Donald Duda - President and Chief Executive Officer Douglas Koman - Chief Financial Officer Ronald Tsoumas - Controller and Treasurer

David Leiker - Robert W. Baird & Co. Christopher Van Horn - FBR Capital Markets & Co. Jimmy Baker - B. Riley & Co., LLC Steven Dyer - Craig-Hallum Capital Group LLC

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 services and travel expenses partially offset by lower stock-award compensation expense. First quarter operating margin was 15% compared to 13% last year. As I noted earlier in our release this morning, we are expecting our Power segment to approach break-even in the second quarter, which would likely lower Methode’s second quarter net income below the first quarter. However, in the second half of the year, we are anticipating that an increased income from our European operation should offset deterioration from the Power segment. As such we are reiterating our fiscal 2016 guidance for sales in the range of $830 million to $865 million, income from operations in the range of $108 million to $119 million and earnings per share in the range of $2.07 to $2.22. Based on these - guidance ranges are based upon Management's expectations as of this date, and involve a number of risks and uncertainties, as detailed in our release. Now turning to a review of our Individual segments compared to last year Automotive segment sales declined nominally in the first quarter as a result of lower volume in the Ford center console program, lower steering-angle sensor product volumes as well as pricing concessions. These negatives were partially offset by higher General Motors' center console and transmission lead frame assembly product volumes, improved tooling sales and increased hidden switch product volume in our European operations as well as higher linear position in interior lighting product volumes in our Asian operation. Automotive gross margins improved to 28.4% from 22.3% due to favorable currency impact on raw materials and labor costs, favorable commodity pricing of raw materials, a refund of import duties from prior periods as well as increased production at the Company's lower cost manufacturing facility in Egypt partially offset by pricing concessions. For fiscal 2016, we are still targeting automotive gross margins in the mid 20% range. Moving to our Interface segment. First quarter sales decreased 23.4% year-over-year attributable mainly to lower appliance and data solution product volumes, however, North American and European radio remote control volumes improved slightly in the first quarter. Compared to last year Interface gross margins declined to 21.4% from 27.5% in the first quarter due to lower sales and cost associated with the transfer of manufacturing. We believe this move will reduce our manufacturing costs going forward for the Interface segment without the cost associated with the relocation of manufacturing, interface’s first quarter gross margins would have been 24.3%. For fiscal 2016, we are targeting interface gross margins in the range of 23% to 25%. Moving to Power Products, net sales increased about 2% over last year attributable mainly to higher bypass switch and busbar product line in our European operations and higher sales of busbar and cable products in Asia. However, this was offset by a decline in North American sales, mainly as a result of lower sales to our big data customer. Looking forward, we are anticipating revenues in the segment, which is typically one of our highest margin businesses, will be considerably lower than we originally expected for the remainder of this fiscal year with income approaching breakeven in the second quarter. We have not lost business, just seeing reduced demand almost across the board from customers such as Cisco, Juniper, ABB, Rockwell, Mitsubishi, AMD, and Schneider. Segment gross margins decreased to 24.8% from 25.9% year-over-year due to manufacturing inefficiencies in North America as a result of lower sales. Based on the lower anticipated revenues for the segment we have reduced our fiscal 2016 target gross margin percentage for the Power Product segment to the low 20s. Now an update on our new business awards in automotive. In Europe, we were awarded an HVAC control unit for Renault passenger cars. The program is scheduled to launch in our fiscal 2018 with initial revenue of approximately $2 million ramping to about $20 million in fiscal 2019. This is a 10-year program. The HVAC or electronic climate control module is a smaller version of the integrated center panel for Renault's Global B platform used where the climate control functions are separated from the infotainment controls. Due to its modular design, we believe that our unit has potential to be carried over into additional vehicle lines. Also in Europe, we were awarded an insert molded assembly and a steering torque sensor using our magnetoelastic technology for the next-generation electronic power steering assist or EPS system for an all-terrain vehicle OEM. In Asia, our Automotive segment was awarded a Dome Module for Great Wall; combined these two programs represent approximately $7 million in annual revenue launching in late fiscal 2017 running through fiscal 2020. Unfortunately, the previously announced program for passive door entry onHonda Odyssey vehicles has been cancelled. If you will recall, Methode was a Tier 2 supplier for this project and was scheduled to provide a sensor in the vehicle’s door handle. The Tier 1 supplier lost the door handle business with Honda. This program would have launched in our fiscal 2017 with average annual revenue of $5 million for five years. I would now like to update you on several of our new products and initiatives. First, our lithium ion-based uninterruptible power supply or UPS is designed to both protect IT equipment from power outages and to supplement the AC grid during peak energy consumption. This product was conceived, designed and engineered by our Boulder-based engineering team which we have named Active Energy Solutions. The AC6000 supplies 6000 watts of power during the initial onset of a power outage until the on-site generator [spins] [ph] up. The unit contains highly efficient power electronics, a state-of-the-art lithium ion battery pack and an innovative battery management system. This system has rapid recharge rate and peak shave capability to supplement power supply during high demand with a 7-year battery life far surpassing the lead-acid-based units. During this quarter we achieved both UL Certification of the unit and manufacturing line. The line was designed and built by our automotive manufacturing group who also oversees production, with pent-up demand of over 30 units so first month of the production was in full swing satisfying initial orders. Additionally, we have reached an agreement with the European distributor with initial orders for 10 units to be delivered at November with estimated annual usage of 100 units from this customer at average sales price on the AC6000 were approximately $8000. We also completed our first peak shaving proof-of-concept with the major data center in the U.S. The end results increased available power capacity by approximately 18% without going to the grid which translates in millions of dollars of savings to a data center and fully implemented across the facility. The next period will be multi-month pilot over a large footprint of the customer facility. From a financial standpoint we expect active energy solution is a breakeven in our fiscal 2017 and long-term to become a key contributor to our EBITDA growth target. As we discussed last quarter our Interface segment is focusing on solutions for vending and commercial foodservice equipment moving away from appliances. In the first quarter touch sensor continued to make progress and developing new opportunities in these markets specifically as they launched a touch sensitive user interface on our Pepsi branded beverage dispenser manufactured by Cornelius Berkshire Hathaway Company and one of the market leaders in beverage dispensing equipment. While this initial program is for small volume and we believe that will lead to other new product developments for both Cornelius and other OEMs. Actually touch-sensor has a long history of serving OEMs in the foodservice equipment and vending markets. As an example they have a 10 plus year supplier relationship with the Coca-Cola Company shipping well over a half a million touch sensors user interface panels for equipment used to dispense various Coca-Cola branded strength. Given the long-term relationship and the growing trend within the commercial foodservice and vending markets to add solid state touch sensing controls and fluid level sensing technology due to the product offerings we believe touch-sensor will be able to leverage its impressive technology tool box with meaningful work in this area. Moving to an update on Dabir surfaces, over 500 successful surgical procedures have taken place using Dabir with the majority being focused on cardiovascular cases. However, any procedure expected to exceed three hours to four hours in duration is a prime candidates for Dabir surfaces. Dabir is also demonstrating value and procedures where patients are only partially sedated, but required to remain motionless for two hours to four hours. Inquiries regarding non-surgical applications range from intensive care units specially beds to standard care hospital beds with basic foam mattresses. Recent hospital ICU evaluation have shown improved patient comfort and improved care giver ergonomics and a potential enhanced feeling. I do want to stress those in any pressure also treatment findings to date are considered very pulmonary and we are not currently marketing product on that bases. However, these positive indicators do warrant further clinical investigations with studies planned over the next six months to 12 months to substantiate. Industry awareness of Dabir is rapidly increasing including active engagement with several key opinion leaders of the wound care and clinical research specialties, feedback and guidance from these individuals on our commercial value proposition and clinical benefit will drive continues improvement of Dabir’s product offering and services. Additionally, you see certification of the product zone is complete which allow us commercialization outside of the United States and government submissions have been made to enable access to the veterans administrative health systems in early fiscal 2017. The Dabir team is also recently accepted its members of the Corporate Advisory Council and the National Pressure Ulcer Advisory Panel of this membership will enable real-time access to industry trends and opinions and educations, public policy, research and marketing. As I indicated on last quarter’s call we continue to generate a great deal of interest from the medical community with this product, and at this point feel adoption of this technology as a standard of care could become a reality. Before, I close a quick comment on our China exposure less than 9% of our global sales go directly into the China market. Now in summary, Methode’s first quarter sales were in line with our expectations, but gross margins and net income exceeded our expectations due to favorable currency translation and commodity pricing. It is difficult to know if these tailwinds will continue. Additionally, we are proud to have announced our contract from a major North American OEM, who currently constitutes a substantial portion of the company’s annual automotive revenues. Finally, we will continue to make investments in our business in new product development, vertical integration and potential acquisitions. Further, we believe the initiation of a share repurchase program demonstrates our continued commitment to creating and returning value to our shareholders. Now, I will turn the call over to Doug who will give us further details.

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.

Thank you. That does conclude today’s teleconference. You may disconnect your lines at this time. And have a wonderful day.