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Littelfuse (LFUS) Q2 2018 Earnings Conference Call Transcript

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Littelfuse (NASDAQ: LFUS)
Q2 2018 Earnings Conference Call
Aug. 1, 2018 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone, and welcome to the Littlefuse Inc. second-quarter 2018 earnings conference call. Today's call is being recorded. At this time, I will turn the call over to Head of Investor Relations Ms. Trisha Tuntland. Please go ahead, ma'am.

Trisha Tuntland -- Head of Investor Relations

Good morning. And welcome to the Littelfuse second-quarter 2018 earnings conference call. I'm very excited to join the Littelfuse team and I look forward to working with you as we develop and execute our investor relations strategy, with a focus on messaging, communications, and outreach to the financial and investor community. With me today are Dave Heinzmann, president and CEO, and Meenal Sethna, executive vice president and CFO.

This morning, we reported results for our second 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 discussion today will include forward-looking statements. These forward-looking statements may involve significant risks and uncertainties.

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Please 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. 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.

I will now turn the call over to Dave.

Dave Heinzmann -- President and Chief Executive Officer

Thanks, Trisha. Good morning, everyone, and thanks for joining us. Before we get started, I'd like to note that on June 25, we announced the appointment of Trisha as our head of investor relations. We are excited to have her on board and we look forward to the leadership and expertise she will bring to this newly created role within Littelfuse.

Our record second-quarter results were driven by broad-based demand for our products across all segments and consistent operational performance, including the ongoing integration of the IXYS business. As we remain focused on the execution of our strategy, we achieved 11% organic revenue growth in the quarter. Our record adjusted earnings per share of $2.68 reflect the ongoing efforts of our worldwide associates to profitably expand our business through a focus on high-growth end markets and applications, supported by a foundation of strong operational excellence. This also drove very strong quarter of cash generation and year to date, we've generated more than $100 million of free cash flow.

We remain well-positioned to benefit from a safer, greener and increasingly connected world as we deliver on our long-term strategy of double-digit sales and earnings growth. With that brief introduction, I will turn the call over to Meenal, who will provide some additional color on the second-quarter results.

Meenal Sethna -- Chief Financial Officer

Thanks Dave. Now some highlights from our second quarter of 2018. We continued our momentum in the second quarter, and our organic revenue growth was stronger than expected, partially offset by some foreign exchange on favorability from a weaker euro. Our team delivered strong operating performance again this quarter, supplemented with some nonoperating benefits driving adjusted EPS in excess of our May guidance.

Sales in the second quarter of $459 million were up 47% over last year and up 11% organically. In addition, the IXYS business also had another strong quarter, with $100 million in sales, growing 20% over last year. GAAP operating margins finished at 13%. Our adjusted operating margin was 19.2%, essentially flat to last year.

We continue to see robust leverage from higher volume and ongoing operational performance in our legacy business with some offsets from the IXYS business results at margins lower than the company average. We recorded GAAP diluted earnings per share of $1.67, which included approximately $26 million in after-tax charges. These were mainly related to certain purchase accounting adjustments, acquisition and integration costs related to the IXYS business as well as some nonoperating foreign exchange losses. Our adjusted diluted EPS was $2.68, which grew 28% over last year.

Our record finish was led by additional volumes in our legacy business along with related leverage benefits. Our IXYS business also finished above our expectations with favorable end-market mix and improved operational efficiencies as we've started to deliver initial synergy savings in several areas. Our adjusted EPS also included some nonoperating benefits again this quarter. As I noted last quarter, accounting rules changed in 2018 relating to equity investments.

We reported a mark-to-market gain equivalent to $0.05 in EPS on a few nonoperating investments. We expect that accounting change will continue to drive future volatility due to potential gains or losses. Also, our tax rate was about 100 basis points favorable to our projected 20% midpoint due to favorable profitability mix and lower tax jurisdiction. That contributed about $0.03 in EPS benefits.

Looking at performance by business. Electronics finished the quarter at a 22.5% operating margin. This was 290 basis points lower than last year, driven by the current lower margin IXYS business. Automotive operating margins were 12.4%, down 110 basis points versus last year.

Commodities remain a headwind versus last year, and we're also incurring start-up costs in some of our new auto sensor program launches. Our industrial segment achieved a 16.2% operating margin for the quarter, as robust sales growth and prior cost-reduction efforts improved margins more than 900 basis points over last year. We continued our track record of strong cash generation, delivering $72 million in operating cash flow and $49 million in free cash flow for the quarter. Year to date, we've grown our operating cash flow by 51% and free cash flow by 54% over last year.

Profitable sales growth led our record cash generation for the first half of the year. Our ongoing focus on working capital is also a key part of our operational excellence initiatives. We've begun efforts to improve the IXYS business working capital, especially across accounts payable and inventory. These cash synergies will also drive our ongoing cash flow performance.

On the capital allocation front, we ended the quarter at 1.8 times on a gross debt-to-EBITDA basis and net leverage well below 1.0 times, leaving us squarely within our leverage target range. We've also focused on cash repatriation efforts, bringing back nearly $150 million in cash so far this year. We continue to be active in driving our acquisition pipeline, and the combination of our leverage and liquidity gives us the ongoing flexibility to execute the inorganic portion of our strategy. A key part of our capital deployment strategy is balancing ongoing investments for profitable growth with distribution of cash to our shareholders.

Our board of directors approved a 16% increase in our quarterly cash dividend, increasing our quarterly dividend from $0.37 to $0.43. This is our eighth consecutive year of double-digit percentage growth in the dividend rate as we continue to execute on our commitment to deliver significant value to our shareholders. We're very pleased with our performance for the first half of the year and are confident in our ability to successfully execute for the remainder of 2018. And with that, I'll turn it back to Dave for more color on business performance and market trends.

Dave Heinzmann -- President and Chief Executive Officer

Thanks Meenal. Beginning with the electronics segment. Our record second-quarter sales of $299 million were up 77% year over year. This reflects our first full-quarter results for IXYS, which grew 20% year over year.

Organic sales growth for electronics was 14% led by strong performance in Europe and Asia. Our results in the second quarter again benefited from strong broad-based industry demand. During the quarter, we were able to leverage our existing capacity to reduce our near-term backlog. These efforts contributed to exceptionally strong growth this quarter.

We exited Q2 at a book-to-bill of 1.02, excluding the IXYS business. Industry demand remains healthy, and we continue to see a solid backlog. With our legacy electronics products, we see limited capacity concerns and anticipate normal sales patterns for the third quarter. We continue to keep a watchful eye on distributor inventory levels and believe they are consistent with end customer sell-through.

Our electronics business continues to generate numerous design wins across key markets and geographies. From the Internet of Things, LED lighting and automotive electronics to appliances and industrial electronics, we're well-positioned to take advantage of the strategic growth opportunities across our broad, protect, control and sensor portfolio. The Internet of Things continues to be a key driver for our business as we saw innovative design wins in the quarter for products used across a wide range of connected devices. We secured design wins for a line of smart smoke detectors and digital security cameras as well as robotic vacuum cleaners and smartphone barcode readers.

While IoT drives direct opportunities for our products, we also continue to generate battery protection and USB type C charging cable protection wins. Across these numerous opportunities, our product performance and close customer collaboration are key differentiators. LED outdoor street lighting continues to be an important growth market. We've talked previously about LED lighting projects in Asia and recently won new business in the quarter for projects in Australia.

In addition, we secured a design win in North America where we are gaining share with key outdoor LED lighting manufacturers. Appliances are another key strategic growth opportunity and one where we gained new design wins for our sensors. During the quarter, we secured a design win for a fluid-level sensor with a global dishwasher manufacturer and had a key design win in China for a high-pressure rice cooker. Our automotive electronics business continues its momentum in the second quarter with more than $9 million in design wins.

The wins this quarter were largely driven by customers across Asia. Applications were wide-ranging and including lighting, infotainment systems, safety critical ADAS and powertrain systems. We continue to see solid circuit protection wins for on-board charging and battery management systems used across hybrid and electric vehicle applications. We've also secured key wins in Europe for e-call, the automobile crash system that automatically notifies emergency responders in the event of a serious crash.

Moving on to IXYS. We had strong revenue growth in the second quarter and continue to make great progress on integration efforts. At a recent power control trade show in Germany in June, our combined sales and engineering teams demonstrated a strong and unified presence to customers highlighting our position as a growing player in the semiconductor industry. We are leveraging our global infrastructure in sales and distribution channels to broadly market our IXYS solutions.

We've talked in previous quarters about the opportunities we see across our product portfolio for EVs and the charging technology required to power these vehicles. We are excited about opportunities in this space for the IXYS power semiconductor portfolio, where we had a key design win for on-vehicle charging with a Chinese electric vehicle manufacturer, and we secured more than $2 million in related wins across a wide range of opportunities for off-vehicle charging. One of the many opportunities we see for the IXYS portfolio is within the industrial motor drives, where high power is required. These drives are helping achieve significant efficiency improvements, reducing lifetime cost of ownership and driving tremendous opportunities for power semiconductors to control the torque, speed and power of these motors.

Our IXYS portfolio drove several new business opportunities in the quarter for industrial drives used in battery automation and elevators. We're also seeing growing demand for IXYS products in the medical device market, where IXYS products are used in applications such as automated external defibrillators with high-voltage requirements ensuring the safety and efficiency of these devices requires specifically designed power semiconductors that provide efficient switching and control capabilities. Last quarter, we discussed a few actions to better align the IXYS business with our long-term strategy, reduce costs and improve efficiencies. We made significant progress on these initiatives during the quarter, completing office consolidations, and we're beginning to see logistics and purchasing savings.

In addition, we completed the exit of the Zigbee-based wireless business in Korea. We have been exploring strategic alternatives for the IXYS microcontroller business, including potential sale opportunities. With these cost savings actions under way and others planned, we remain on track to realize a $30 million run-rate synergy target by the end of 2019. As we wrap up the electronics segment, I wanted to make mention of some well-deserved industry recognition we received this quarter.

We were awarded the platinum level Supplier Excellence Award from TTI, one of our global electronics distribution partners. This is the ninth consecutive year we've been awarded this distinction. In addition, the IXYS business was recognized with a Supplier Excellence Award from Raytheon's Integrated Defense Systems business. Both awards are a testament to the hard work and commitment of our global teams to deliver the highest level of quality and service for our customers.

We are proud of this recognition and look forward to continuing to partner with our customers around the world. Now I will cover the automotive segment, where we had record sales of $127 million for the quarter. Our automotive business grew 9% overall and 5% organically. We saw strong growth across our sensor and commercial vehicle businesses.

In our fuse business, lower North American auto production, which tends to have higher content as well as large program launches last year, softened the year-over-year growth comparison. Our passenger car fuse business achieved record revenues for the quarter, with particularly strong results in Asia. In China, government regulations are fueling growth for electric vehicles, creating great opportunities for our high-voltage protection offerings. The momentum toward safer, greener and increasingly more connected vehicles around the world continues to be a foundational driver for our business.

We had design wins in our passenger car fuse and automotive sensor businesses across a wide range of vehicle platforms and geographies, securing more than $20 million of peak annual revenue. Of these design wins, $4 million came from Japan, one of our strategic growth areas where we secured new business for our proprietary fuses for an SUV crossover platform as well as power window protection for passenger car platform. We also won new business to support a line of luxury SUVs in Europe as well as pickup truck and delivery van platforms in North America. Our automotive sensor business achieved double-digit revenue growth in the second quarter, led by strong results in Europe.

As comfort, convenience, safety and efficiency continue to take shape as emerging trends in today's cars and trucks, our automotive sensor portfolio provides key opportunities to increase our content per vehicle. For example, we won new business with a German manufacturer, where our speed sensors will ensure the safe and efficient movement of the vehicle's tailgate. Our seatbelt buckle sensors won key new business with a Japanese manufacturer, where our sensors will play a critical role in increasing occupant safety. In China, our speed and position sensors will be integrated into a vehicle's dual clutch transmission system, providing added efficiency to the vehicle's powertrain.

Our commercial vehicle products business, or CVP, also delivered record revenue for the quarter, with strong customer pull for our products across our end markets and geographies. As a result, we secured more than 20 key design wins, including new CVP business for our power distribution modules, one of our strategic growth opportunities in this business. One of those wins was with a North American manufacturer specialty on-road and off-road vehicles. We worked closely with the customer and leveraged our expertise in vehicle electrical systems to provide an innovative customized solution.

Looking ahead for our automotive segment, we do see some headwinds in Europe likely through the remainder of the year with the implementation of WLTP, the worldwide harmonized light vehicle test procedure. Some auto manufacturers have warned that the backlog of vehicle testing could cause production delays. In summary, as the automotive industry continues to produce safer, greener and more connected vehicles, we remain optimistic that we can leverage our strong long-standing relationships with OEMs and Tier 1 suppliers to deliver high-quality, best-in-class solutions that continue to expand our content per vehicle. Next, we will cover our industrial segment.

Second-quarter sales of $33 million were up 19% year over year and 18% organically. Solar projects were a key driver in Asia, and our high-speed fuse line drove strong demand in Europe and the U.S. We are seeing a slow rebound of the global mining industry in oil and gas markets, driving demand for our protection relays. We also continue to make great progress expanding the presence of our industrial product portfolio across our electronics distribution channel.

On the design win front, we secured a number of important wins, including a program win in Japan for energy storage systems used in data center backup power. We also had key design wins with a manufacturer of electric submersible pumps used in the oil and gas industry. Lastly, as it relates to our industrial segment, we concluded that our custom business, which was heavily tied to the potash mining industry, no longer fits with our long-term growth strategy. During the second quarter, we exited the custom business, which had an annual revenue run rate of about $10 million.

This exit is not expected to have a material impact to the company's future sales and earnings. Finally, I'd like to comment on a few other items before Meenal provides the guidance for the third quarter. While our operational execution is driving solid performance across our businesses, we continue to closely monitor the global trade environment. We have a significant number of operations across China as our strategy has been to align our manufacturing footprint with our global customer base.

The recently implemented U.S. tariffs on China imports affects products across our electronics segment and a small number of products within our other segments. We are working closely with our customers on opportunities to minimize the impacts of the tariffs and passing costs on where necessary. Should additional tariffs be imposed, we are prepared to implement additional recovery efforts.

In summary, our global team continues to focus on our customers and execute on the growth strategy. In electronics, we are taking advantage of the strong market dynamics and are excited to see how the IXYS business will contribute to our long-term growth opportunities. Our automotive segment again achieved record revenue, we may continue to see opportunities to grow our content per vehicle. Our industrial segment is seeing strong growth as fundamental market drivers are showing signs of improvement.

In total, we have executed well through the first half of the year and look to continue that momentum moving forward. With that, I will turn the call over to Meenal.

Meenal Sethna -- Chief Financial Officer

Thanks, Dave. Now let's move on to our guidance. Based on the current foreign exchange rates and the regulatory environment, we expect sales for the third quarter of 2018 of $434 million to $446 million. The midpoint of the guidance reflects 38% reported sales growth and 8% organic growth over last year.

We expect third-quarter adjusted earnings per diluted share to be in the range of $2.31 to $2.45 with the midpoint representing 13% growth over last year. The EPS guidance assumes an adjusted effective tax rate of approximately 21%. A few points to note around our guidance. Second quarter is typically our strongest sales quarter of the year.

We've historically seen a slight sequential decline in the third quarter led by our auto businesses. The sequential decline also reflects our robust second-quarter sales as we reduced backlog across electronics as well as negative foreign exchange impacts. While foreign exchange has been a tailwind to revenue during the first half of this year, that has reversed with the recent strengthening of the U.S. dollar negatively impacting revenue growth.

Our guidance also includes the impacts from the recently implemented section 301 China tariffs, which we generally expect to be neutral to earnings. We'll provide an update on any future impacts in subsequent quarters. Our bottom-line leverage is impacted in the near term by lower IXYS profitability level, including related share dilution in interest expense. With our synergy activities well under way, we're starting to see an improvement in the IXYS business profitability.

Over the next several quarters, we'll return operating leverage back to our expectation. Looking ahead at full-year estimates on some specific financial items, we're projecting adjusted amortization expense of approximately $40 million and interest expense in the range of $22 million to $23 million. Our full-year 2018 adjusted tax rate range remains 18% to 21%. With the tremendous growth we've had in the past several quarters, we're increasing this year's forecasted capital expenditures to $90 million to $95 million.

Our dual organic and inorganic strategies drive capacity expansion in different businesses each year and yield high returns on investment for us. Given our deep pipeline of growth initiatives, we expect capital expenditures of 5% to 5.5% of sales on an ongoing basis. We had previously projected the EPS impact of the IXYS transaction to be in excess of $0.10 for the year, factoring in the added interest expense and impact of share dilution. With the strong operational performance and the pace of synergy realization, we now expect the net transaction will be approximately $0.20 accretive to EPS for 2018.

In summary, we've had a strong first half of 2018 with sales up 46% and profitability aligned to our growth. We continue to execute through broad-based product portfolio, global footprint and ongoing operational performance to deliver best-in-class growth and profitability. We are well under way to achieve our financial goals of double-digit sales and earnings growth in our 5-year strategy. And with that, Trisha, let's open it up for questions.

Trisha Tuntland -- Head of Investor Relations

Thanks, Meenal. Valerie, we'll take our first question, please.

Questions and Answers:

Operator

Thank you. [Operator instructions] Our first question comes from Shawn Harrison of Longbow Research. Your line is open.

Shawn Harrison -- Longbow Research -- Analyst

Hi, good morning, everybody. Congrats on the strong second-quarter results. If I were to think about the components of the guidance and sales looking down around $20 million at the midpoint, how much of that is, if we could break it up into different buckets, seasonality in auto versus the backlog work down in electronics versus maybe the currency factor?

Meenal Sethna -- Chief Financial Officer

Yeah. Look, let me -- so let me break it down, Shawn, maybe into basis points. So sequentially, we're calling about 4% down that's $20 million you talked about. Let's say, FX is about 200 basis points of that.

The electronic backlog's probably another 100 basis points. And then the exit of our custom business is about another 50 basis points. After that, we've got some other normal sequential declines in automotive and other pieces with offsets of increases. So those are probably the three biggest areas.

Shawn Harrison -- Longbow Research -- Analyst

That's very helpful, and just kind of following up on that. Dave, you mentioned a little bit of a caution on European auto. Did you reduce your expectations for the automotive market for the year because of that? And then also, just on the electronics business, maybe some commentary on sell-in versus sell-through at distribution.

Dave Heinzmann -- President and Chief Executive Officer

Sure. Yeah. So first, on the auto, I think it's a little bit unknown, particularly, in Europe exactly how the OEMs are going to deal with the new approvals and testing they've got to go through. I know some of them are leasing space to park vehicles and some of them are talking about slowing down.

So yes, it's probably softened our view of revenues in the third and fourth quarter, but not a significant amount. It's just one that, I think, is a volatility issue that we've got to keep our eyes on as we kind of look into the second half of the year. On the electronics side, on the sell-in and sell-through side during the second quarter, because of our ability to continue to pull lead times actually in, we actually burn through some of our backlog at a pace faster than we anticipated during the second quarter, which contributed to very strong sales performance in the second quarter and, consequently, margin you've seen how that dropped through. We still have positive book-to-bills, so we left Q2 with a 1.02 book-to-bill.

And the book-to-bill remains above 1 now. So we continue to see no signs of demand, in-demand really dropping or any negative signs there. And in general, the POS, the sell-through at our distribution partners remains healthy, and their inventory position, which we watch very, very closely these days, is in line with that sell-through. So we're not overly concerned with that at this point.

Shawn Harrison -- Longbow Research -- Analyst

And on the backlog and lead times, do you add for both the legacy Littelfuse and then, as well as IXYS, where you would like to be? Or will you be there maybe exiting the September quarter?

Dave Heinzmann -- President and Chief Executive Officer

What I would say, in our core or legacy electronics products, for most of them, we would be at or very near our normal sorts of lead times, so kind of normal sort of pattern there. IXYS still has extended lead times in some of the product categories there that we'll continue to work on. Some of that's related to internal capacity, some of it is related to subcontracting capacity and things like that. We continue to work to try to optimize our ability to get product through the IXYS business.

But I would say, on the core, it's pretty close to a normal sort of lead time at this stage.

Shawn Harrison -- Longbow Research -- Analyst

Great. Thank you.

Trisha Tuntland -- Head of Investor Relations

Thank you for your question, Shawn. We'll take our next caller, please.

Operator

Our next question comes from Steven Fox of Cross Research. Your line is open.

Trisha Tuntland -- Head of Investor Relations

Good morning, Steven.

Steven Fox -- Cross Research -- Analyst

Thanks. Good morning. First, just following up on the last answer, Dave. In terms of the lead times at IXYS, how much of that is fixable on your end? Or how much will require additional capital spending maybe down the road in order to meet demand?

Dave Heinzmann -- President and Chief Executive Officer

Yes. There's clearly capital spending that we're doing now and we'll continue to do there. And as part of -- as you may have heard Meenal talk about, we've increased our capital spending projection a little bit for this year just with the IXYS business in there, so there are normal capacity expansions we need to do. So some of it is clearly just working on better efficiency and driving some of our operational excellence programs through the factories and through the supply chain at IXYS and that takes time to do that.

But in addition to that, we also will be adding capacity as needed there and supporting capacity in the supply chain.

Steven Fox -- Cross Research -- Analyst

Great, that's helpful. And then in terms of the acquisition, so you're now targeting $0.20 from the deal versus a prior $0.10. How much did you get in Q1 in terms of earnings -- or Q2 rather? And then how would -- what kind of run rate would you exit in Q4 with the business?

Meenal Sethna -- Chief Financial Officer

es, in the -- so, Steven, in the first half of the year, we've gotten -- it's been less than $0.10, so it's definitely -- it's going to be back-end loaded in the second half of the year. I think some of that is still going to be dependent on the exiting run rate on a few bigger activities we have going on, one being the strategic alternatives for the MCU business. But I would say, give us into the third quarter and we'll have a better indication for you of how we feel we're going to exit the year on that.

Steven Fox -- Cross Research -- Analyst

OK. And then just lastly on tariffs. You seem pretty comfortable with the idea of at least passing through these costs to customers. I guess that's also a reflection of the demand environment.

Can you give us a little bit of insight into how easy that is and where it's easier versus tougher? And what else you would do to sort of manage yourself around some of these tariff issues?

Dave Heinzmann -- President and Chief Executive Officer

Yes, Steve, it's a great question. And for us and our customers and our distribution partners, it's a very complex question to get your arms around. And the answer is very different for different customers. In some cases, customers literally can -- we can work with them and adjust their supply chain structure and help just kind of eliminate some of the potential tariffs and then drawback work that they might have to do.

And in other cases, it's just as simple as the fact that we're importing from China and the U.S. There is the tariff that's involved and in that case -- and there's nothing we can do with the customer to help them. In many of those cases, it's necessary for us to pass that on. This largely is impacting our electronics components, which a high percentage of those also sell through distribution channels.

And so we're working often with our distribution partners to pass those costs along where necessary.

Steven Fox -- Cross Research -- Analyst

Got it. Thank you so much.

Dave Heinzmann -- President and Chief Executive Officer

Sure.

Trisha Tuntland -- Head of Investor Relations

Thank you, Steven. We'll take our next question, please.

Operator

Our next question comes from Matt Sheerin of Stifel. Your line is open.

Matt Sheerin -- Stifel Financial Corp. -- Analyst

Thanks. Good morning. So just a question, Dave, regarding the electronics business. I'm sure you've seen a lot of companies talk about supply constraints and things like passive components and capacitors and resistors and the like and, of course, your lead times are normal.

Are you seeing any change in terms of customers rescheduling production because they're waiting for parts that are hard to find? It doesn't sound like you've called that out and probably because most of your electronics sales goes through distribution. But is that a concern or something that you've talked to your customers about?

Dave Heinzmann -- President and Chief Executive Officer

It's something we certainly talk to our distribution partners and customers about. And where our components and our technologies are in a limiting factor, obviously, there's some times where they have shortages on a particular technology that will -- that keep them from shipping at the rates they would like to. Where that may impact the overall demand pattern because of their inability to be able to ship, because our lead times have been steadily moving in on our products, we don't see them necessarily booking dramatically more further out to reserve space, if you will, for us because our capacities are not so constrained there. So we haven't seen a lot of it.

It's a conversation we have regularly with our distribution partners as well as end customers.

Matt Sheerin -- Stifel Financial Corp. -- Analyst

OK. And then on your auto business, could you remind us what the geographic breakdown of that business is, roughly?

Dave Heinzmann -- President and Chief Executive Officer

Yes. In the core automotive, it ends up kind of being a split between all three regions. It's a reasonable split between them. Our commercial vehicle business tends to be a little more North America-centric followed by Europe and Asia.

But in our passenger car world, it tends to be pretty evenly split from a revenue side between the regions because although the vehicle count, that we're selling into, may differ in the regions, the content within vehicles also differs. So it ends up being a fairly even geographic split for us.

Matt Sheerin -- Stifel Financial Corp. -- Analyst

OK. Thanks a lot.

Trisha Tuntland -- Head of Investor Relations

Thank you, Matt. We'll take our next caller, please.

Operator

Thank you. Our next question comes from Christopher Glynn of Oppenheimer. Your line is open.

Trisha Tuntland -- Head of Investor Relations

Good morning, Chris.

Chris Glynn -- Oppenheimer & Company -- Analyst

Thanks. Good morning. A question on the testing standards in Europe that you talked about. I was wondering if you're looking at that as kind of a second-half adjustment period that would, just in due course, normalize beyond an adjustment period.

And maybe even if that starts to normalize in the fourth quarter and you get a push from 3Q to 4Q as you think about that?

Dave Heinzmann -- President and Chief Executive Officer

Yes. I don't -- we certainly aren't looking at it this day that it's going to create a long-term reduction in vehicle sales in Europe. There just maybe some delays, if you will, in production as right now, they're already stacking up vehicles in parking lots waiting for testing before, because in September when it kicks in, they have to get through it. So sometimes, as they are modulating their output, particularly during the summer months in Europe and they choose to modulate a little bit lower so they don't build up more inventory, it's a very fluid situation.

So I'm not sure that we have the best vantage point to predict that. But we don't see it as a reduction in overall sales in Europe. It's just a timing issue on production, I think.

Chris Glynn -- Oppenheimer & Company -- Analyst

OK. And then a couple on IXYS. I'm wondering if you could quantify what the impact of dilution was for the electronics margins. And secondly, as you've been working those lead times, I think maybe reducing backlog a little, if third -- second-quarter revenues from IXYS were a little bit above what you'd expect going forward?

Dave Heinzmann -- President and Chief Executive Officer

Well, let me talk about the -- do we think the numbers and the revenue and backlog and things like that in IXYS, and then Meenal can talk a little bit to the dilution of that to the overall margins. But the revenues that we saw in IXYS in second quarter were in line with what our expectations were, well up from where they were a year ago. They are up over 20% from an IXYS to IXYS comparative, if you will. And we continue to maximize the throughput and continue to work those projects.

And when we talk about book-to-bill and things, we pull out IXYS because of the extended lead times. Anytime we make adjustments to lead times and stuff that, that directly impacts what the book-to-bill ratios are. So it kind of set those to decide. I would -- in some products, we've probably begun to either way a backlog and other products, the lead times are as long as they've ever been in IXYS.

So it's a bit of a mix there. I think the revenue levels we saw there about what we anticipated in the second quarter. So Meenal...

Meenal Sethna -- Chief Financial Officer

Sure. Chris, I think your question was on the margins delineating between our call to legacy electronics business versus IXYS. We haven't disclosed that because we're really -- we're looking at within our electronics segment, we now have about a $600 million semiconductor business and we're trying to focus on it that way. And it's the integration now we're six months into that.

We're seeing resources move between businesses, and we're really putting operations together across the business. So we're trying to look at it more holistically and haven't been talking about the margins separately.

Chris Glynn -- Oppenheimer & Company -- Analyst

OK. And if I could sneak one more in. I think you mentioned 20 design wins in commercial vehicle. I'm wondering if you are starting to see some real returns on the small Menber's acquisition.

Dave Heinzmann -- President and Chief Executive Officer

Yes. What I would say is, overall, our efforts to expand the technology offerings and the customers we're reaching in commercial vehicle are certainly beginning to show some promise as we're reaching more and more kind of diversified customer base there, which we think is a good healthy thing for us. I would say the Menber's acquisition in Italy, what it has done is it's improved our access and relationships with the European customer base, which ultimately will drive potential growth in Europe at even higher rates. So I think we're getting that strategic benefit from that acquisition at this stage.

Chris Glynn -- Oppenheimer & Company -- Analyst

Thank you.

Trisha Tuntland -- Head of Investor Relations

Thank you for your questions, Chris. We'll take our next caller, please.

Operator

Thank you. Our next question is from David Leiker of Baird. Your line is open.

Trisha Tuntland -- Head of Investor Relations

Good morning, David.

David Leiker -- Robert W. Baird & Company -- Analyst

Good morning, everyone. A couple of things on IXYS here to start. You've increased the contribution, the accretion from the acquisition from where you initially were talking as it relates to this year. Is that a timing? Are some of the things that you would've thought were in '19 are coming into '18? Are you finding more opportunities? Are you driving revenue synergies? Or what combination of that might it be?

Dave Heinzmann -- President and Chief Executive Officer

OK. I think, largely, that is driven by the fact our ability to work with the IXYS factories to get more product at the door. So I think our -- although second-quarter revenues that I just stated with Chris weren't a surprise being higher than we anticipated, certainly, I think in first quarter, our ability to go in and make a difference fairly quickly was more than we anticipated. So I think a lot of it's driven by the higher revenues we're able to drive through it.

I think the synergy activities are kind of in line with what we expected. Those aren't materially different. I think it's just a stronger business and our ability to get product through the factories.

Meenal Sethna -- Chief Financial Officer

And I think, David, the other piece I would add is, when we gave our view in January, the business has definitely performed overall much stronger and then we've been able to add, I'll call, the operational excellence programs. We had to even try and boost the growth even beyond the initial forecasts. So a lot of that is just the additional volume and then some better leverage that we're getting from that. So if you want to call some of that synergies and maybe we weren't anticipating, I suppose that's there.

But the -- some of the original synergies we were targeting are just on track.

David Leiker -- Robert W. Baird & Company -- Analyst

OK, great. And then now [Inaudible] it's six months under your belt, owning it and in the power semi-space, anything that you've learned in terms of the technology position, competitive position of IXYS that you didn't know at the time that you bought it?

Dave Heinzmann -- President and Chief Executive Officer

Yes. If anything, I think we and certainly myself are more optimistic about the long-term potential of the power semiconductor, design-in capabilities, the customer base that IXYS has relationships with that we can also bring other Littelfuse products to. So I think it's certainly strengthening our access to what I would call industrial electronics customer base. And I think that's very much a positive.

Their business is a very strong design-in business where you win a lot of the business at the engineering desk. And I think that's something we were looking for, so that continues to be very positive for us. So if anything, the opportunities we find are greater than when we closed. So we're very -- we remain very bullish about that.

David Leiker -- Robert W. Baird & Company -- Analyst

Great. And then just one last item here. If we look at on the automotive side, when you look at the business that you're going after, your pursuit business, the wins that you're getting, is there any color, details we can get in terms of the scale of the opportunities, like the content? And just anything that you're seeing in the outlay that you can help us out a little bit in terms of what that business might be growing at on a kind of in-the-door type basis?

Dave Heinzmann -- President and Chief Executive Officer

Yes, sure. And first of all, I would say because of how we report in our segments and things like that, it makes that a bit more complicated to get your arms around. So for instance, one of the highest growth areas within our automotive business is our automotive electronics. So it's increasing electronic content in the vehicle.

So that's probably one of the highest growth areas. That actually doesn't show up in our automotive segment. That shows up in our electronics segment. And in the second quarter, we had about a 19% growth rate in our automotive electronics, so we're having a very robust growth in that space as fundamentals of that market are growing and our ability to gain position and share there are very, very positive.

I would say, in the kind of the electrical infrastructure vehicles where we've had our legacy business very well established, that continues to kind of at a normal pace plus the fact that the higher voltage applications increase content as that progresses so that we expect it to continue what we are experiencing, winning business that's above car build growth. And it's really driven by the content increases of the higher voltage as we move to EV and those types of applications. And then automotive sensors are also a pretty robust revenue growth story for us. So we remain pretty confident in our ability in electronics to still be doing kind of high single-digit organic growth in that space over the coming years.

David Leiker -- Robert W. Baird & Company -- Analyst

Great. Thank you very much.

Trisha Tuntland -- Head of Investor Relations

Thank you for your questions, David.

Operator

Thank you. [Operator instructions] Our next question comes from George Godfrey of C.L. King. Your line is open.

Trisha Tuntland -- Head of Investor Relations

Good morning, George.

George Godfrey -- C.L. King & Associates -- Analyst

I just wanted to ask about the operating margin on IXYS. And then, Meenal, I understand you don't want to break that out. If I look at IXYS stand-alone before your acquisition, the margin was about 10%. Your electronic average over the last five years by my math is about 21.5%.

Is there any reason to think that that can't go to that level within your electronics segment pre the acquisition? And then following that and tying that in with the $30 million cost savings that you're targeting by the end of '19, is that a linear progression toward that $30 million? Or is it more back-end-loaded that you exit '19 at your annualized or quarterly rate as opposed to gaining a little bit each quarter?

Meenal Sethna -- Chief Financial Officer

Sure. So let me go back to when we announced the IXYS acquisition and where we thought we would end up. So at that time, you're right, the operating margin was running 10% or actually even a little bit lower than that. And EBITDA margins were in the low double digits, somewhere in the 10% or 11% range.

What we said at the time when we announced the acquisition is with the $30 million in synergies that we would expect to get the IXYS business up to the company average EBITDA margins. And I quote EBITDA because then you get into the intricacies of accounting amortization expense, so leaving all that stuff aside. And we talked about EBITDA margins in the low 20s because that's what we've been projecting at the company. And we have not changed that and we feel that that -- we definitely are seeing the run rate with that.

We'll see over time here. But at this elevated volume levels, possibly, we could even see some higher levels from that if we work on efficiencies even beyond the first two years. And then it also talk about the electronics margins, which in the past few years have been running higher than that average that you quote. I think a few things that we talked about maybe on some past calls, one is we're in this demand environment -- very robust demand environment we've been talking about for a while.

And a lot of folks, including ourselves, have been talking about the fact that we're not seeing the price erosion that we normally see. So that's been a huge benefit to our margins in the past couple of years as has also currencies generally have gone our way on average. So we've been seeing some benefits from that. So I think if you put those two pieces together over the long term, I think you can see IXYS EBITDA margins maybe not being at the electronics average, but well in the company average.

And the electronics margins maybe not quite at this current sustained levels, but still at a very nice clip for us for the business.

Dave Heinzmann -- President and Chief Executive Officer

Yes. And the synergy, yes, the second half of your question on the synergy timing, we will gain synergies as we move through quarters. But it's still -- the bulk of it is fairly back-end-loaded. So the rate of gain will increase as we approach the back end of 2019.

George Godfrey -- C.L. King & Associates -- Analyst

Great. Thank you very much.

Trisha Tuntland -- Head of Investor Relations

Thank you for your questions, George. Those are all the questions we have this morning. Thank you for joining us on today's call and your interest in Littelfuse. We look forward to talking with you again soon.

Have a great day.

Duration: 49 minutes

Call Participants:

Trisha Tuntland -- Head of Investor Relations

Dave Heinzmann -- President and Chief Executive Officer

Meenal Sethna -- Chief Financial Officer

Shawn Harrison -- Longbow Research -- Analyst

Steven Fox -- Cross Research -- Analyst

Matt Sheerin -- Stifel Financial Corp. -- Analyst

Chris Glynn -- Oppenheimer & Company -- Analyst

David Leiker -- Robert W. Baird & Company -- Analyst

David Leiker -- Robert W. Baird & Company -- Analyst

George Godfrey -- C.L. King & Associates -- Analyst

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