Littelfuse Inc (LFUS) 2018 Q1 法說會逐字稿

Good day, everyone, and welcome to the Littelfuse Inc. First Quarter 2018 Conference Call. Today's call is being recorded.

At this time, I will turn the call over to the President and CEO, Mr. Dave Heinzmann. Please go ahead, sir.

Thank you, and good morning. Welcome to the Littelfuse First Quarter 2018 Conference Call. Here with me, as always, is Meenal Sethna, our Chief Financial Officer. We're off to a great start in 2018, with first quarter performance significantly above our expectations. We are seeing broad-based demand across all of our businesses, and we delivered double-digit organic sales growth across all segments, including record sales for our IXYS business. We continued to leverage our bottom line and delivered strong cash flow for the quarter. We're making solid progress integrating the IXYS business and have taken initial steps to drive synergy realization, which I will discuss later in further detail. I am pleased with the consistent execution by our teams as they continue to focus on the market trends of a safer, greener and more connected world. We remain on track with our strategy and to achieve our financial goals of double-digit sales and earnings growth combined with our strong balance sheet and the numerous growth opportunities across our circuit protection, power control, and sensor portfolios, we are well positioned for the future.

With that brief introduction, I will turn the call over to Meenal, who will provide some additional color on the first quarter results.

Great. Thanks, Dave. Good morning, everyone. Let me start with some forward-looking statements first. During this call, certain comments will be -- we will make contain forward-looking statements. These forward-looking statements may involve significant risks and uncertainties. We ask you to review today's press release and our Form 10-K and 10-Q for more detail about important risks that could cause actual results to differ materially from our expectations. 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 and available on our Investor Relations website.

Now some highlights from our first quarter of 2018. We had an exceptional start to 2018 with sales growth much stronger than we expected, driving our sales and adjusted earnings per share well in excess of our January guidance. Sales in the first quarter were $418 million, up 46% over last year, and up 10% organically. Notably, all of our segments had double-digit organic growth for the quarter. In addition, the IXYS business also finished stronger than our expectations with $86 million in sales for the 2.5 months in our portfolio and achieved a record $103 million in sales for the full quarter. GAAP operating margins finished at 9%. Our adjusted operating margin was 18.4%. We expanded adjusted margins 80 basis points over last year even with IXYS business results at margins lower than the company average.

Our adjusted operating income was up 53% over last year, as we continue to drive leverage through the P&L. We recorded GAAP diluted earnings per share of $1.45, which included approximately $23 million in after-tax charges. These were mainly related to certain purchase accounting adjustments, acquisition and integration comps related to IXYS, partially offset by nonoperating foreign exchange gains. Our adjusted diluted EPS was $2.39, which grew 41% over last year. Our strong finish above our guidance was led by the higher-than-expected sales growth and related leverage in our legacy business as well as a record sales performance from the IXYS business. We also benefited from foreign exchange mainly from Europe.

Our adjusted EPS also included some one-off benefits in the quarter. With the change in accounting rules for certain equity investments, we recorded a mark-to-market gain equivalent to $0.07 in EPS on a few nonoperating investments. With the change in accounting rules, we may continue to see volatility from future gains or losses.

Additionally, our tax rate was about 350 basis points stable to our projected midpoint of 23%. This was largely due to a discrete tax benefit from higher-than-forecasted stock option exercises. That contributed about $0.08 in EPS benefits.

Looking at performance by business, electronics finished the quarter at a 20.4% operating margin. This was 250 basis points lower than last year, as this was the first quarter that included IXYS results. Automotive margins were 14.6%, up 60 basis points versus last year. While commodity prices have currently leveled off, we still see a margin drag, when compared to prices from a year ago. Our industrial segment achieved a 17.3% margin for the quarter compared to a breakeven margin last year. Robust sales growth and the benefits from cost reduction efforts drove expected margin expansion.

We generated a record $69 million in operating cash flow and $52 million in free cash flow in the first quarter. We also used approximately $10 million in cash for IXYS acquisitions and integration-related costs. Our stronger-than-expected earnings led our record cash generation for the first quarter. We continue to see the benefits from our ongoing focus on working capital, also a key driver of our cash flow. Over the next several quarters, we see opportunities to improve IXYS working capital metrics as well, mainly across inventory and accounts payable. These are some of the other synergy opportunities we see beyond P&L benefits.

Turning to capital allocation. We previously noted our focus on debt paydown after the IXYS transaction with a goal to get to a growth debt-to-EBITDA leverage of around 2.0x. We paid down approximately $40 million in debt in the first quarter ending at a growth leverage of 2.1x and a net leverage of 1.0x. Our current leverage gives us a continuous financial flexibility to execute our strategy. Also as noted in today's press release, 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. In summary, we're leveraging positive secular trends and focused on the right growth opportunities to continue driving profitable growth.

And with that, I'll turn it back to Dave for more color on business performance and market trends.

Thanks, Meenal. Starting with the electronics segment. First quarter sales of $264 million were up 72% year-over-year, which included about 2.5 months of IXYS results. Organic sales growth for electronics was up 10% with strong performance in all regions. The strong momentum of the current electronics cycle continued in the first quarter. The robust demand patterns we saw later in the fourth quarter extended through the Chinese New Year when we typically see seasonal declines. Excluding IXYS, we finished the first quarter with a book-to-bill ratio up 1.14, slightly higher than we normally see at this time. Third-party industry forecasts have upgraded projected 2018 growth for discrete semiconductor components to about 7%, up from 4% late last year.

Going into the second quarter, electronics has a strong backlog across all product lines. We are seeing improved lead times in some of the legacy Littelfuse semiconductor business, the result of the additional capacity we ramped up last year. We have very few capacity constraints with our core electronics products. We continue to carefully monitor the landscape to ensure that some of the extended lead times and capacity constraints seen in the broader industry aren't driving double bookings and excess inventory in our distribution channels.

While channel inventories are up year-over-year, we are keeping a close watch and believe that current levels are consistent with the increase in in-customer sales. Current channel inventories are running within our normal expected levels of 11 to 13 weeks. Our IXYS business had record demand and sales levels in the first quarter. With the strong backlog in the second quarter and increased lead times for some products, we are focusing integration activities to address the strong demand and support our customers. Our electronics business remains focused on strategic growth opportunities in targeted markets, and we are making good traction in a number of these areas.

Our automotive electronics business started 2018 with $9 million in design wins in the first quarter, primarily with customers in Asia. We won new business for our ignition IGBTs for our customer's engine management system and had design wins for a wide variety of our products used in customer's advance driver assistance systems. We also added new business for our products used in battery management and other systems across the spectrum of EV applications from mild hybrid to plug-in hybrid to battery electric. With increasingly sophisticated features, appliances are an important market across our product portfolio, especially for our electronic sensors. We secured our largest ever custom sensor design win during the quarter with one of the largest global appliance manufacturers. Our proximity sensors will be used in door safety locks in their washing machines and will -- as well as open-door warning systems in their refrigerators. This particular win highlights the strength of our global footprint. We're able to seamlessly leverage our sales, service, engineering and logistics resources anywhere in the world to provide customers with support that has become a true differentiator. Beyond appliances, our electronic sensors continue to gain ground in the building and home automation market. We won new business for security applications, where our sensors are integrated into the designs of a North American manufacturer of windows and doors. In addition, we won new sensor business for anti-tampering applications with the utility meter manufacturer in Asia.

We continue to extend momentum around our strategic growth area of LED lighting. As we are seeing growth in smaller countries such as Malaysia, where we recently secured a design win, we also had additional new design wins in India, where LED streetlight installation continues to proceed at a rigorous pace. Beyond circuit protection technologies for LED streetlight, adding the IXYS portfolio brings added opportunities to the market. We won new business for an LED driver, which we used to regulate power for an industrial lighting used in the agricultural industry.

The Internet of Things continues to be a targeted growth area with many opportunities plus a wide range of applications from connected video doorbells, wireless smoke detectors and thermostats to automotive e-call devices in Europe. With the growth of IoT and an increasingly connected world comes the challenge of transmitting and storing massive amounts of data. These challenges are driving opportunities across several vertical markets, including data center and cloud infrastructure, another one of our strategic growth areas. As an example, our high-voltage cartridge fuses won new business in Taiwan, helping protect power suppliers for data center infrastructure equipment.

Late last year, we talked about the growing implementation of G.fast, a solution that helps to get copper DSL lines up to speed -- up to the speed of fiber. We won new business in the quarter with a leading supplier of G.fast networking devices and remain optimistic on future opportunities.

In addition to wins in the legacy -- in the Littelfuse legacy electronics business, we are seeing similar wins across the IXYS portfolio. IXYS products had more than $11 million in design wins in the first quarter across a wide range of market applications from LED lighting, high-speed rail, medical devices, to battery charging, HVA systems and industrial welding. Let me highlight a couple of them for you. Based on a strong track record of reliability, we secured new business to improve the propulsion systems for a high-speed rail operator in Europe. In addition, we leveraged the established IXYS presence in the medical device market with 2 key design wins with external defibrillator manufacturers. Before I wrap up the electronics segment, I want to provide a brief update on our integration progress for the IXYS business. Our teams have been working diligently on executing integration plans and feedback from customers and global distribution partners continue to be very positive. The strong reputation IXYS has with industrial OEMs is a great advantage, and we see opportunities down the road to further expand IXYS offerings with automotive customers.

All in all, we're excited about the IXYS business and what it means for the future. Since the close of the transaction in mid-January, we have conducted a strategic review of certain pieces of the IXYS portfolio. Over the years, IXYS has made a number of investments to diversify the business. The Littelfuse strategy has been focused on expanding core competencies with the goal of developing a leadership position in the markets in which we participate. We have made some initial portfolio decisions to accept certain noncore or underperforming assets to better align the IXYS business with our long-term strategy, reduce costs and improve efficiencies. We will be exiting a business in Korea that produces Zigbee-based wireless solutions. In addition, we've determined that the IXYS microcontroller business does not fit with our long-term strategy. We are exploring strategic alternatives for this business.

The combined sales in these businesses is approximately $35 million, and they have not historically been profitable. With the timing of these plans, we expect limited impact of revenue this year, but we will start to realize cost savings during 2018.

With these actions plus other cost-savings activities and progress, we're on track to realize our $30 million run rate synergy target by the end of 2019. We'll keep you updated on the progress on future calls.

Next is the automotive segment, where we had record sales of $126 million for the quarter. Automotive grew 17% overall and 10% organically with the growth well in excess of the 1% growth in global car build. Our passenger car fuse business saw double-digit organic growth with particular strength in North America and Asia. In North America, we're benefiting from the shift in mix to SUVs, which have greater content for vehicle. In China, we are seeing a continued regulatory focus on fuel efficiency, also a positive growth factor.

As automakers continue to focus on safer, greener and more connected vehicles, the ongoing electrification of vehicles is driving higher power requirements and providing increased context opportunities for our products. In the first quarter, our passenger car fuse business secured more than a dozen strategic business wins around the world, with peak annual revenues of more than $10 million. We won new business with our high current fuse product for a German OEM's next-generation small car platform. One of our PolySwitch technologies helped us win new business with an Asia-based global OEM for their electronic safety monitoring device. We continue to make progress in Japan, one of our strategic growth areas, winning new business for our products used to protect window motors.

We saw solid performance from our automotive sensor business as it returned to growth. Results were driven by a number of new product launches in the quarter, leading to double-digit growth in all regions. The ongoing focus on occupant safety is a key driver and increased -- and increasing our content per vehicle. During the quarter, we secured strategic wins for our seatbelt buckle sensors with one of the world's largest suppliers of the automotive safety components. Our speed sensors used in vehicle transmission systems are key enablers for manufacturers to achieve greater efficiency improvement. We had a strategic win for multiple applications with a Chinese manufacturer of conventional automatic transmissions. The trend towards more widespread use of dual-clutch transmissions is also providing to be a good growth opportunity for our speed sensors with a new business win in the quarter with a large Chinese OEM.

Our Commercial Vehicle Products business, or CVP, delivered double-digit revenue growth in the quarter. The drivers for this growth are widespread across multiple geographies and customer market segments. We also had more than 15 new design wins in the quarter, which positions us well for 2019 and beyond. One of the strategic growth opportunities for CVP is our power distribution modules. We spoke last quarter about a positive win with a North America manufacturer specialized vocational trucks. With a superior product, a responsive approach and unmatched customer support, we won follow-on business for additional applications. Overall, the solid execution and successful new business development in our automotive segment drove record performance in the quarter and has given us a strong start to the year.

Next we will cover our industrial segment. First quarter sales of $27 million were up 13% organically, led by our fuse and relay businesses. Our solar business had another strong quarter, and the current backlog indicates continued strength heading into the second quarter. We have talked in the past about the opportunities we see between the intersections of our business segments, electronics, automotive and industrial, leveraging our products and expertise across segments, distribution channels and end market. Our industrial segment is well positioned for these convergence points. We are making great progress leveraging our strong relationships with our electronic distribution channels plus our growing product portfolio in our industrial segment. Similarly, we are excited to leverage our industrial products for opportunities in automotive, particularly, for growth opportunities with EVs and EV charging infrastructure applications. EV off-board charging is an area with increasing focus. We are gaining customer insights on the technical challenges they face and already experienced success generating new business opportunities for high-voltage fuses and other circuit protection opportunities. We expect more opportunities in this space as we integrate our existing offering with the IXYS power semi-portfolio.

Finally, before Meenal provides the guidance for the second quarter, I'd like to comment on the impact of the contemplated tariffs. With our global customer base, we have aligned our footprint to our customer needs, and we have a significant number of operations focused on sales and production across Asia, especially China. Under the current proposals, several of our products could be impacted largely within our electronics segment. We continue to monitor the evolving discussions and are hopeful that the final decisions recognize the benefit of a global economy. When there is more clarity as to what may be implemented, we'll provide specifics around the potential impact.

As I outlined today, we continue to do an excellent job of executing on our strategic growth opportunities, providing innovative solutions for our customers. Our electronics segment continues to benefit from a strong cycle and IXYS is seeing robust demand as well. Despite limited growth in global car build, our automotive segment achieved record revenue and is well positioned to continue growth -- growing content for vehicle. And our industrial segment is making solid progress expanding its business through key distribution channels in North America and beyond. With excellent performance in the first quarter, 2018 is off to a great start. I will now turn the call over to Meenal who will provide the outlook for the second quarter, then we will take your questions.

Thanks, Dave. Demand remains strong across most of our key end markets. The second quarter is typically our strongest quarter of the year, and we expect to see sequential sales growth across our businesses. Our second quarter guidance also includes a full quarter of the IXYS business. Based on the current foreign exchange rates and the regulatory environment, we expect sales for the second quarter of 2018 to be in the range of $450 million to $462 million. The midpoint of the guidance reflects 45% reported sales growth and 8% organic growth over the last year. We expect adjusted earnings per diluted share to be in the range of $2.39 to $2.53, with the midpoint representing 17% growth over last year. This assumes a diluted share count of 25.4 million shares. As noted in our press release, we've historically had higher stock compensation expense in the second quarter due to retirement provisions in our equity grant. This incremental expense equates to about $0.08 in earnings per share. Our guidance assumes an adjusted effective tax rate of 19.5% to 20.5% for the second quarter compared to a 15.2% rate in the same quarter last year. At a constant year-over-year tax rate, our EPS growth would be 25%.

Beyond the higher tax rate, our near-term EPS growth is unfavorably impacted by lower IXYS profitability levels and related share dilution in interest expense. However, as we continue to execute on our synergy plans to improve IXYS profitability, we will see our overall leverage return to our expectations.

Looking beyond the second quarter, I wanted to provide some additional color for the rest of the year. As I mentioned, the second quarter is typically our strongest quarter in the year. The first and the fourth quarters are typically dampened by regional holiday periods, and our third and fourth quarters are seasonally slower due to our customers' maintenance and shutdowns largely across the automotive industry. Looking at some specific financial items, our projection of adjusted amortization expense for the year remains $41 million. We are projecting interest expense for the year in the range of $22 million to $23 million, slightly lower than our prior view.

Our interest expense is heavier weighted to the first half of the year and highest in the second quarter given the timing of when we issued additional debt and our debt paydown plans. Our full year 2018 adjusted tax rate range remains 18% to 21%. However, the rate within individual quarters may vary due to the timing of discrete tax items and approvals of government tax incentives and exemptions. We've previously projected the net impact of the IXYS transactions to be $0.05 to $0.10 accretive to EPS for 2018 when factoring in the added interest expense and share dilution. With the stronger sales performance of the IXYS business and our synergy execution well underway, we expect the net transaction will be at least $0.10 accretive to EPS for 2018. As we look ahead, we believe the strength of our portfolio, our operational performance and our leverage of market trends provides the foundation for continued success. This concludes our prepared remarks. Now we'd like to open it up for questions. Dillon?

(Operator Instructions) Our first question comes from Christopher Glynn of Oppenheimer.

So just a question on long-term electrical -- electric vehicle paradigms out there. You're going to see huge served market expansion, and we're hearing from some players just indications that there is going to be a lot of investment targeting leadership positions in that space, maybe that would bring some changes to the traditional industry structures versus your current runway and market share positions. Just wondering how you're viewing that whole ball of wax? And what that could mean for long-term margins as investment dollars chase market share in a more wide-open marketplace than has been traditional?

Thanks, Chris. It's a good question and it's an evolving picture of what we see in the marketplace. And we tend to look at it in 2 different ways. We look at on-vehicle or onboard systems that are driven by the EV side and then the infrastructure side for things like EV charging station, high-speed charging and those sorts of things. A little -- we have a little different view on each one of those. Certainly, on the on-vehicle, and we've talked about this before, this question has come up before. We enjoy a strong position with key OEMs around the globe in our current electrical infrastructure products and fusing side. We are very engaged with them and have a lot of strong relationships with those same customers and additional OEMs as they migrate to EV. So we think the opportunity there, certainly, as the content for vehicle grows dramatically, we think we're well positioned to take advantage of that transition as we have ongoing relationships. We also have a lot of high-voltage experience out of our industrial side of our business that helps us solve problems there. So we think we're well positioned for that. However, we've said we may not perhaps have the same market share globally as that evolves as maybe we have in our current business today on-vehicle, but still, the opportunity is significant. We think it bodes well for us. Now on the EV infrastructure side, it's all additive. It's applications that don't exist today, and there are a lot of companies both developing charging systems as well as trying to sell into those. And so every opportunity we have there is additive to our core business and we see as an opportunity.

Great. And I know electronics is very diverse, but any particular end markets or supply chain feels particularly running hot right now? Or does it remain very granular and widespread?

I would say a little different than maybe historical cycles we have seen where -- historical cycles tend to have been driven by 1 or 2 key areas that drive strong growth and then pull back. I think a little different than this cycle is it's more broad-based. Certainly, automotive electronics is certainly a strong growth area in our electronics field, but also in areas I would kind of classify as industrial electronics are pretty robust these days as well. So it's a little more broad-based than what we've seen in the past, but those are a couple of the areas I would say may be kind of leading the growth areas.

Our next question comes from David Leiker of Baird.

A couple of things on IXYS first. In terms of accretion, synergies, the profitability improving more quickly, is that a function of getting your arms around and executing on initiatives more quickly than what you have thought? Or are you finding more opportunities than you expected?

It's a combination, I'd say, one, the performance of the business, just the underlying business, is much stronger than we were expecting. I mentioned that in some of my earlier comments. So that's been helpful. And with the synergy plans, right, it's always been around the timing and when we're executing. Now that we've taken the first set of steps in terms of looking at the portfolio and some other synergies activities, we've got a more concrete view of the timing of that and so that's really what's driven up our target of synergies and accretion for this year.

And then the other thing, right now -- and we mentioned that in the body of the presentation, but very strong demand patterns hitting the IXYS business. So a lot of our activities from our teams have been on supporting their efforts to try to maximize, taking advantage of those potentials. So our planning folks, our logistics folks, our operational excellence folks have been very involved in kind of trying to take advantage of the opportunities there and help the IXYS business maximize potential.

Great. Are you finding cross-sell opportunities already or is it too early?

Yes, we certainly are finding areas of opportunity. We talked about -- historically, we would say, our industrial OEM presence as a company has been relatively weak. It's a strong point of IXYS. So they have very strong relationships with some of the large multinational industrial OEMs. So certainly, their capabilities of direct selling into those are very advantageous for us in the long term for our broad portfolio. So we're certainly getting a lot of cross-selling opportunities to sit down with customers. They haven't really started driving so much revenue synergies yet, but we're confident over time they will. And we also know that IXYS has really shied away from automotive potential. In the past, they just weren't prepared to take on the automotive challenge. That's core to how we operate our business. So we're very engaged in kind of getting them up to speed and what it is going to take to support automotive customers. And we think longer term that certainly is a huge opportunity.

Great. And then just one other item here as we looked at the electronics business, and -- we've had this conversation that historically this has been very product-driven cycles through the business and there seemed to be a lot more secular opportunities across all kinds of mundane products. Are we at the point that we can say that that cycle in some fashion has been broken?

That's a great question, and we ask ourselves that question often. I have lived through too many cycles to be comfortable saying, it's not a cycle. So I think it is a different pattern than what we've seen in the past. So I think the behavior has already been different and will likely be different in this cycle. And the secular demands, whether it's the electrification and specification in automotive, the IoT and industrial spaces or things like that, that maybe it's not the same sort of cycle, but there is still the supply chain dynamics that exist in the marketplace that as demands grow, our distribution partners build inventory to support that demand, and if demands begin to soften, there will be a pullback. So I wouldn't be the one to call that there is not going to be cyclical impacts to the business at this stage, but it does feel a bit different.

Our next question comes from Steven Fox of Cross Research.

I had a couple questions. First off, Meenal, on the cash flows, cash flows from operations was nicely above net income, but you are calling for further improvements on the working capital side. So I was just curious and, obviously, there is seasonality to your cash flows, but what type of improvement do you think you get out of working capital this year either in days or dollars? And what other efficiencies can you see this year? And then if you wouldn't mind giving sort of a rough idea of where CapEx could come out for the year that would be helpful. And then I have follow-up.

Sure. So a couple of things, one on the cash flow front. We've been actively working on the legacy business now for a few years. And you can see the fruits of our labor from that around receivable and just DSO management. And even more importantly, where we're seeing the improvement is really around DPO and payable days, and we've been slowly and steadily marching that upwards. So that -- those efforts still continue in our legacy business. Inventory is one that we -- usually takes longer to do because you've got to take a look at your entire supply chain from a broader manufacturing and logistics perspective and so those are the efforts we're making there. So I'd say a lot of the improvements we've seen short-term have really been around payables there, but we're working on inventory. As it relates specifically to IXYS, the 2 areas that we see for opportunities are in payable days and inventory. No surprise from a payable perspective. When you are a smaller company, you tend to have less negotiating power around that and your payable days tend to be lower. So that tends -- for us it will probably be the near-term opportunity, and we're looking to see what we can do for this year. Inventory, again, as I mentioned, will take some time, and also we want to be careful around inventory given the strong demand and demand patterns we have. We're really focused right now on really meeting customer demands and customer engagement. So that may take us a little longer. So we do expect improvement. I don't have a dollar amount for you at this point. Your second question around capital. We're projecting around $80 million to $85 million in capital spend for the year, which includes the IXYS business as well.

Great. That's helpful. And then Dave, there was a whole laundry list of new wins you highlighted on the electronics side. If I exclude auto from that and think about sort of the timing for some of these ramps, is this something that we can think about as ramping in 6 to 12 months? If so, like what areas are most likely to ramp sooner than later? Any kind of color on that would be helpful (inaudible) more clarification I need.

Yes. The design wins in the electronics side, if you take automotive electronics out, those come to revenue much faster. So it depends on the win. In some cases, there are launching programs right away and the design cycles are quite fast, some are a little longer. But I would say, generally in the electronics side, from design win to revenue is 6 months or less. So a very different -- so design wins we are seeing there, we'll see revenues from those this year.

Which ones are maybe most likely to contribute this year, like, what end markets are you most excited about for the rest of the year?

I think a lot of them will contribute this year. LED lighting is one that continues. In that case, we tend to win -- it's project based, you win it, and it moves to production relatively quickly. We'll see impacts from those for sure. The appliance sensor businesses, we won. We'll begin shipping those in the back half of this year, and we'll see revenue gains from that as well. So those are a couple of areas that may be our fastest in responding to the wins.

Great. And then just a quick clarification. When you talk about the updated outlook for IXYS synergies, the $0.10 at least, does that still include the Korean operations in the microcontrollers that you plan to exit? Or is that included or not included in the numbers?

Yes. So the numbers that I quoted are net of us basically closing down that business. Realistically, we have a lot of customers that we still need to work with about last time buys, et cetera. So that's why I said that we don't expect much of a revenue impact, but there are costs that we can begin taking out faster while we're still working with our customers.

Our next question comes from Matthew Sheerin of Stifel.

This is Alvin Park in for Matt Sheerin. I just have a question. So IXYS results. On the call, you mentioned it was $103 million for the full quarter and compared to last year, if I'm not mistaken, it was $83 million. So that was a 20% year-over-year growth. Could you provide some color on the strength of that growth? Is there any -- was it because of cross-selling or from tight supply, stretched betas and higher ASPs? Are there any concerns for potential double ordering for this -- for the quarter for IXYS?

Yes, I think, clearly, because this is revenue in the first quarter, we closed in January, with typical lead times in the semiconductor space anywhere from 10 to 20 weeks. It's not cross-selling that's driving the revenue gains there and the strength of that, it's broad-based demand patterns that we're seeing. With a lot of strength out of the -- they serve the industrial markets, they're in industrial electronics markets very heavily and those markets have been growing steadily. So I think that -- I think fundamentally it's overall market strength and opportunities that they've had some nice design wins in that are growing there. So I guess general patterns there. Lead times in IXYS products are longer than in our core business today, and we will be working to drive those down, and we didn't talk about book-to-bill in the IXYS business because we kind of artificially drove book-to-bills there from the same point of -- we updated their lead times to the customer base, which meant the lead times went out and customers or particularly distributors' systems, which meant they drove higher orders, but they dropped then in the quarter to kind of get their place in line, if you will.

I see, okay, and another question. SG&A, I think, it was around $41 million for this quarter, but the previous year in the same quarter, it was $45 million. And given the fact that IXYS came on board as well in Q1, just wondering if you could talk about how much of that incremental SG&A was from IXYS and how much is it from Littelfuse's business?

Yes. So some of it -- I got to come back to you on some of the specific numbers on what's IXYS versus the core, but some of this is just -- we did have some reductions in IXYS G&A, even within the first quarter so that part was helpful as well. And it's just some of the cost containment activities that we're doing from our perspective as we get leverage. The other last pieces we moved some of our stock compensation expense, some of that was in G&A and moved it to other areas of the P&L where it really belonged and so that ended up being a little bit of the shift as well.

Our next question comes from Gary Prestopino of Barrington Research.

Dave, just could you maybe -- I know this is out in the future, but could you maybe give your thoughts or comment on Ford's move to jettison most of their passenger sedans. I would assume that that has to help you longer term as there is more content in any kind of SUV or crossover? So if you maybe comment on that a little.

Yes, in general, and we've talked about this in the past quite a bit, but overall content from a -- in North America from a passenger car vehicle to a crossover and SUV, in general, the content is higher for us in those applications. So we have a good decision within the Ford platforms in North America. So as they shift, if anything, that should be a net positive for us. Although I will say, even in the passenger car world, whether it's in North America or globally, the content is increasing steadily in the passenger car side as well. But overall, we would say it's probably a net positive for us.

Okay, and then, Meenal, in terms of some of these line items on non-GAAP adjustments, could you give us some idea of on a full year run-rate basis, what the acquisition-related cost would be, stuff like that? Is that possible?

Yes, you -- I will come back to you with a little bit more detail. I can come back to everybody on that, maybe just to give you a little color for the first quarter though. We had a significant number of purchase accounting, what almost everybody considers onetime purchase accounting adjustments as it relates to the inventory step-up. So there are inventory adjustments. We also -- because we ended up issuing shares as part of a deal there and we converted IXYS equity into Littelfuse equity, there were some stock-based compensation adjustments that were in there, and then also a backlog amortization. So we had quite a bit of activity coming through that, a lot of which will still continue into the second quarter. I would say that was really the bulk of the adjustments that came through, and then, the other piece was just actually deal-related costs that we booked now that the deal closed in the first quarter. That was about $12 million and for the most part, that will go away going forward.

Our next question comes from Shawn Harrison of Longbow Research.

First question, if I remember correctly, last quarter, there was a concern in both IXYS as well as with Littelfuse that maybe there were going to be some potential capacity constraints that would limit some of the demand upside and obviously, that wasn't the case given the robust 10% organic in the upside with the acquisition. So maybe if you could just talk about where both companies are with capacity utilization? And is there could be any limited growth in the second quarter?

Sure. Let's first start with the core electronics Littelfuse products. In general, and as we stated in the body of the presentation, we have limited capacity constraints within our core product area. And in fact, kind of our longest lead times would have been in some of the areas in our core semiconductor business and during the first quarter, we actually reduced lead times back down -- approaching more normal levels there. So I think we've steadily been addressing capacity concerns and adding capacity in our core business as well as driving productivity gains to be able to increase capacity without capital investment. So we've said that -- we've seen that steady improvement as we've been going along and really have limited areas in the core business where we're concerned of our ability to serve customer demand. IXYS is a little bit different story, where some of their product lines are very much constrained, sometimes in the supply chain, sometimes in the factory, with the ability to serve these much higher demand levels. But as you saw in the first quarter, and I think, maybe we were a little surprised on the ability with a lot of focus from the IXYS teams as well as the Littelfuse teams, ability to ramp up a bit the outputs in IXYS business. So we'll continue to focus on that and hope to see continued strength there and philosophically, we will certainly, on IXYS, be looking at ways to make sure we have the capacity in place to take advantage of strong demand patterns in the future.

And then as a follow-up, I think this time last year your book-to-bill was at, what, 1.2 or something like that and you're not as high this year. But are there any other things that you saw that would be potentially problematic in the distribution channel from customers that could lead to another inventory correction risk in the second half of the year? Or does it feel a little bit better this year relative to last year?

Yes, I think the further we get into this cycle, if you want to call it a cycle, maybe the more skeptical we become on is there really going to be some big correction or not, but we continue to monitor that very carefully. I think our core book-to-bill is at 1.14, being a little less from what they were first quarter last year. In some ways we're driven by the fact I described earlier that in our core semiconductor business, we actually reduced lead times during the quarter, which means our distribution partners can pull back on their orders because they know they can get them faster. So that drives the core book-to-bill down a little bit during the quarter in a comparative view of it. From an inventory position in our distribution channels, we watch that very, very closely by distributor, whether it's a high service distributor or a broad line distributor, and we monitor byproduct lines and byproducts to make sure it has the right mix and things in place. And in general, what we see today is, yes, over the last 4 to 5 quarters, there has been an increase in absolute inventory dollars, but from a weeks of inventory or turns perspective, it's hanging in there pretty good and kind of within the normal range we would see with our distribution partners because their sell-through has been pretty robust. So right now, we don't see any warning signs, particularly, but as I mentioned earlier, I tend to be a skeptic in and around that, and I watch -- we watch that very closely. If we see signs of those sorts of things, we'll absolutely share those with you guys.

Great. One last one, if I may. Meenal, with $35 million in sales that are considered noncore, as we get into '19, is that -- I am assuming it doesn't stop immediately December 31, and so is there a way to think about how that rolls off the business as you progress maybe to the first half of '19?

I think we'll be able to give you a better indication next quarter because as we mentioned, we're still looking at strategic alternatives for the MCU business, which is the majority of that $35 million. So depending on what we end up doing with that and the timing of that, we'll be able to give a better view on the roll off. But again, I would say I expect very little impact to 2018.

Our next question comes from John Franzreb of Sidoti & Company.

Dave, just going back to the industrial electronics business. IXYS had a great quarter, but you also referenced that the legacy business was up. Was it up at the same magnitude as the IXYS business? A little color there would be helpful.

Yes. When I was talking about that, there is what we call our industrial business, which are power fuses and our relay business that we call out as a different segment. That tends to serve heavier industry, mining, oil and gas, nonresidential construction, MRO, those sorts of things. And in that space, we talked about good growth there in the mid-teens area. A little different than the kind of this industrial OEM space or industrial electronics space I'm talking about. The IXYS had very strong growth as we've talked about earlier. I would not say our core electronics grew at that same pace in the industrial electronics, but pretty robust and it's an area where we're looking at our go-to-market approach in IXYS, and we'll probably modify a little bit on how we approach that market to make sure we are taking advantage of that. So we think it's a very attractive space for us and we like that area. And IXYS really gives us a lot of momentum to try to drive that more aggressively.

Perfect. Great. And just going back to the content shift that you're seeing in the automotive sector. Regarding the growth rates or the penetration rates in SUVs versus passenger cars, has passenger cars been accelerating -- maybe a little bit of catch-up effect? Or has the mix kind of always stayed the same?

I think in general, the mix overall has been moving more and more towards crossovers, SUVs and things like that. And it's a bit of a global phenomenon. Europe is a little less so, but even in Europe you'll see a fair amount of that. So that's been ongoing for a period of time and certainly in Asia, that's a -- it's a big driver as well. So that's been an ongoing trend. And in North America, it's been the trend, and I think Ford is just kind of reacting to, well maybe it's time to move on a little bit and focus their energies. But that's -- the content has always tended to also be a bit higher for us in SUVs, so it's been a positive trend.

Okay. And last thing, Meenal, that $0.07 gain that you referenced earlier, that was included in adjusted EPS? Did I understand that properly?

Yes. That is correct. It was part of our adjusted EPS.

(Operator Instructions) Our next question comes from Steven Fox of Cross Research.

I'm sorry. I just had one other question. I'm still having trouble understanding the exact makeup of your original guidance versus what you just reported? I mean besides the tax rate math, can you just sort of walk through the -- how -- the difference given how substantial it is versus what you originally thought?

Sure. I'd say the big piece by far is the sales overage because our sales are over our guidance, of the midpoint of the guidance about $28 million. So that was a big part and we got really good drop-through as we would expect with the additional volume of sales. The other couple of pieces, the -- I mentioned in the nonoperating or the other income expense section, we had a gain on some equity investments that we have, or the mark-to-market gain, that was about another $0.07 that was there. We had a tax rate pickup. I mentioned that was about $0.08. And then our share assumption, we were making some assumptions around shares with the partial period where we had issued new shares with IXYS. We were a little off on that and that also added to EPS as well. The share count ended up being lower.

And the drop-through was a typical conversion margin for you guys right?

Yes. Typical, I'd say, a little bit higher in the base business, but then it was offset by a lower drop-through in the IXYS business. So overall, the average is where we would expect it to be.

This concludes our Q&A. At this time, I'd like to turn the call back over to Dave Heinzmann. You may proceed, sir.

Thank you for joining us for today's call. We look forward to talking to you again next quarter, and have a great day. Thanks.

Thank you, ladies and gentleman, for attending today's conference. This concludes the program. You may all disconnect. Good day.