 2016, we expect the PolySwitch business to be accretive, excluding amortization expense. We expect cash from operations for PolySwitch will be neutral for the year, as the cash that the business generates this year will be offset by transaction and integration expenditures.

Long term, we expect the PolySwitch business to be a strong cash generator similar to our core business. We continue to target $1 of annual EPS accretion from the PolySwitch acquisition, excluding amortization expense. With the lower starting revenues in the business, we expect to reach this $1 run rate of EPS during 2018.

As we continue meeting with customers to understand market trends. we'll have a better view on the timing of opportunities to drive the topline. Our integration plans on track which is a key milestone to achieving our target profitability levels. We expect over $10 million in annualized synergies in the second-half of 2017.

We remain enthusiastic about the long term opportunities for the business and are focused on driving topline growth while expanding margins through our integration objectives. This concludes our prepared remarks. Sylvia, now we'd like to open it up for questions..

[Operator Instructions]. And our first question comes from Christopher Glynn from Oppenheimer..

So, on the core 150 basis points of margin improvement, certainly off to a fast start there and a strong second quarter guidance. It looks like you will actually realize a year's worth of that in the first-half.

Is there anything specific to highlight about the second-half not maybe seeing margin expansion? Or is that now conservative, given the first-half outlook?.

So I would mention a couple of things.

One, as Gordon mentioned in his comments, in the first quarter, we had good performance on the automotive sensor business, but part of that sales growth that we saw in the first quarter was from customers building some inventory because we had talked about exiting some low-margin businesses in the back-half of the year, so we saw some -- call it some sales shift coming through in the first quarter.

So that was one which helped us a little bit from a profitability perspective. I think the other thing for us is from a foreign exchange perspective, we saw tailwinds, we talked about in the first quarter. We'll see less of that in the second quarter, just as we take a look at the mix of all the currencies that are impacting us right now.

So we're being a little careful on what we might end up seeing in the second-half of the year, etcetera. And I think the third piece is, we're just keeping an eye on the end markets at this point.

While our topline has been good, we've got great growth opportunities in a variety of niche markets that Gordon talked about, we're also keeping an eye on especially the industrial end markets, as well as semiconductor and just waiting to see how the second-half of the year pans out..

Okay. And similarly, I think the core topline now includes Menber's. It looks like that will add a couple of points. So, maybe the core outlook is a little bit more cautious.

Is the answer kind of identical to what you just said?.

Yes, are you talking about for the second quarter or--?.

No, for the full-year, did you take the core down a little bit? Because the core now includes Menber's, but the low-to-mid-single digits didn't change..

Yes, as we talked about for Menber's, this is one where Menber's is going to be great for us from a strategic perspective and really expands our presence in Europe and then we hope further out into Asia. But as we bought this business, it's got -- last year, it had $23 million of revenue on the topline, but a pretty minimal level of profitability.

So this is one where we've got some work to do. And so while we saw the benefit, we're going to see the benefit on the topline, very little impact on the bottom-line for us..

Okay.

And any comments on how to apportion PolySwitch across the segments?.

I would say it's about two-thirds electronics revenue and about a third in automotive..

Following question comes from Matthew Sheerin from Stifel..

This is Alvin Park speaking on behalf of Matt. I just had a follow-up question on PolySwitch. I think the guide was around $35 million to $37 million, but the second-half you were mentioning $40 million per quarter. I think previous discussions, it was around the $170 million to $180 million, $190 million.

And I was wondering if you could give more color going forward on the battery fuse as well as the distributor inventory rebalancing? Just some further color on that for the second-half of the year as well as potential insight into the following year?.

So, maybe just looking at this year with what we know to date. So when we talked about the 2015 revenue when this business was under TE, was about $190 million. I'd say keep in mind that TE has a September year-end, so those are results through September. Gordon mentioned a few things as part of his remarks.

One is, we had seen this for some time, that there's been a trend in the battery protection market where mobile phone manufacturers are moving to a different solution. As that market has been converting out of the resettable fuse into another solution, that's really impacted the revenue trend on this business.

So it's gone down about $10 million to $15 million and that trend has been going on for some time. So that's a little bit of the reset there. The second piece is really more one-time that we're working through.

And this is more recent information that we've learned since we weren't able to share any customer or distributor information until we closed on the transaction and this is where we learned about the inventory levels at distribution partners that the business has today. We typically carry about 2.5 months of inventory.

The PolySwitch business, their distributors were carrying about four months of inventory. So as we work to align that, that's going to have an impact on the 2016 revenues. You are seeing that in the second quarter. But in a little bit of that in the third and fourth quarter.

But I would say maybe a way to think about this is to really think about the business of being on an annualized run rate in the 160's..

And that inventory balancing should be complete by year-end 2016?.

Yes, we would expect that..

I see. And another quick follow-up.

For the industrial's, the operating margin, I believe from the facility is transferred, but could you give any color on where you see margins to be at, at the second-half of the year?.

We would expect margins to work its way back up in the second-half of the year. We were in the mid-to-upper-teens and that's really our objective.

Some of the margin impact has been through some of the end market challenges that we have, right between the relay business with oil and gas and mining and now with the custom business, we're seeing a little bit of a decline now in the potash industry, the potash market in Canada.

So I don't know if I'd call it a permanent trend, but it's been like this for a while, potash being a little new in this -- I'd call it a newer downcycle.

So that's where we're saying we're working through some profitability programs to say, what are the resources we really need to make sure we're servicing our customers the way we need to do that, but really modeling our infrastructure for the lower revenue levels in the business..

And the following question comes from Tim Wojs from Baird..

I guess just a modeling question again on the PolySwitch business. You said about two-thirds of it is electronics and about a third of it is auto.

How do we think about allocating the profitability of that business between the segments?.

I would say at this point it's not substantially different right now. I would kind of keep the margins the same for the business. As we continue to work through things, if that changes, we'll let you know. Hut I think of it as even right now..

Okay.

And then just in terms of the benefits on the sensors side and automotive, is there a way to kind of help us think about maybe what the contribution of that was to the sensors growth? And does that kind of normalize in Q2 and Q3, as some of that work falls off? And does the business that you are ramping to replace that, does that kind of perfectly ramp at the same time? Or is there going to be a little bit of a gap in that?.

You know, from where we sit today, I would say there's probably -- we talked about this a little bit -- there's going to be a little bit of a gap, I would say, in the back-half of the year. We've had revenue pull in more in the first quarter. We expect it to stabilize a little bit in the second quarter.

And then that revenue that came in, we'll probably see a lower growth rate in the back-half of the year, as new design wins start to take off later in the year and into 2017..

Okay. And then on the TE, just the second-half or PolySwitch -- I've got to change my lingo around a little bit. In the second-half, you said it will be profitable ex-amortization.

Should we think of Q2 as really being kind of the low point from a profitability perspective? And then when should we actually see that business be profitable, including amortization?.

So, on the first part of your question, yes, I would say Q2 is -- I would think of Q2 as the low point as we expect it to be accretive ex-amortization in the second-half. I think give us a little time on 2017. I think it's a couple of issues. I'd say one it's -- we really have to figure out what the amortization expense is going to be.

We're still four weeks, six weeks into the close. We're in the early stages of what I call the purchase accounting, to figure out what the amortization expense is going to look like. We've been estimating about $0.50 for the year.

I don't know what that's going to look like, so it's hard to tell you where we're going to hit that rate with amortization expense right now..

Okay. And then I guess just one last one. How should we think of interest expense? I guess I was a little surprised and maybe there's some timing things, but I thought actually you guys might be able to use a little bit more offshore cash to pay for the acquisition.

So I'm just curious how we should think of the debt versus cash allocation on the acquisition and then how that ties into interest expense for the year?.

Sure. So I would say maybe a couple things. One is, we had talked about using, for the purchase, about half of the purchase is going to be funded with offshore cash; half with debt which is generally where we ended up on that.

If the question is really, hey, your Q1 interest expense looks high, because we put the new credit facility in place, we had some fees related to the old facility that we had to amortize. And so that impacted the Q1 interest expense..

Okay.

So is $2 million a quarter still an okay run rate on the interest expense line?.

Yes, I think that's pretty good..

And the next question comes from Shawn Harrison from Longbow Research..

A lot of clarifications, I guess. With the PolySwitch business, how much of their sales are tied to those resettable fuses? Is the first question..

The vast majority, probably more than 80%, I would say is the resettable fuse technology that's really been there. Their core technology and while they've got some other products around it, that's what we're really talking about when we're talking about particularly the battery protection and the automotive protection..

Okay.

If we didn't have the distribution adjustments in the second-half of the year, what would that $40 million per quarter run rate be in terms of sales?.

I think we're still in the early days of really trying to evaluate that. We've only had a few weeks of owning the business and really being able to talk to customers and talk to distribution channels. I think we're pretty comfortable saying it's sort of in the -- at the moment that it's in the 40s' per quarter, sort of the 160's that Meenal mentioned.

And we think we're going to take most of this correction in the second quarter..

I guess another way to ask it is, how much does the distribution adjustment cost you on a basis this year, do you estimate?.

From a topline perspective overall?.

Yes, from a topline perspective..

I mean you know, our guess is in the $5 million to $10 million maybe a little closer to the $10 million range this year..

Okay. I thought one of the opportunities with the acquisition was to kind of reinvigorate distribution.

So maybe you could talk about you've got the negative this year, but how you get the channel moving more in your favor with PolySwitch?.

Yes. We've got a lot of programs. I think that we've prided ourselves on our relationships with our distributors. We do have selective distribution which means that we don't use every electronic distribution channel that's out there, so we have selected distribution partners around the world of what we think are the best for that particular region.

So we have some global and some regional and by being selective, we spend a lot of time on training, on co-op programs.

And we believe that when we take this product line through our own distribution channels and get them motivated with the training programs we have, the application engineering support, that we expect to see quite an uplift from that.

We think that this is really our core competence, as our products so well fit distribution channels because of that long tail of applications we always try to emphasize in our Electronics segment. So, we're quite optimistic that working with our distribution partners that we'll see a significant benefit for this business globally..

Okay. On the core business, Meenal, how much restructuring savings are left to be realized from -- I guess you had a multitude of actions in process in the second-half of the year. So I think there was the reed switch, I believe there was something within the industrial business. I'm probably missing something else as well..

Yes, I think the few big pieces that we had talked about -- so as you mentioned, the reed switch transfer, moving the production to the Philippines, so that's in process. It's on track. We'll start to see some of the benefits here in the second quarter, but definitely the back-half of the year.

So that's still assumed for our forecast and we're expecting that to come through. We had talked about between that. And I think the other one that you were referring to the -- in the Industrial segment, this manufacturing transfer related to our relay business, that one we did complete.

We started up production in our existing facility and that's one we've had just the manufacturing efficiencies with the startup process. So, I would say look for the benefits on that really also starting in the back-half of the year. Between those two, it's been about $6.5 million..

So then that's $6.5 million run rate in the back-half of the year annualized?.

Yes..

Okay. And then just I guess some really quick clarifications.

SG&A and R&D kind of maybe a guide point for the second quarter and what is now total company depreciation as well, post-PolySwitch?.

I just don't have it at my fingertips. Let me come back to you on depreciation. But I would say with SG&A, just keep in mind with the Q2, as we talked about, there's a little bit of a hiccup in the run rate in there. We've got an extra $2 million coming through in the second quarter relating to the stock compensation expense.

So that's, as you are looking at a Q1 or Q2 run rate, I believe Q2 ex that is a good run rate for the rest of the year..

I guess what would a dollar figure be? I'm just trying to adjust for PolySwitch coming in, but not -- the revenue profile being a little bit different than what had been expected?.

Yes. So we've been looking at the pieces. It's a little choppy, honestly which is why we've tried to bifurcate the two. Because with PolySwitch, as we talked about, when we're exiting the transition service agreements, we've got to build up our expense infrastructure first to take on all the back office work.

And at the same time, we're still paying for the transition service agreements which we'll start exiting. So we've been looking at it separately and we don't really have what I would call a run rate at this point on the PolySwitch business on expenses. I think it will be 2017 before we get into what I would consider more a normalized run rate..

[Operator Instructions]. We have no further questions at this time. I would now like to turn the call over to Mr. Gordon Hunter for closing remarks..

Thank you for joining us on today's call. 2016 is off to a very good start. And while we did not perform up to our expectations in a few areas, as many of you know, we have a solid track record of improving performance and achieving operational excellence.

We're addressing the issues in these areas and we look forward to updating you on the progress next quarter. Have a good day. Thank you..

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect..