Littelfuse, Inc.

Ladies and gentlemen, and welcome to LegalFuse fourth quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press the star, then zero on your touchtone telephone. And as a reminder, this conference call is being recorded. Thank you. I would now like to hand the conference over to your host. Ms. Tricia Thompson, Head of Investor Relations at Little Fuse. Ma'am, please go ahead.

Good morning, and welcome to the Little Fuse fourth quarter 2020 earnings conference call. With me today are Dave Hindsman, President and CEO, and Meenal Sethna, Executive Vice President and CFO. This morning, we reported results for our fourth quarter, and a copy of our earnings release is available in the Investor Relations section of our website. A webcast of today's conference call will also be available on our website. Our discussions today will include forward-looking statements. These forward-looking statements may involve significant risks and uncertainties. Please review today's press release and our forms 10K and 10Q for more detail about important risks that could cause actual results to differ materially from our expectations. We assume no obligation to update any of this forward-looking information. Also, our remarks today refer to non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measure is provided in our earnings release available in the investor relations section of our website. Before proceeding, I'd like to remind everyone that we will be hosting our virtual investor and analyst event on February 23rd at 9 a.m. Central Time. You can register for the event in the investor relations section of our website. We look forward to you joining us. I will now turn the call over to Dave.

Thank you, Tricia. Good morning, and thanks for joining us today. With a robust demand rebound across a number of automotive, electronics, and industrial end markets, we saw a stronger than expected finish to the year. We continued our return to growth and recorded fourth quarter sales of $401 million, up 18% versus last year. Through our focused execution, we achieved an adjusted EBITDA margin of 23% and delivered an adjusted EPS of $2.23, an increase of 91% year over year. Despite the challenging conditions, we delivered solid performance for the full year, with over $1.4 billion in sales and an adjusted EBITDA margin of 21%, while generating over $200 million in free cash flow. turning now to performance within our business areas. During the fourth quarter, our electronics product segment continued to experience a strong recovery across our product portfolio and in all regions. Our revenue growth was driven by higher than expected demand from ongoing work and learning from home trends. Consumer demand for a broad range of electronics, including laptops, tablets, and gaming devices, as well as small and large appliances, data center and communications infrastructure, and home automation applications continued to show strength. We also saw robust demand in automotive electronics with recovery in automotive in-market demand. Sales to our channel partners were balanced with in-market demand as weeks of inventory for our products remained within our normal range. Exiting the quarter, our electronics book-to-bill was significantly above one, While end markets remain healthy, we believe the strong bookings also reflect expected inventory build ahead of the lunar new year and to ensure uninterrupted supply of components in the months ahead. These behaviors can create volatility in orders and could lead to inventory build in the channel in the coming months. Our lead times are relatively stable, and we remain focused on meeting customer needs as we work closely with our distribution partners. Moving on to our automotive product segment. During the fourth quarter, we experienced a strong sequential and year-over-year improvement in sales. Across passenger vehicle markets, we grew more than 20% sequentially and year-on-year. We grew well above the mid-single-digit market growth in the quarter, with higher content gains coming from the demand shift towards trucks, SUVs, and other luxury vehicles, and continued growth in electric vehicles. We also saw growth from inventory build at OEMs and Tier 1s as they worked to catch up with market demand and build buffers to protect against any potential component supply disruptions. In our commercial vehicle business, we achieved solid fourth quarter revenue as we continue to see good market rebounds in heavy duty truck, construction and agriculture, as well as automotive aftermarket. We expect first quarter global car production will be down sequentially to around 21 million cars, although still significantly ahead of last year. We expect our first quarter revenue to be up significantly versus last year, with content growth continuing to outperform car build. However, we expect our sales later in 2021 to be unfavorably impacted by potential inventory burndown at OEMs and Tier 1s. While car builds are nearing a return to 2019 levels, The ongoing trajectory will depend on the economic recovery and shortages of components. We expect our long-term auto growth to continue outpacing global car build with our ongoing content opportunities. Within our commercial vehicle products, we expect momentum to continue near-term. In our industrial product segment, we saw healthy demand in several end markets, including renewables, energy storage and power conversion, and steady demand in HVAC. U.S. non-residential construction appears to be stabilizing after bottoming out, although demand has remained weak, and oil and gas and mining markets continue to be soft. As we announced in our press release last week, we acquired Heartland Controls, a manufacturer and leading supplier of electrical components to use primarily in HVAC and other industrial control systems, with annualized sales of approximately $70 million. We are excited to welcome Heartland Controls Associates to Littlefuse as we combine our capabilities and strong customer relationships. We are confident our industrial business will continue on a positive long-term trajectory. Our increasing number of design wins and new business opportunities, continued expansion outside North America, and expanded opportunities in the HVAC market with the acquisition of Heartland Controls will support this. We are seeing a strong start to 2021 with continued momentum across many of our end markets and remain cautiously optimistic for the year. However, there are several factors that limit our visibility to the latter part of the year. These include the ongoing uncertainties of the pandemic trajectory and vaccine deployment and the potential disruptions these factors could cause across both supply chains and market demand. Though we are managing our lead times, we are seeing customer inventory builds in some pockets in response to specific component shortages. We are starting to see this in the automotive industry, which will eventually lead to sales impacts as inventory is rebalanced. We are also experiencing higher costs in a number of areas, especially pandemic-related costs. We are seeing increasingly higher freight rates due to ongoing capacity limitations. We are continuing our COVID employee safety protocols at all of our sites this year, but do not expect to receive international government subsidies to offset these additional costs, as we did in 2020. Also, commodity costs such as copper and silver are at multi-year highs, and as discussed in our 2020 calls, we significantly reduced our discretionary expense last year and plan to add back a portion of those in 2021. Despite these uncertainties and headwinds, our teams will continue doing what we do well, meeting commitments to our customers and other stakeholders, minimizing disruptions to our business, and mitigating the factors we can't control. Our products are at the center of a long-term secular themes of a safer, connected, and more sustainable world. Even in a year like 2020, where virtual became the new normal, engineers and customers were still highly engaged and design activities continued. Based on our application expertise and operational excellence, we expanded existing positions and gained market share. In industrial end markets, we are leveraging our operational capabilities, including our global infrastructure, positioning us to capture a range of new business opportunities around the world. Customer relationships have proven valuable in this virtual environment as we continue to work closely with leading OEMs on a range of applications. During the fourth quarter, our broad portfolio of industrial fuses and relays, as well as our power semiconductor products, secure design winds, and renewable energy and energy storage, as well as HVAC and industrial motor drive applications. With close customer collaboration, we had a solar design win in North America and design wins for energy storage applications with leading OEMs, in Korea for our high-speed fuse, and in Europe for discrete MOSFETs. For HVAC applications, we secured a design win for our TVS diodes with the Chinese manufacture of residential air conditioners. In addition, our line of bipolar modules won new business for industrial motor drive applications in North America. Our new business funnel is healthy, and we are well-positioned to secure ongoing opportunities across a broad range of industrial end markets. Across electronics and markets, we continue to see product architecture enhancements focused on safety and efficiency. Our engineering and manufacturing teams are collaborating with leading customers to develop new solutions in the areas of overvoltage and thermal protection, ultimately expanding our market opportunities. For example, during the quarter, we worked closely with a strategic customer and launched a new protection product which prevents mobile electronics from overheating when placed on a wireless charging pad. We are now broadly marketing this new platform to other global customers. We also secured design wins for very small form factor resettable fuses, protecting battery management systems used with consumer electronics. We also won business with our new ground fault protection relay control panel for a data center application in Korea. In addition, we secured circuit protection and sensor design wins for large and small appliances. Our building and home automation vertical markets remain strong and intersect well across many HVAC applications. We saw design wins for TVS diodes for connected thermostats and solid-state relays for building automation applications. Our consistent ability to deliver reliable products is evidence that we never stand still and are committed to serving our more than 100,000 electronics end customers. For transportation end markets, We continue to experience strong momentum across EV and automotive electronics applications with the ever greater sophistication of electrical architecture and safety systems. We leveraged our strong OEM and Tier 1 relationships, technical expertise, and broad product portfolio to generate several design wins on onboard charging applications for EV programs across Europe and Asia. We also secured a power semiconductor silicon carbide design win for an EV charging infrastructure application in Europe. We had several automotive electronics design wins in the quarter for TVS diodes, in North America for powertrain system applications, and in China for a micropower distribution unit used to convert power for infotainment and telematics systems. We secured a few breakthrough traditional fuse design wins in strategically important markets in Japan and Korea. We believe these business wins will drive further momentum in these target regions. Our new business opportunity funnel is strong, and with our leadership in passenger car markets, we are confident in winning new business in high-growth areas that will drive our content growth well above global car build. Our commercial vehicle business continues to see growth in a number of regions beyond North America. Based on strong customer relationships, product differentiation, and quality, We secured design wins with a heavy-duty truck maker in China and an agriculture equipment manufacturer in Europe. Material handling applications continue to drive design wins across our product portfolio and the regions we serve. In North America, we won new business for our power distribution module and secured another design win for a customized timer used on a fuel cell charging circuit. And in Europe, Our temperature sensor probe will be used in forklift batteries for one of the world's largest manufacturers of batteries. In addition, we also won new business for an electric truck platform where several of our products support the low-voltage applications on the truck. We have made broad progress in expanding our global presence in commercial vehicle applications. I will now turn the call over to Minal to provide additional color on our financial performance and outlook.