Methode Electronics Inc (MEI) 2011 Q1 法說會逐字稿

Greetings and welcome to the Methode Electronics Fiscal 2011 First Quarter Earnings Presentation. At this time all participants are in a listen-only mode. A question and answer session will follow the formal presentation. (Operator Instructions). 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 conform the statement to actual results or changes in Methode's expectations on a quarterly basis or otherwise.

The forward-looking statements in this conference call involve a number of risks and uncertainties. The factors that could cause 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 report. Such factors may include, without limitations, the following.

Dependence on a small number of large customers, including two large automotive customers, dependence on the automotive, appliance, computer, and communications industries, seasonal and cyclical nature of our some of our businesses, ability to compete effectively, customary risks related to conducting global operations, ability to keep pace with rapid technological changes, ability to avoid design or manufacturing defects, ability to protect our intellectual property.

Dependence on the availability and price of raw materials, ability to successfully benefit from acquisitions, currency fluctuations, unfavorable tax laws, the future trading price of our stock, and the risk of owning real property.

It is now my pleasure to introduce your host, Don Duda, President.and Chief Executive Officer for Methode Electronics. Mr. Duda, you may begin.

Thank you, Everett, and good morning, everyone. Thank you for joining us today for our Fiscal 2011 First Quarter Financial Results Conference Call. I'm joined to go by Doug Koman, Chief Financial Officer, and Ron Tsoumas, Methode's Controller. Both Doug and I have comments today and afterward we'll be pleased to take your questions.

This morning we released our first quarter financial results for fiscal 2011. I am pleased to report that net sales in our earnings in the first quarter improved year-over-year from the first quarter of last year. In fiscal 2009 and 2010, we restructured our operations, which lowered our break even point and re-focused all our business segments on solution selling. Thus far in fiscal 2011, we are seeing evidence that the business structure we put in place is starting to show positive results. Total sales in the first quarter were up over 9% from the first quarter of last year despite the loss of the Delphi business, which represented $7.5 million in sales in the first quarter of last year. Additionally total sales were up 3% sequentially versus the fourth quarter of fiscal 2010. The momentum from the fourth quarter continued in the first quarter with market demand, particularly in our European and Asian automotive businesses, at the high end of our expectations.

Earnings for the first quarter fiscal 2011 were $0.11 per share, compared to breakeven for the same period last year, as a result of various factors including the absence of restructuring expenses and other items in the current period which Doug will expand upon in his discussion. Consolidated gross margins were down both year-over-year and sequentially for a few reasons. First as I mentioned earlier there was an absence of sales to Delphi, which was a higher margin business line for us. Secondly, we had higher design and overhead costs in the Company's US based automotives and power products businesses, which are necessary to book and launch new programs. Although we believe we have successfully repositioned our North American businesses for sustained growth and profitability, we may continue to incur similar or nominally higher costs associated with these efforts until additional programs launch and offset these expenses. And third, decreased other income in the current period compared to last year relating to lower engineering design fees received in our European automotive business.

Automotive segment sales were down 3.7% year-over-year, due mainly to the absence of Delphi revenues, which totaled $7.5 million in the first quarter of last year. If we take the Delphi sales out of last year's first quarter, automotive sales actually improved over $5 million. Sequentially, automotive sales were up more than 3% over the fourth quarter of last year. Again, with our European Asian operations demonstrating particular strength. As we have said in previous conference calls, we expect the My Ford Touch Center Console program will ramp in the third quarter of this year, and total about $12 million for the fiscal year. We also expect the lead frame business to continue to do well.

Although, our European automotive segment performed well in the first quarter we remain cautious about this market. Overall, we still expect automotive segment sales to be down for the year, mostly due to loss of sales from Delphi. Automotive gross margins were down to the due to the loss of higher margins sales from Delphi, but also from our continued investment in our automotive business. Again, as we launch more programs, margins should improve. For comparative purposes, we still see about 1.5 months of Delphi in the second quarter, or we will see about 1.5 months.

Interconnect sales increased 40% year-over-year, but we're down slightly from the fourth quarter of last year. In the first quarter, this segment had strong sales in interface and data solutions reflecting improving macroeconomic solutions worldwide. However, Interconnect sales may be flat or slightly down sequentially in the second quarter as we are seeing some softening sales particularly to Whirlpool and Cisco. Interconnect margins in the first quarter were on par with our target margins for this business.

Power product sales were up about 3% year-over-year, and over 11% sequentially. This segment saw higher demand for power products in Asia, but lower demand in North America. The power segment also had higher telecom business in the first quarter, which is typically lower margin business and less military and aerospace revenues, which is typically higher margin. The majority of Power business awarded in last six to 12 months and launching in fiscal 2011 is in military and aerospace; as such we expect these margins to improve over time.

On to new business wins. In the first quarter, we books over $29 million in new annual revenue. First, I'm very excited to announce that our MDI group was awarded a contract to provide a top tier automotive OEM with a custom sensor for the measurement of clutch plate position in a new fuel-efficient, dual clutch, six speed transmission. Initially, the award represents approximately $6 million in average annual revenue over five years and is likely to gain additional volume. Based on Methode's patented magneto-elastic technology, MDI developed this new sensor which measures linear position with resolution that is nearly 10 times that of current commercially viable technology. The sensor has been designed to withstand the hash environment of the transmission and operates at temperatures in excess of 180 degrees celsius. We will begin producing these sensors for multiple platforms in second half of the fiscal 2014. This award represents the first major deployment of this technology in the automobile and is a culmination of over five years development efforts congratulate the MDI team on this very significant award.

We were also awarded additional lead frame business that will begin production in the first quarter of fiscal 2012 and represents more than $20 million in average annual revenue for five years. As a reminder, the lead frame is an integrative power and distribution backbone for a transmission controller. It is a highly complex insert molded assembly that reduces the number of electrical connections that would be required with the additional design. This improves system reliability and reduces cost. This lead frame is currently being reduced for vehicles in the Asian market and with this new award will expand production in North American manufactured vehicles. This addition award will bring our lead frame business to $40 million in average annual revenue at full launch, which we expect to be in fiscal 2012.

Lastly, we are awarded an integrated center console program with a major Asian automotive OEM utilizing our temp sensor technology. This business represents about $2 million in annual revenues and will begin production in second quarter of the fiscal 2012. This award, for market evaluation purposes, could result in the expansion of TouchSensor technology across multiple platform for this major OEM.

As you can see, our investments in new technology and product development are beginning to generate design wins and incremental sales. In summary, the first quarter gives us a good start to fiscal 2011. However, while much has been accomplished, there's still work to do and we remain clearly focused on improving our results.

Now, I'll turn the call over to Doug, who will provide further details regarding our financial results. Doug.

Thank you Don. Good morning, everyone.

Don mentioned earlier that we, we reported $0.11 EPS for the quarter compared to a breakeven last year. That was $4.1 million net income, just to give you a little color on, on that. Primarily, this is due to the fact that we -- last year's number included $3.6 million of restructuring charges. This year we had none. This quarter, we did benefit from a gain of $1.2 million on life insurance policies related to a deferred compensation plan. We also saw a slight benefit in selling and administrative on a consolidated basis. Offsetting these items, we had lower design fees in our European operations and we saw consolidated higher tax expense of about $300,000. So those are the big items that make up the $4.1 million of net income in the quarter. I'd like to give you a little color now on the segments to -- obviously those items I just went over are the large items, but there are a lot of ins and outs, pluses and minuses.

In automotive, we had first quarter sales of $49.3 million. That's down about 4%, compared to $51.2 million last year. Obviously, as Don mentioned, last year we had $7.5 million of Delphi business, and partially offsetting this Delphi business, we saw stronger sales in Europe and Asia. Additionally, currency translation decreased foreign sales by $1.7 million in the quarter. Looking at gross margins for automotive. That was $10.1 million, compared to $11.5 million last year. As a percentage of sales, gross margins decreased to 20.5% this quarter, compared to 22.5% last year. Gross margins were negatively impacted by the loss of the Delphi business, lower design fees and increased costs related to new product development.

Pre-tax income in the automotive segment was $2.8 million in the quarter, which is the same as we had last year. Last year's results included $1.5 million of Delphi related or this year's quarter included $1.5 million, last year's had about $400,000 related to the Delphi litigation; last year's results also included restructuring charges of $2.6 million in the automotive segment. Looking at sequential quarters. Q1 over Q4, while automotive cost of goods sold as percentage of sales decreased to 79.5% from 81.1%, selling and administrative expense increased to 14.6% compared to 9.9% last quarter, fourth quarter. This was caused by a re-allocation of resources in fiscal 2011 to the automotive segment. If you look at consolidated selling and administrative expense, you'll see that we're down slightly. But, we, again, re-allocation from resources that formerly were either in the unallocated corporate or the Interconnect just to align those assets to help grow automotive going forward. Additionally in the fourth quarter, selling and administrative expense benefited from some accrual adjustments. And again, as I mentioned, as Don mentioned, the higher selling and administrative is needed to support the awards that John, or Don just discussed in his comments.

In the Interconnect segment we had sales up $34.6 million in the first quarter. This is up over 40% from $24.7 million last year. The sales increase is primarily from our Interface Solutions and Data Solutions groups. There was no currency translation effect on Interconnect segment sales in the quarter. Gross margins for the Interconnect segment were $9.2 million compared to $6.2 million last year; as percentage of sales, this is an improvement to 26.6% compared to 25.1% last year. The increase in gross margins as a percentage of sales is primarily due to the higher sales level and a favorable change in the mix to higher margin product.

Pre-tax income in the Interconnect segment was $3.7 million in the current quarter compared to $200,000 last year. This, again, is due to the increasing sales and gross profit and also that we had no restructuring charges this year compared to $800,000 last year. Sequentially, Q1 gross margin was 26.6% compared to fourth quarter 35.4%. This was due to the inventory reserve reversals in the fourth quarter. Additionally in the first quarter, we saw changes in the mix at our TouchSensor business to slightly lower gross margin business.

Our Product segment sales were just about flat with $11.5 million this year compared to $11.2 million last year. We did see an increase in demand for bus bar products in Asia for telecommunication products. This was partially offset by a decrease in demand in North America, which is predominantly industrial and military, aerospace. Gross margins in the Power products segment were $2.3 million in the current quarter; that's the same as last year's quarter. As a percentage of sales, gross margins increased to 20% compared to 20.5% last year. This percentage decrease is due to the reduced business in North America. Pre-tax income in the Power products segment was $0.5 million in the quarter, compared to $600,000 last year. That was primarily due to higher selling and professional fees offset by no restructuring charge this quarter, compared to $200,000 last year. Sequentially, Q1 over Q4, gross margin decreased to 20% compared to 33% in the fourth quarter. As with Interconnect the fourth quarter benefited from some accrual adjustments, but our first quarter saw a change in sales mix to more telecom business and less industrial, military, aerospace, and as Don mentioned, we would expect that that would return to more normal mix in the future.

The Other segment had first quarter sales of $2.8 million, up slightly from $2.7 million last year, primarily in sales increases at our MDI business, while sales at our test labs were down slightly. Gross margins were $100,000 in the quarter, compared to $200,000 last year. Increase is primarily due to proto type builds in our MDI business; that accounted for the drop in the margin, and pre-tax income in the other segment was a loss of $600,000 in both quarters. And, again, the increase in the prototype expense was offset by a decrease in selling and administrative.

Before I turn it back to Don, I'd like to comment on the $7.4 million cash burn in the quarter, specifically the change in operating assets and liabilities of $10.5 million that you see on the cash flow statement. AR itself was the use of cash of $6.9 million. This was due to the timing of sales; we did have a strong July, which is unusual for us. We had billing for production tooling that went out, and additionally we just had some slower collections from some specific customers, which are not credit risks, but did change the timing of the receivable. We also had bonus payments in the quarter. That was $2.7 million. We -- last year we changed from a practice of paying more bonuses on a quarterly basis to a fourth quarter or full year bonus payment, so that resulted in a slightly higher bonus payout in the first quarter this year. Foreign and state tax payments were $1.9 million in the quarter, primarily for China and some other foreign and state entities. And we also had a balance -- our inventory increased about $1 million, but this was offset by a change in accounts payable and accrued expenses.

Don, that concludes my remarks.

Thanks, Doug.

Everett, we are ready to take questions.

Thank you, sir. Ladies and gentlemen, at this time we will be conducting a question and answer session. (Operator Instructions). Our first question today comes from the line of David Leiker with Robert W Baird. Please proceed with your question.

Can you hear me all right?

Yes.

Okay. As we look -- Don, I think you said that the new business awards you had were $29 million annually, did I hear that correctly.

That's correct.

Do you happen to have -- we can go through other calls, but do you happen to have what a cumulative number is of that, since you guys have started talking about that number? Do you know those for cumulative at all?

I'm not sure I understand the question, cumulative over -- .

Well, on previous calls you've talked about your new business awards and the annual revenue. Do you have that accumulated across all of those announcements that you've made? Or what the annual incremental revenue is from new business?

We will have that, yes.

We don't have it with us.

Oh, okay.

We certainly track that.

Yes. No, I was just wondering if you had it handy. We can go back through other calls, and grab that number.

And then from what I understand, you have, sounds like about $3 million or $4 million of Delphi revenue that was in last year's numbers yet, is that correct?

$7.5 million was in last year's Q1.

Going forward in Q2, there's $3 million or $4 million left in last year's comp in Q2?

Yes. About that level.

And then on the Ford legacy business running off, which it's -- we clearly have had that mismodeled, but, I think the magnitude of that is much larger than what we've thought. Is there some context you can give us of what kind of an impact that's had on the numbers?

In first quarter of 2010, there was some Ford in there, but I would have to get you that number. I don't know that your model is off there. I just think that here -- you're anticipating a higher revenue rate from Ford than we are on current business.

Well, if we take a look at, maybe just, if we exclude Delphi and the China transfer business, you're saying your North America volumes are down 60% year-over-year, right?

That's right.

That's probably correct, yes.

And production in North America was up 70%, and it seems to me -- and we don't have My Ford Touch really rolling into that number in Q1.

Right.

And so I'm trying to reconcile why there's such a big difference between your decline in revenue versus a pretty significant increase in production. And the variable that seems to stand out to us is the runoff of the Ford legacy business, unless we're missing something.

We can study that, but I know we shipped 100% on time, everything our customer wanted in the first quarter. And those are -- that's Ford and others, so -- and the quarter came in pretty much where we anticipated it would. In fact, I think in our K last year, we said that we thought that the first quarter would be, first of all, that the first quarter would not mirror the fourth quarter, and that we thought that Automotive revenues would be down. So from our projections, we're pretty much where we thought we were going to be.

I'm a little disappointed in Power margin, but I understand it. That's more mix. So I'm -- we'll go back and study the Ford transition, but I'm still struggling with where the disconnect is here between our models.

I'm not even talking about our model. You're saying that your revenue ex-Delphi and China transfers is down 60% in North America, and I'm saying North American production was up 70%. It's pretty significantly underperformed the North American automotive market. I'm just trying to reconcile that.

We're going to have to try to model that ourselves. I'm not sure I agree with you there.

Well, last year we built 1.7 million vehicles in North America. This year we built almost 3 million.

I'm not going to argue with you on that. All I'm saying is that the business performed where we expected it to perform based on the business booked, and our own internal forecasting.

No, I understand that. Let me move onto something else.

How much -- of the vehicles that have My Ford Touch in it, what portion of what percentage of those do you think you're going to have content? I saw -- one of the comments out of Ford is that the Explorer, which is launching now, that they expect to have 80% of the Explorers with My Ford Touch in it. And I don't know that you're expecting to have 80% of the Explorers having your touch points in it.

No, we're not. Separately I can, I know we've given you the vehicles in the past, but separately we can give you that again. The only number I have is what we said in the prepared comments, is $12 million for this fiscal -- .

Right.

But we can backtrack and give you the specific platforms.

The investors can't assume that just because My Ford is in the vehicle, that you have content on that vehicle, correct?

Okay. My Ford Touch is a topology or a network on the vehicle. Some of them employ TouchSensor, some of them employ traditional switches, so my -- the fact that My Ford Touch is on a vehicle does not automatically equate that any type of touch product is on the vehicle.

Okay. No, I just wanted to verify that, because I think there's -- thank you. That's all I have. Thank you.

Okay. And that's why we stressed -- and on previous calls -- that it is around $12 million, and at least in this fiscal year, $40 million total.

No. I just -- since Ford's throwing out that number, I just wanted to make sure people were aware you're not on 80% of the Explorers.

Right.

Thank you. That's all that I have, thanks.

All right. Thank you, David. And we'll get you the other information.

(Operator Instructions). Our next question comes from the line of Jeremy Hellman with Divine Capital Markets. Please proceed with your question.

Hi, good morning.

Good morning Jeremy.

So what I wanted to do -- and you guys are kind of touching on it a little bit with David's questions there. Because I had pulled out your commentary from last quarter earlier, and I have in my notes that you said Q1 would be down sequentially due to seasonality, the July model change over in auto, and also just global economic conditions. So you basically came in better than you had advertised, which from where we stand was good, so wondering was it mainly just Europe and Asia in auto that led you to come up with results better than you had thought or was there something else--?

No that's right. Europe was up a little higher than we expected. We, depending on how you view the Automotive market in Europe, we were expecting it to start to trend down a bit. I think we're still cautious going forward, it remained, actually, fairly robust through the Summer, or through the July, the third month of our quarter.

And then Asian sales were, particularly in lead frame business was up, and that's mainly because of the transmission that goes into is a more -- the six speed transmission, more fuel efficient, it's being rolled out across more platforms, so we benefited from that. I guess my caution going forward is, we still anticipate a bit of a slow down, and we're still indicating that we think our total Auto business will be down for the year. Mainly, because of Delphi.

Right.

If the vehicle builds remain a little bit higher, than we'll track with that, as I said to David. We shipped 100% of everything our customers wanted, so from auto, we're clearly at the mercy of the market. We can't do anything tomorrow that's going to effect Auto revenues other than to ship product as required.

Right. So if I'm kind of looking in terms of the remaining three quarters of the year, segment by segment kind of the seasonality pattern, and if it's okay by you guys, I'll just run down how I see things, and if there's an abhorrence in that just let me know. It sounds like Auto should be flat, plus or minus with some wiggle room. Back half of the year is when you see the $12 million from My Ford Touch start coming in, Q3, Q4. Is that a fair enough way of looking at things?

Yes. The only other comment I would make is, we keep talking about Delphi. What I found particularly exciting about the first quarter here is that we have successfully replaced that revenue, and to a degree the profit, and that's not insignificant in the whole scheme of things.

Oh, yes. No, absolutely. Then just moving down to Interconnect. You made some comments there. You said probably flat to maybe some down-ish variance there. I'm trying to keep up with you guys as you went through your comments. Power products, I don't think you made a comment in terms of directionality there. Did I miss that, or did you not comment on that?

I don't think we commented on it. It's likely to be flat quarter over quarter. We have less visibility in that business. If we get a MILAERO order business and ship it in the quarter, that will certainly effect the numbers.

The only comment we made there is, we had more telecom business at lower margin than MILAERO at higher margin. So less visibility there. Probably flat to plus or minus a little bit sequentially. Most of the business we have booked in the last six, 12 months will launch in really next fiscal year throughout the year. And that's mainly MILAERO, so those margins should improve.

Okay. Fiscal 2012. Okay. And so if I look, speaking of margins then, Auto margins back half of the year, given what you know currently, would seem to have an upward bias, as would Power products, correct?

I would, on Auto, yes, as we -- .

The way I'm looking at it is, you have pre-production costs here, production is going to start coming in, so --.

You're right. As we get into full launch on My Ford Touch, that's correct.

Okay.

And then Power, that really is just mix. I think that's pretty hard to predict.

Okay. And then one last thing on Power, and then I'll jump back out, how significant if at all are your sales to the renewable energy markets, in particular wind or solar?

Quarter-to-quarter, they can be a factor. There was not a lot of sales in the first quarter. I will say we are tracking a number of opportunities in that area. It's a primary focus for us, and then the opportunities, depending on how you view the market, can be sizable. But, in the next couple of months, I don't -- that's not going to influence results that much. It can, over the period of the next 12 to 18 months, have an effect. That's clearly a focus for us.

Right.

That's one of the reasons -- I'm sorry, I interrupt you. That's one of the reasons we invested in [Etrex], to give us access to additional technology.

Right, well, maybe a more broad question. And I was kind of looking at this as a multi-year question. Is your strategy or target customer in that space going to be the Chinese OEMs, the Europeans, or North American manufacturers?

I don't--.

All of the above?

Just knowing what opportunity we're pursuing, it would definitely be the European and the US OEMs. And then also to a degree the stationary market for those type of products. The large OE's are going to do quite a bit on their own, and we have the opportunity to sell them sub-systems. But when you look at the stationary market, just data centers, wind power and so on, there's also a fair amount of business there to be had, and probably at slightly higher margins than you might see from an OE.

Okay, one last one from me, sorry. MDI, did I get the note correct, you said that production starts the second half of 2014.

Yes, that's correct.

At that point, this is obviously thinking a few years down the road, are you going to take that other segment and -- I don't know what the word I'm looking for is -- but essentially put a better name on it than other at that point?

Yes, at some point we have to look at where the MDI technology is being deployed. If it's in Auto, we'll roll it up into Auto at some point -- .

Yes, Jeremy, a good example is the lead frame that we talked about. That started in the Interconnect segment, but the application is on a transmission, so now that's reported through Automotive. And again, that's the customer we're selling to.

And TouchSensor, we -- if it's appliance and so on, it's in Interconnect, and if it's in auto, as in the case of My Ford Touch, than it's reported in Auto. So more than likely, other would become, if it stays pure Auto, it will come into the Auto business.

Right. That's why I was asking. Okay. Great. Thanks.

It's a better name than other.

No, and I just want to say, nice quarter, guys. It's -- stock hasn't respond too well, but hopefully the street will get a handle on things.

We appreciate that. Thank you very much.

(Operator Instructions). Our next question comes from the line of Gregory Macosko with Lord Abbett. Please proceed with your question.

Yes, thank you. Just to follow up on the My Ford Touch and My Ford penetration. I believe in the last call you talked about 80% of all Fords by 2015 should have that program involved. Did I hear that right, last quarter, is that the idea?

Ford said that.

Okay. Ford said that. Okay. That's fine. And, I understand.

And we are, just to clarify a little bit further, Methode is on the center console of My Ford Touch.

Right.

But My Ford Touch also includes the steering wheel switches, as well as the, some of the instrumentation that can be modified, so there's more to My Ford Touch than what Methode is providing. There's quite a bit more actually.

Right. And just to follow up on David's question, does that mean that the idea of sensors versus switches, is the idea that by 2014 or 2015 it will all be sensor as opposed to switch, as far as you understand?

That is a design issue, and probably a consumer issue. There is -- there certainly will be a mix, I think by -- in the foreseeable future, it's still going to be predominantly what I'll call conventional switches, and a migration to touch sensors will be, really, as the consumer embraces it. The early returns on TouchSensor on the Ford vehicles were very, very good. But the vehicles are just launching now, so we'll have to see what the consumer, how they view that as the vehicles get in the field.

So as people see what they're doing, et cetera, the idea, the hope I guess, would be that we would see more sensors in the My Ford Touch as opposed to switch?

Right. And field effects switches on the vehicle, there's certain areas that they're very appropriate for --overhead console is a good area for it, trunk releases, keyless entry. They're much more robust, take up less space, so there's some very logical places for them to go. Whether they go on to replace conventional wheel switches, or center console switches, I think that remains to be seen. But it certainly will be a force within the vehicle.

So that over time, there will be more applications for that TouchSensor to be applied to, as the vehicles age or get more sophisticated or they get more comfortable with it?

Right. And I think it's going to be designer preference. Will an Aston Martin have a touch sensor on it? It's the old argument over analog gauges versus digital gauges. When the Corvette came out with digital gauges, a lot of the long time Corvette fans were upset.

Yes.

Hey, I want my push button switch, or hey, this is high tech, I want slider volume control that's on a portion of My Ford Touch, I think that really might depend on age.

Okay. And then with regard to Ford, the $12 million you expect in the second half of this fiscal year, is the idea given similar volume, that we would -- it's a $24 million run rate? Is that fair to say, or is there some seasonality in that?

Well, there's always seasonality to auto, although July was particularly more robust this year than in the past, but I think we've said at full launch, it's about $40 million, on an annual basis.

Okay.

And I think if you go back into some of our calls, we usually say that the Summer month of July, that quarter tends to be a little bit less, and the third quarter, which includes Christmas tends to be a little bit less for Auto.

And then we -- the $40 million comes from us looking at JD Powers data, and then applying some of our own logic to it. So we don't strictly rely on that data.

Yes, there's some platform launches about a year from now, too.

Right.

But again, that is for just Ford?

Correct.

Okay. All right. Just want to be sure on that. Just so I understand. And then with -- in regard to the North American auto growth, if we back out and just leave Delphi out of it on a year-over-year basis, did -- I thought you said, you talked about that, the Auto growth ex-Delphi.

Yes.

What was that?

If you -- .

Back out Delphi.

Back out Delphi.

Both years, both quarters, last year and this quarter.

And our Auto actually grew, let me give you the exact number here. I believe it was $5 million.

$5 million on -- .

Right.

On what base?

On last year's quarter, first quarter to this year's first quarter.

Adjusted last year's first quarter?

Yes. So, yes, so we had $51.2 million and back out $7.5 million from that -- .

Okay. And that's worldwide?

That's, yes, that's total Automotive.

Right, it's total Automotive.

That's total Automotive, okay.

And the comparison gets a little difficult because last year we did, when we launched the lead frame, we launched in the US at the customer's request, and then transferred it to China.

Yes.

So you had some domestic number in there, too. And that would be a hard comparison to do because the business ramped -- was a ramp between now and then.

Okay. In the Power business, you mentioned that clearly mix was a -- and you had an impact on the profit margins, but are you suggesting that those -- that business mix will return to something we've seen like last year? Was this one-time-ish where the telecom was a bigger portion, and military backed off, or is that something you expect to return to some normal run rate?

That's a good question. It is much harder to predict that business.

Right.

Because we don't have as much visibility into the customers, and the MILAERO, our big -- they're pretty big hitters, and they're not -- they're at the mercy of what, in many instances, what the government is doing.

Let me answer the question this way. Telecom is not our focus. We know that it's a little simpler product to produce in certain instances, there tends to be more competition. There's Chinese competition in that. We changed our focus, probably 18 months ago, to do more MILAERO and as Doug said, industrial, so the business that has been booked, the majority of that is the higher margin industrial MILAERO.

That's generally, from the time we do a prototype to the time we actually are seeing revenues, it's about an 18-month cycle. I would say we're six months into that, so I don't -- if we get an order next quarter, as I said earlier to somebody, for a ship set for something, then that will positively impact the quarter. But, we're not -- we don't have -- you don't have JD Power's data on that Power business. But we do know that the majority of the business that we booked will start to launch next fiscal year, so it may not effect next quarter, but it should have a positive effect next year.

So you don't see that the wind down in the Middle East is an issue relative to the military side of your business?

That's maybe a matter of opinion, but most of the programs that we are on deal with revamping or reusing certain platforms, energy efficiency on ships. They're geared to saving money, also troop protection, armored vehicles.

Yes.

And the military is using a lot of products that now go across multiple platforms from an expense savings. So you can always see cancellations of programs. We've seen that in the past, but -- .

But the point is, I think, what you're saying is, is you have some programs that have been booked, and if well they don't build the vehicles or they do something different, those sales wouldn't show up. But given expectations and the contracts that you have, you're expecting that mix to get better because there will be less telecom and more military aero.

Yes.

Okay. And then on the Interconnect business, you said softening with Whirlpool and one other in terms of--?

Cisco.

Oh.

Which both customers have been fairly, I won't say robust, but pretty good shipments, and we've seen some slow down. That might just be a little bit of the Summer.

Yes.

But it was worth mentioning because those are pretty big customers for us.

Okay. And are those contracts or are those just as they order?

Both, I guess. You're -- we have design wins, and then you're on the drawing, and then most instances, we're either single sourced, or I think in the case of Cisco probably, there might be one other, a person with us or one other company. But that's-- like auto, if they need it, they order it.

And then finally on the cash burn with regard to the accounts receivable up $6.9 million, do you expect that to come down sequentially? You had a strong July. I understand that that's good news, but some customers, the collections are coming. Do you expect the accounts receivables to come more in line, sequentially?

Yes, we would expect that to improve.

Okay. All right. Thank you very much.

Thank you very much.

Thank you, ladies and gentlemen, our next question comes from the line of Josh Brown with Waddell and Reed. Please proceed with your question.

Yes. Hi, guys, thanks for taking my call.

Hi, Josh.

Not to beat a dead horse on the My Ford Touch deal, but as I look at the Ford Explorer available options, they list the My Ford Touch as a singular available option. Are you saying that if a customer selects the My Ford Touch, they can then further select to have TouchSensors? They can break out your product or have the traditional switches? I'm just totally lost there when it comes to where you guys relate to My Ford Touch.

Okay. No. The customer, I don't believe, gets the choice there.

So if they select My Ford Touch, then you guys will be on that system?

I don't want to say, I don't have the platform list in front of me. I don't want to mislead you. We will -- we'll get back to you and tell you exactly what, on the Explorer.

Okay. I'd appreciate that.

Yes.

That's all I have. Thanks.

Okay.

(Operator Instructions). Our next question comes from the line of Jeremy Hellman with Divine Capital Markets. Please proceed with your question.

Hi, one follow-up on the MDI business win.

Yes.

Can you give us some sense of how significant this end road is with the OEM? The language in you're commentary also supported the language that this contract sounds like it could work larger, but could it work larger by $1 million or by double its size?

And also, a corollary to that, are you in any active discussions with other OEMs that you think have a reasonable likelihood of closing that would be of similar scope and scale?

Okay. The technology could very well -- much as what we've seen with lead frames, because there's a cost savings there, and that particular transmission is more fuel efficient, so as that transmission gets deployed on other platforms, we would expect, as we indicated, that that number should go up. And it's hard to quantify, but it's not going to be just $1 million. If you get on another platform, you're going to see a significant increase in that number. Now, does it double? That's hard to say, but it's not, it wouldn't be insignificant.

Is that -- maybe a better way of asking it -- is that OEM a current customer, or is this a new customer?

No, that is a current customer.

Okay. And has this customer in the past in other products that they're sourcing from you guys, shown a pretty reasonable habit of stepping up, purchasing from you like that?

If they're successful with their product, then yes, absolutely, that's the benefit of one of the -- of being on an auto platform is that, is that technology or that product take-off for the customer, you go along for the ride. That's a good position to be in.

A good way of looking at it is what we saw in 276, 276 was -- I'm going from memory -- but I want to say it was about a $10 million initial win. I'd have to go back and get the exact number, but now we're up to about $40 million, and that's also a transmission program. So, in contrast to say like a wheel switch, where you're really specific to a particular vehicle, transmissions go across platform often.

Right. And similarly, if you're proven success with this current OEM, and there's better performance features, then it's certainly reasonable to expect that other OEMs would have an inclination to want to purchase this as well, right.

That's correct. That's one of the reasons we said, and this is the first major deployment of MDI on an automobile, and particularly on a transmission. So if there's -- much like My Ford Touch is that-- if that is successful, we'll see, we have seen, we announced that we have another OEM that's putting it on a small platform as an option, but you start to see it expand across other automakers.

So I really do view this MDI win as very significant. It's a culmination of at least five years of design efforts, where we were $2.5 million a year in R&D expenses.

Is the three-year time period from win to production going to be typical, or is that atypical to the long side?

I think it's -- launching on a transmission is a longer haul than on switches. There's much more testing that goes on. It's a pretty harsh environment. 350 degrees, in excess of 350 degrees Fahrenheit. There's a fair amount of testing, so I would say that's going to be typical. Maybe slightly less, but not by years, by months.

Okay. Thanks.

Thank you. Ladies and gentlemen, we have no further questions at this time. I'd like to turn the phone back to management for any closing comments.

Okay. Thank you, Everett. To answer the question on the Ford Explorer, there's three different options of My Ford Touch, and that's what you really need to look at. I know there's a Sony option. We'll provide more detail on that, but there are options that the consumer can choose.

So with that, Everett, I will thank everyone for listening, and wish everyone a very pleasant and safe Labor Day Weekend.

Ladies and gentlemen, this conclude's today's teleconference. And you may disconnect your lines at this time. Thank you for your participation.