Q2 2021 Littelfuse Inc Earnings Call

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And thank you for standing by welcome total fused second quarter 2021earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded.

A day you require any further assistance. Please press star Zero I would now like to hand, the conference over to your speaker today, Trisha <unk> head of Investor Relations. Please go ahead.

Good morning.

And welcome to the <unk> second quarter 2021 earnings Conference call.

With me today are Dave Heinzmann, President and.

CEO immuno <unk> executive Vice President and CFO.

This morning, we reported results for our second quarter and a copy of our earnings release and slide presentation is available in the Investor Relations section of our website.

A webcast of today's conference call will also be available on our website.

Please advance to slide 2 for our disclaimers.

Our discussion today will include forward looking statements. These forward looking statements may involve significant risks and uncertainties.

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.

Also 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. The most comparable GAAP measure is provided in our earnings release.

Both in the Investor Relations section of our website.

I will now turn the call over to Dave.

Thank you Trisha good morning, and thanks for joining us today.

Let's start with slide 4.

I'm pleased to share that we continue to demonstrate strong execution within a highly dynamic environment.

Building on our strength.

Strength over the past several quarters we are.

Focused on support of our customers, while navigating a complex global supply chain environment, and continuing our efforts to mitigate the impact of higher input costs on our business.

Our exceptional teamwork and strong business fundamentals.

<unk> second quarter sales.

<unk> $523 million representing record revenues for us.

Despite facing significant input cost headwinds, we delivered adjusted operating margins of 19, 5%.

And record adjusted EPS of $3 from 41 stuff.

Nino will provide.

Good additional color on our strong financial performance.

During the quarter, we saw ongoing strong demand across most of our electronics transportation and industrial end markets.

The slope of the global demand recovery has caused unprecedented conditions across the supply chains are both little views and our.

All comers.

While we do not see our distribution partners building inventory.

We're seeing evidence of some Oems attempting to build inventory where possible while extended shipping times added to inventory levels.

As we work to manage our business.

And capacity driving productivity.

Our customer of months working through material and component shortages and managing logistics constraints.

I'm extremely proud of our global teams and their daily focus on execution to meet stakeholder from bad months.

To deliver on the strategic initiatives within our 5 year strategy.

Moving.

Going on to performance within our segments.

During the second quarter, our electronics products segment experienced strong demand in all regions.

Our revenue growth was driven by our operational execution and strength across the broad range of applications, including data Center and communications infrastructure factoring.

<unk> building and home automation.

And continued demand for consumer electronics.

As we manage through supply chain disruptions are lead times have increased from most of our products as a result, Inc.

Exiting the second quarter, our electronics book to Bill remained well above 1 point al.

And weeks of inventory for our products at our channel partners continue to be lean.

Moving on to our automotive products segment, we're operating with a noisy landscape plagued by ongoing material and component shortages at our customers.

Our performance during the second quarter reflects the hard work of our global teams.

To meet demand.

And we had content gains higher than our expected long term forecast rate driven by a growth of electric vehicles, and a favorable mix of higher end vehicles.

Additionally, the well known supply chain dynamic of unfinished cars, maybe clouding the global vehicle build and are short.

Seems to contact growth.

While our order patterns remained healthy we see some risk of future demand due to ongoing.

Supply shortages at both passenger car and commercial vehicle Oems, resulting in additional shutdowns.

Longer term, we expect the growth of our automotive segment to continue.

Short term and global vehicle build with our expanding content opportunities.

Turning to our industrial products segment, a number of our core markets showed strength during the second quarter, including HVAC renewables energy storage and general industrial.

Mining is showing initial signs.

Signs of recovery non residential construction in North America oil and gas markets remain sluggish.

Going forward, we expect continued solid demand across several of our industrial end markets.

Now, let's move on to key design wins in the end markets we serve.

In industrial and.

Hey, Chris on slide 5.

Our integration of Heartland controls is going very well.

We're capitalizing on strong HVAC demand and we're seeing our combined businesses unlock other opportunities across industrial applications.

We are seeing ongoing design activity across the HVAC market and won new.

And my interest in North America for refrigerated storage applications.

Our focus on industrial automation continues to be a key driver for design labs during.

During the second quarter in North America, we had a design win for a manufacturer of factory automation equipment and our win for warehouse conveyor system.

In Japan.

We added design win for an industrial motor drive applications.

Renewable energy and energy storage systems continue to drive new business, we had key design wins for solar applications in the U S and in energy storage system in China.

Within our transportation end markets on.

On slide 6 design activity continues at a robust pace as our technical expertise and close customer relationships helped drive dozens of key design wins in the second quarter.

And our traditional passenger vehicle business, we won new business for a line of utility bands with our high current fuse.

<unk> modules as we continue to expand our presence in this product application with global customers.

Growth in electric vehicles, and the ongoing electronic vacation of transportation continues to be a driver of new business as we make investments across our overall E mobility strategies.

Secured key design wins for battery management system applications with a manufacturer in North America and had a position sensor win with the manufacturers new electrically powered heavy duty truck line.

We secured a win for our power conversion application with the European EV manufacturer and then.

We secured a design win for high voltage protection in.

In China, we had a design win for an EV charging infrastructure applications.

We continued to generate new business for automotive electronics during the quarter.

Any new design wins across the Americas, and Asia, ranging from powertrain systems to.

And creation.

Material handling remains a good pipeline of design win opportunities for our commercial vehicle business.

We had 2 key design wins in the quarter in Europe, where we leveraged our technical support and showcased our strong execution capability to deliver a complex product solution to meet a customer's tight.

Tight delivery window.

We also had wins for conventional heavy duty truck applications in both China and North America.

Across electronics end markets on slide 7 we are leveraging our leadership and differentiated global access and reach.

Our design win activity remains strong and we.

We continue to secure a broad range of new business opportunities.

With new cloud and video streaming services continuing to come on board.

Source of design activity remains the data center applications, where we secured key wins in the quarter in the U S, Taiwan and Southeast Asia.

We also secured design wins in China.

China for battery protection and charging applications for notebook computers.

And we had a win in Japan for an electric bicycle application.

Our new business opportunity pipeline includes a broad range of high growth industrial transportation and electronics applications that will support and sustain our long term.

Strategy.

Confident in our forward focus capabilities to secure these prospects.

I will now turn the call over to me at all to provide additional color on our financial performance and outlook.

Thanks, Dave Good morning, everyone and thanks for joining us today.

Given the strength of our comp versus.

Growth second quarter 2020, my comments today will focus from sequential performance.

So let's start with slide 9.

Sales in the quarter were $523 million growing 13% sequentially and up 11%, excluding the Heartland acquisition.

GAAP operating.

Margins were 18, 4%, while adjusted operating margins were 19, 5% up 240 basis points sequentially.

Operating leverage with a highlight this quarter with 38% incremental margins over the first quarter as adjusted operating income grew 28%.

Second quarter GAAP diluted earnings per share from $3.30, and adjusted diluted EPS was $3.41.

Up 28% sequentially.

While underlying demand trends remained strong and are driving a robust top line trajectory the operating environment.

Inc challenging.

Our teams continued to navigate supply chain related complications and disruptions every day.

We continue to see increases in input costs, especially commodity other material and freight rates.

While I noted last quarter. These headwinds were pressuring margins.

<unk> 150 to 300 basis points, we're now seeing an impact closer to 350 to 400 basis points.

We initiated pricing actions late last year to help mitigate these costs.

The speed and range in which we are able to offset costs is dependent on our go to market strategy.

For each business.

Price realization has been quicker in areas, where we are heavier in distributions like our electronics segment.

In our automotive segment, which are mainly direct to customers and given the nature of how contracts are structured pricing actions take longer.

And our industrial.

<unk> segment drive the blend of those strategy.

Given this mix, we expect price to offset about half of our current cost headwinds.

We generated $76 million in operating cash flow and $58 million in free cash flow in the quarter.

Year to date.

Inc. We generated $94 million in free cash flow.

We've invested about $70 million in working capital from sales growth year to date.

<unk>, giving our business teams have latitude to hold some extra inventory of critical materials and parts to support customers.

We expect a free cash.

Cash flow conversion of around 100 percentage of net income for the year, which assumes $80 million and capital expenditures.

We also announced a 10% increase in our quarterly dividend rate to 53.

This aligns to our multi year capital allocation objective of 20.

To free cash flow returned to our shareholders via dividends.

Since its inception over a decade ago, we've grown our dividend, 12% on a compounded annual basis.

Moving on to our segments on slide 10.

All grew sales sequentially and finished the quarter.

Percent double digit operating margin.

Our teams have done a commendable job driving productivity improvements, which have continued to elevate our capacity.

Starting with electronics sales were $325 million.

<unk>, 14% sequentially with operating margins of $22.

With present in the quarter up 340 basis points.

This business serves over 100000 end customers and margins benefited from volume and content growth across a broad range of favorable electronics transportation and industrial end markets.

Automotive.

Sales were $133 million in the quarter up 4% with operating margins, finishing at 14, 4% down 140 basis points sequentially.

Beyond the well telegraphed demand across both passenger and commercial vehicle markets, we benefited from higher.

Passenger vehicle content growth from mix.

Operating margins in this segment are most exposed to commodity price increases due to product composition and content with lower price realization offsets due to customer structure.

Our teams have done a terrific job managing.

<unk> through volatile demand and supply chain patterns to drive operating margins in our targeted range.

Sales for the industrial segment up $65 million grew 33% sequentially with operating margins of 12, 9% up 570 basis points.

Key highlights.

Highlights included improved benefits from manufacturing footprint optimization and strong performance from the Heartland acquisition.

We remain on a solid path towards our target of high teens margins for the segments.

Turning to our third quarter outlook on slide 11 demand demand remains healthy.

At the same time the markets are pretty fluid.

We factored in currently on the supplier and customer supply chain impacts and assumed no new material disruptions from Covid.

We expect third quarter sales in the range of $510 million to $524 million.

Down 1% sequentially at the midpoint.

We expect electronics and industrial segment sales sequentially flat to slightly up with a modest sequential decline in auto.

Demand across all of our end markets remains very healthy and we're continuing to meet customer requirements.

But across the automotive landscape, we've seen a number of Oems, noting shortages of critical components from other suppliers, which we expect to curtail their third quarter production levels.

We project third quarter, adjusted EPS to be in the range of $3.7 to $3.

And 'twenty 3.

Down 8% sequentially at the midpoint.

This assumes an adjusted effective tax rate of 16% for the quarter.

The forecast includes 15 cents of unfavorable sequential comps on non operating items, including tax rate and nonrecurring investment.

Games as well as the effect of increasing input cost headwind.

Factoring in what we know today, we expect fourth quarter sales to be seasonally down from the third quarter, but better than typical seasonality.

We're projecting full year adjusted operating margins in our targeted range.

<unk> of 17% to 19%.

And we have updated our adjusted effective tax rate projection to 16% to 17% for the full year 2021.

Our teams are executing on the drivers, we can control and our full year outlook, our full year outlook.

Look reflects the strength of our portfolio.

And with that I'll turn it back to David for some final comments.

Thanks Neil.

On slide 12 halfway through the year, we have delivered strong performance with an ongoing dynamic market environment.

The strong second half supported by.

Total backlog and bookings.

We continue to closely monitor supply chain bottlenecks, and COVID-19 related challenges, including across our suppliers and customers.

While these factors could introduce instability to the remainder of the year, we've proven our sound business fundamentals enable us to effectively grow during these challenging times.

Net of a strong track record I'm confident our company is well positioned for continued profitable growth as we deliver on our long term strategy.

I will now turn the call back from the operator for Q&A.

Thank you to ask a question you will need to press star 1 on your telephone to withdraw your question. Please.

Price per pound key.

And our first question comes from the line of Luke junk with Baird. Your line is open. Please go ahead.

Good morning, David and you know.

First question I want to ask about the overall tightness, we're seeing around the electronics supply chain right now, especially some of the capacity that youre able to bring to bear on that.

And what I'm wondering is is there an opportunity to take pricing more strategically in your electronics business right now and in general maybe if we could talk about what the interplay it looks like right now with your distribution customers, especially.

Sure Luke.

So if we look at it certainly.

Very dynamic environment and there are a lot of ex supply constraints out there and a lot of different pockets within the electronics area.

We've talked about this in the past historically.

In our business, we try to have enough ability to respond to spikes in demand or upticks in demand.

And our goal is to always outperform our competitors during these opportunistic times.

When we do that.

We're able to serve that that helps our revenues grow.

In some cases.

You'll get that for during the times that you have the constraints.

I will go back flow back.

Back to their competitors.

What we've found is often.

<unk> gained some share and hold it during these times because we help service the.

Customers compared to competitors. So there is that interplay between what do we do on pricing versus opportunities to grow share at all in kind of the cash.

For us as we look at clearly in the electronics side, our input costs are up significantly.

So we are working to pass along those increased cost to customers and have had reasonable success in that so there's always an interplay between the longer term opportunity in the near term pricing needs.

Okay. Thanks for that and then switching gears to the auto side wondering how you see the auto content store is setting up for the second half of the year in terms of enjoying higher content on say more expensive vehicles curious if you see staying power in terms of what Oems can produce or ultimately want to produce of course and how that might ramp.

Is that true production and eventually comes back on line for a little piece.

Yes, it's a great. It's a great question and 1 we ask ourselves and our customers quite often on where we're at on that clearly.

The current mix of customers that we're serving and the vehicles that they're producing.

<unk> and <unk>.

First and foremost are putting priority on electrification, which we think will be an ongoing trend. So we don't see that shift and we see that continuing to be a <unk>.

Positive influence for us in the second half and beyond.

With regard to traditional vehicles.

Their focus on like in North.

Trucks, and Suvs higher end vehicles in Europe, and even in Asia.

Yes, certainly that's been a positive influence on our outgrowth of the market for sure.

We see that probably continuing for most for the back half of the year.

However, at some point in time, the mix will shift back.

North America, there have not been a lot of fleet cards that have been selling or certainly not U S.

Manufacturer fleet cars.

And sedans that tend to have a little lower content. So at some point there'll be a balance that kind of comes back in order there.

But we don't see that today happening in the back half of the year.

Great. Thanks for the color I'll leave it there.

Great. Thanks, Luc I appreciate your questions, we'll take our next caller. Please.

Our next question comes from the line of Matt Sheerin with Stifel. Your line is open. Please go ahead.

Morning.

Yes, hi.

Morning, everyone.

David just regarding your commentary about channel inventories still being lean.

But some signs of some OEM inventory build do you have a sense of what those inventories at your customers big customers look like and in terms of distribution.

Do you know what in terms of sell through in other words the distribution customers are they all day beginning.

Beginning to build inventory and if that's something we need to worry that at some point in the next 2 to 3 quarters.

Thanks, Matt.

With regard to our distribution partners themselves. So we have you know.

Very good.

Is there an understanding where they're at what their sell through is of our products and things like that and or what I would say is.

Although our distribution partners would like to increase their inventory position with our products. They have been unsuccessful in being able to do that because their sell through has been so robust.

So as we stated in the.

In the prepared remarks inventories are pretty lean stuff that our distribution partners and we have not seen those improve.

From their perspective, so they continue to be lean.

So we don't see any danger there we do see that there are Oems who are attempting to build inventory.

So.

There are cases, where they are able to do that in many cases, where they are unable to.

And our teams continue to look there we don't have visibility in those areas, but certainly as you kind of look even public companies. So we ended up selling into where their days of inventory may not be up their absolute inventory on.

Raw materials, and whip and things like that are absolutely up. So therefore, there is inventory that's built at those Oems to some extent.

So we don't have perfect visibility to it but we know it's an influence and then on top of that you put in the fact and this is more kind of broadly not just electronics, but with very long.

<unk> supply chain and shipping times 4 modules sub components those sorts of things around the world inherently you have extra weeks of inventories that are on the water.

They're being shipped between locations and things like that so inherently theres, probably some buildup of inventory in the market.

But clearly we're not.

Seeing it at distribution at this point in time.

Okay. Thank you and then on automotive you talked about the pricing dynamics, obviously being different than electronics with the distribution channel.

At what point do you start to see.

Those prices go.

Is that just sort of annual contracts, which would be the beginning of next year or are there any riders in contracts that enable you to increase prices on near term.

Yeah. So.

Automotive OEM space, we do have a small amount of our contracts have riders for some.

But it's a relatively small amount of the business.

The bulk of our business and the auto side, we tend to have long term multiyear contracts.

That inherently we negotiate even more price downs would be 2 years from now ex et cetera, So those multiyear contract.

Metals.

We're not able to successfully pass through a price increase today.

However, we.

We're continually re negotiating long term contracts with different customers and what we find is certainly when we're negotiating contracts today, we get much more favorable conditions.

The reality is it will impact.

Over time, even over the next couple of years, where there'll be some favorability that comes from that we do have some cases, where we're not don't have long term contracts and in those cases, we have already pass through pricing.

<unk>, where we can and even sometimes surcharges on freight and things like that.

So it's a mix.

But it just takes a lot longer with these with these long term contracts on the auto side.

Got it okay. Thank you.

Thanks, Matt I appreciate your questions, we'll take our next caller please.

And our next question comes from the line of Jamie Kelly with Jefferies. Your line is open. Please go ahead.

Good morning, David.

Hey, good morning, David.

And Tricia, maybe a couple of questions from my end.

I wanted to start with the auto outgrowth discussion and I think you've referenced maybe tracking a bit higher given the choppiness of the OEM build and just based on what we're hearing through earnings to date clearly strong component.

And some inventory replenishment in the channel. So so my first question is do you use a are you seeing that trend be do you see that continuing into the second half of the year, given what still feels like very lean dealer inventory levels and still early auto industry recovery.

Yeah.

Demand is good good question David.

The automotive our growth it is a difficult picture to really get a Chris view on as a component supplier.

And the challenges of that can be everything from lack of visibility to tier 1 inventory levels.

Yeah.

Inventory levels of modules and sub assemblies that our products are in and even today now partially finished vehicles that are sitting out there in storage that are not showing up as car build.

But obviously have our content in it because we've been able to supply all of those things add to the complexity of having a perfect picture of what's going.

And on any kind of inventory builds in things, we know that our current outgrowth is well beyond our our long term expectation on the business again, driven by very strong <unk> demand as well as the positive mix of very highly optioned vehicles that have higher content.

On line from Us.

As I stated earlier, we don't see that that mix shifting dramatically in the next couple of quarters at some point it well there's a balance on the types of vehicles that are being produced and sold but it is not a near term sort of issue on it and clearly there is some evidence of overtime.

Line, where inventories have gone up with our automotive customers.

We get more anecdotal sorts of evidence for that so for instance, we have some.

Like sensor assemblies that we sell directly to the auto Assembly factories.

In that case, we do returnable containers, well when you run out of returnable.

Containers.

No there isn't excess level of inventory at that OEM of those modules.

We have visibility to a certain tier ones at certain locations, where we know inventory levels are elevated because as we work to make sure. We're supplying everybody we sometimes.

Those tough discussions to make sure we're not shipping somebody who already has plenty of inventory when somebody else with a neat so.

There certainly is evidence of that.

It's very difficult to kind of come down and come up with a specific number.

Yeah.

Okay got it that's super helpful. David.

I need to have makes sense and maybe kind of extrapolating.

Commentary in thinking about the automotive guide you know I think you pointed out down sequentially for revenues is the expectation.

I think there's an assumption out there that may be LPP ramps up from the second quarter to third quarter. So if we think about your guidance.

Certainly.

Flexion of that uncertainty in the channel or are you potentially.

Or maybe it's a bit of both but are you potentially more cautious on your underlying LBP assumption just given some of the ongoing shortages that are out there.

I think it's probably driven by more by the ladder from.

Our perspective on what's low light vehicle production going to be like in the third quarter, we see LFC IHS with our protection, sorry, which are lowering.

Regularly.

So our assumptions are on passenger vehicle.

That third quarter is going to be kind of flattish in the second quarter.

We're probably more downside risks and upside risk on that and then the other calculus that goes in there.

Our automotive segment is commercial vehicle and on the commercial vehicle side, while Theres very strong end market demand, our particular mix of customers.

Seeing a heavier shutdowns in.

The third quarter than we did the circa related to supply issues with other components not our components, but other components. So that's what's caused us to be maybe a bit.

Cautious on archived from an automotive perspective.

Okay got it.

Helpful and thanks for bringing up the commercial vehicle exposure.

That's actually my 1 quick last question did you I may have just missed it but did you provide the contribution of kind of what the commercial vehicle growth was within the quarter just curious how meaningful that was.

Yeah no we.

Didn't specifically call that out in the prepared remarks.

On that obviously.

Obviously commercial vehicle demand is quite strong.

Our commercial vehicle business is up very nicely.

During the quarter, but we didn't call out specifically in the prepared remarks are quite strong.

Year over year comparisons and even sequentially up but.

We do see some challenges.

Second quarter to third quarter, there because we just have some specific large customers that we see them, having higher shutdowns because of shortages.

Like I said, David in the second quarter.

Passenger vehicle growth.

Are those parts of the business and commercial vehicles.

Pretty consistent.

<unk> segment.

Much difference between the 2.

Okay, great. Thanks, David David Thanks, I appreciate it I'll pass it along.

Thanks for your questions, David we'll take our next caller please.

Our next question comes from the line of net.

Dora.

<unk> with Longbow Research. Your line is open. Please go ahead.

Nick Thanks.

Hi, good morning, everyone and congrats on great results from the quarter really impressive.

I just wanted to ask on the margins.

We are much better than expected flow through in the June quarter, but we're kind of thing.

You've kind of given a way back in the September quarter with a similar fall through on the downside.

Just trying to understand the dynamic between the segment margins. It looks like electronics, you guys have a good ability to pass through those price increases from inflation increases, but if we start thinking about.

What margins could be down sequentially should we start thinking about in automotive and industrial, particularly and I'm just trying to understand because you had such a strong June quarter margins and now youre starting to give away essentially are you, saying that youre seeing more and more acceleration and inflation costs and input costs.

Headwinds.

Yeah. So so 2 parts to that equation, Inc.

I would second line.

And just on the pricing and we mentioned.

Depending on the go to market strategy, where we had heavier distribution like electronics, you see price realizations coming through faster offsetting some cost.

Cost headwinds that we.

David had a lot of comments on automotive and how that takes longer because of the multi year customer contract construct that's out there as it relates to input costs at 1 of my comments earlier in the prepared comments was we had talked about a 250 to 300 basis point headwind.

When out there 90 days ago to date that headwind has increased 50 to 100 basis points for every segment. So it's really you know we've got that cost that were offsetting pricing is coming faster in electronics and that's how you start to see maybe some of the shifts in the margin short term.

Okay got it and you guys are currently having a better results in the automotive reported comparative results through to some of your peers do.

If I take the.

The midpoint of the guide assume electronics line industrial flat in automotive down I think for the full year your automotive sales could be up close to 30.

Percentage.

I'm wondering if you could just decompose that relative market growth is and what.

How much is content growth and maybe from other factors.

Yes, obviously your math is not not wildly off on where things are at from what we currently see a car builds and things like that.

So it's quite robust growth in the auto side I think there are probably a couple of things that allow us to maybe perform and grow a little stronger than others..1 is our ability to supply.

I think we were probably in a better position than most to be able to flex up our manufacturing again strategically we tend.

Make sure we can do that the best we possibly can doesn't mean, there arent shortages there we're dealing with we are.

But I think our ability to respond demand to the demand has been pretty strong. So I think that is helpful. And then I think the other thing for US is perhaps this vehicle mix shifts.

2 the highly option higher end vehicles my income.

<unk> impact on us than it does maybe some other suppliers on.

But you are looking at so I think thats a shift that pulls it up.

Rectification trends.

Highly option vehicles those are all very very positive for us as well.

Got it thanks, guys. Good luck.

Thanks for your questions Nick.

Thank you as a reminder to ask a question you will need to press star 1 to withdraw your question. Please press the pound key.

And our next question comes from the line of Karl Ackerman with Cowen. Your line is open. Please go ahead.

Good morning Carl.

Hey, Good morning, guys. This is Eddie for Carl.

My question is last quarter you referenced.

Bookings have extended well beyond what you referred to as normal.

And I'm wondering whether you have seen bookings begin to moderate.

So could you describe briefly describe which areas of the market.

Market may have seen some moderation.

I have a follow up please.

Sure Good question.

We certainly have talked about in electronics, what our book to bills look like and what our bookings track too.

And we are non quoting a particular book to bill ratio because quite.

David with extended lead times now order patterns are going.

On orders that are extending out further than normal it's not a real meaningful number.

Very strong bookings that.

We have in the business, particularly in electronics, but across the board.

And if anything they are stronger today slightly than what <unk>.

Frankly, a quarter ago.

But that's really related to how far out people are booking.

Rather than near term necessarily.

Bookings continue to be quite robust for us.

Okay, great Great and my follow up is what percentage of your outlook for third quarter is locked.

We're today.

In other words, what portion of your outlook requires a book and ship business and how does that compare to last year. Thank you.

Yes, certainly with.

The environment.

And it's very different in different parts of the business.

And our automotive.

<unk>.

Pass car business, you have scheduling agreements. So theyre just scheduling agreements out there you get you get chip releases for the week or the day and ship those so it's not really a bookings that's locked in so much in that way, but in the electronics or industrial side. They tend to have lead times and you get bookings there.

And in those areas, yes, we have quite strong bookings that are there that we would have higher than normal.

Bookings completed for the quarter, so theres not a lot of bookings we have to take on to hit our third quarter in those areas, we're pretty pretty strong demand at this point that's booked.

Sure.

Appreciate your questions Eddie will take our next caller please.

Our next question comes from the line of David Silver with C. L. King. Your line is open. Please go ahead.

Good morning, David.

Yeah, Hey, good morning, Thank you.

I joined the call a couple of.

Our first question is going to be very naive founding but.

I was just wondering if you did kind of a wash.

Walk her connected the dots between your <unk>.

Second quarter guidance 90 days ago as part of your first quarter Conference call.

And there.

The results you reported today and in particular, I mean, I'm thinking on the revenue side.

I'm just wondering I recall, Dave I think you mentioned that lead times, we're expanding I think moderately or lengthening moderately during the first quarter call and.

I did hear you mentioned they seem to be length.

And then again so.

Maybe if you could just talk about maybe the better than 10% increase in your revenues this quarter relative to your guide.

Guidance.

90 days earlier, how much was price how much was volume where there is some rush orders.

You mentioned, maybe customers building inventory just how do you think about that.

Digit increase versus your your guidance on the revenue side. Thank you.

Sure David I'll take the first part of your question.

Q2 in general and what changed over.

So this 90 day.

We are determined.

The beginning that we really had strong demand across.

Most of our markets, which has got a little.

<unk> continued and in some cases, a little bit stronger than we were expecting but I would say coupled with the combination.

Our setup.

Being able to flex, maybe a little bit more than some other from David made some comments on that in the Q&A about yeah. We tried to build in a little extra capacity. So that we can flex to some of these peaks that comes through and I would add our teams around the world on the manufacturing supply chain side and has.

Has done some tremendous work.

With a quite true productivity.

<unk> C to help drive additional capacity for us to meet the orders that are out there. So I'd say the combination of.

Demand market market conditions, our strategy on being ready for times like this and then just really the performance of our team that's really what drove the Q2 beat for us.

And with regard to lead times clearly.

Lead times on most of our products are extended.

As we deal with shortages from our suppliers and shortages exist and there are things like rather than some of our products, we're putting semiconductors within them and things like that so.

We deal with some of the same shortages that others do.

So those things impact our lead time, but maybe 1 of the largest impact to us.

<unk> logistics lead times.

It just takes a long time to get products around the world today much longer than it typically does so you may or may quarter.

About actually the our extended lead times the bulk of it was actually increases.

And our logistics times and that clearly has not gotten better you know them.

Logistics patterns continue to be challenged and so therefore, it takes extra weeks to get products around the world.

So that.

Contributes to it along with these other types of shortages and capacity constraints. So yes, our lead times have continued to extend a bit.

Yeah.

Okay. Thank you for that.

The next question is probably something I haven't asked anybody on a conference call in about 10 years.

But.

You know you're your stock is up a little bit today on on very low volume.

And.

I'm looking at your stock price in absolute terms willing to triple digits your daily trading volume well into double digits. So this is a question about a stock split so many companies.

Choose the time, a stock split with when a dividend increase occurs and that was this quarter, a very hefty dividend hike.

I'm, just wondering internally or when it's reviewed.

With the board.

David what is your philosophy about.

The potential for a stock split to maybe improve liquidity and maybe on a day like today, giving some incremental <unk>.

Buyers, a little bit more comfort about their ability to get in and get out.

Of your stock without unduly.

The price thank you.

I'll weigh in immuno kinase can join in my comments I said like on that certainly.

It certainly is a conversation we've had with our board of directors over time.

And it's a regular thing we will visit and discuss bringing outside advisors to help us analyze whether that's helpful for us.

So we do that.

The bulk of our investor base tend to be long term investors.

Those are the types of investors that we.

We like and target as well and that's quite consistent with with the base that we have in that case, we don't get a lot of pressure that we need to get in and.

Our non quickly.

So they are willing to do that over time, because theyre not looking to do move in and they're back out right away. So therefore, we haven't seen it as a major strategic need for us of how our stock price behaves.

We'll continue to look at it and evaluate and at the time he was right at some point.

Now do that but it's certainly not a priority for us at this point in time.

Yeah, I'll add just to add a comment.

As part of D. D. Previously talked to you know we've had this conversation also with the buy.

Buy side and sell side folks as well and the general feedback we get is hey.

Dave mentioned.

We might spend because we've got generally very long term holding day there.

Then we need to get from the stock and we don't have a problem doing that so.

Lastly, fine we're happy that you keep the short term.

Scott's frankly and the other thing.

Very large institutional basically I don't really have any retail holders.

That's really that's the retail holders they get.

That might want to lowest stock price of institutional don't really feel that as a problem.

Okay, great. Thank you very much.

Appreciate your questions David that concludes our Q&A session. Thank you for joining us on today's call and your interest in little fuse.

And we look forward to talking with you again soon have a great day.

This concludes today's conference call. Thank you for participating you may now disconnect.

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Yes.

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Yeah.

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Yeah.

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Good day, and thank you for standing by and welcome to the Little few second quarter 2021 earnings Conference call.

At this.

Participants are in a listen only mode.

And speakers presentation there'll be a question and answer session to ask a question. During the session you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded if.

If you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Mr.

Tim I'm head of Investor Relations. Please go ahead.

Good morning.

And welcome to the little piece of second quarter 2021 earnings Conference call.

With me today are Dave Heinzmann, President and CEO, immuno <unk> executive Vice President and CFO.

This morning, we reported results.

My second quarter, and a copy of our earnings release and slide presentation is available in the Investor Relations section of our website.

A webcast of today's conference call will also be available on our website.

Please advance to slide 2 for our disclaimers.

Our discussion today won't going forward looking statements.

These forward looking statements may involve significant risks and uncertainties.

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.

Joining us today.

Let's start with slide 4.

I am pleased to share that we continue to demonstrate strong execution within a highly dynamic environment building.

Building on our strength over the past several quarters, we are focused on support of our customers, while navigating a complex global supply chain environment.

And continuing our efforts to mitigate the impact of higher input costs on our business.

Our exceptional teamwork and strong business fundamentals.

Inc, second quarter sales of $523 million reps.

Representing record revenues for us.

Despite facing significant input.

Thanks, Rich headwinds, we delivered adjusted operating margins of 19, 5%.

And record adjusted EPS of $3.41.

Nino will provide additional color on our strong financial performance.

During the quarter, we saw ongoing strong demand across most of our electron.

Costs ex transportation and industrial end markets the slope of the global demand recovery has caused unprecedented conditions across our supply chains are both both us and our customers.

While we do not see our distribution partners building inventory, we are seeing evidence of some Oems attempting to.

Build inventory where possible while extended shipping times added to inventory levels.

As we work to manage our business.

And capacity driving productivity improvements working through material and component shortages and managing logistics constraints.

I'm extremely proud of our.

Our global teams and their daily focus on execution to meet stakeholder combat months, while continuing to deliver on our strategic initiatives within our 5 year strategy.

Moving on to performance within our segments.

During the second quarter, our electronics products segment experienced strong demand in all regions.

Our revenue growth was driven by our operational execution and strength across a broad range of applications, including data Center and communications infrastructure factory building and home automation and.

And continued demand for consumer electronics.

As we manage through supply chain disruptions.

Our lead times have increased from most of our products.

As a result.

Exiting the second quarter, our electronics book to Bill remained well above 1 point al and weeks of inventory for our products at our channel partners continue to be lean.

Moving on to our automotive products segment.

Operating within noisy landscape plagued by ongoing material component shortages at our customers.

Our performance during the second quarter reflects the hard work of our global teams to meet demand.

And we had content gains higher than our expected long term forecast rate driven by a growth of electric vehicles.

There are favorable mix of higher end vehicles. Additionally.

Additionally, the well known supply chain dynamic of unfinished cards may be clouding, the global vehicle build and our short term contact growth.

While our order patterns remained healthy we see some risk of future demand due to ongoing.

Supply.

<unk> shortages at both passenger car and commercial vehicle Oems, resulting in additional shutdowns.

Longer term, we expect the growth of our automotive segment to continue outpacing global vehicle build with our expanding content opportunities.

Turning to our industrial products segment, a number of our core.

Market showed strength during the second quarter, including HVAC.

Renewables energy storage and general industrial.

Mining is showing initial signs of recovery non residential construction in North America oil and gas markets remains sluggish.

Going forward, we expect continued solid demand.

And across several of our industrial end markets.

Now, let's move on to key design wins in the end markets we serve.

And industrial end markets on slide 5 our.

Our integration of Heartland controls is going very well.

Capitalizing on strong HVAC demand and.

And we're seeing our combined businesses unlock other opportunities across industrial applications.

We are seeing ongoing design activity across the HVAC market and won new business in North America for refrigerated storage applications.

Our focus on industrial automation continues to be a key driver for design wins.

During the second quarter in North America, we had a design win for a manufacturer of factory automation equipment and a win for warehouse conveyor system.

In Japan, we added design win for an industrial motor drive applications.

Renewable energy and energy storage systems continue to drive new business.

We had key design wins for solar applications in the U S and in energy storage system in China.

Within our transportation end markets on slide 6 design activity continues at a robust pace as our technical expertise and close customer relationships helped drive dozens.

Design wins in the second quarter.

In our traditional passenger vehicle business.

We won new business for a line of utility bands with our high current refused modules as we continue to expand our presence in this product application with global customers.

Growth in electric vehicles and the.

A key electronic vacation of transportation continues to be a driver of new business as we make investments across our overall E mobility strategies.

We secured key design wins for battery management system applications with a manufacturer in North America and had a position sensor win with the manufacturing.

Fractures, new electrically powered heavy duty truck line.

Secured a win for our power conversion application with a European EV manufacturer and in Korea, We secured a design win for high voltage protection.

In China, we had a design win for an EV charging infrastructure applications.

We continued to generate new business for automotive electronics during the quarter.

Any new design wins across the Americas, and Asia, ranging from powertrain systems to navigation.

Material handling remains a good pipeline of design win opportunities for our commercial vehicle business we.

We had 2 key design wins in the.

Quarter in Europe, where we leveraged our technical support and showcased our strong execution capability to deliver a complex product solutions to meet our customers' tight delivery window.

We also had wins for conventional heavy duty truck applications in both China and North America.

Across electron.

<unk> end markets on slide 7 <unk>.

We are leveraging our leadership and differentiated global access and reach our.

Our design win activity remains strong and we continue to secure a broad range of new business opportunities.

With new cloud and video streaming services continuing to come on board a good source of design activity.

The data center applications, where we secured key wins in the quarter in the U S, Taiwan and Southeast Asia.

We also secured design wins in China for battery protection and charging applications for notebook computers.

And we had a win in Japan for an electric bicycle application.

Our new business opportunity pipeline includes a broad range of high growth industrial transportation and electronics applications that will support and sustain our long term growth strategy.

Confident in our forward focus capabilities to secure these prospects I.

I will now turn the call over to Neal to provide additional color on.

Our financial performance and outlook.

Thanks, Dave Good morning, everyone and thank you for joining us today.

Given the strength.

<unk>.

A weak second quarter 2020, my comments today will focus on sequential performance.

So let's start with slide 9.

Sales in the quarter.

$523 million growing 13% sequentially and up 11%, excluding the Heartland acquisition.

GAAP operating margins were 18, 4%, while adjusted operating margins were 19, 5% up 240 basis points sequentially.

Operating leverage with a highlight this quarter with 38% incremental margins over the first quarter as adjusted operating income grew 28%.

Second quarter GAAP diluted earnings per share from $3.30, and adjusted diluted EPS was $3.41 up.

28% sequentially.

While underlying demand trends remained strong and are driving a robust top line trajectory the operating environment remains challenging.

Our teams continued to navigate supply chain related complications and disruptions every day.

We continue to see increase.

Increases in input costs, especially commodity and other material and freight rates.

While I noted last quarter. These headwinds were pressuring margins 250 to 300 basis points. We're now seeing an impact closer to 350 to 400 basis points.

We.

We initiated pricing actions late last year to help mitigate these costs.

The speed and range in which we are able to offset costs is dependent on our go to market strategy for each business.

Price realization has been quicker in areas, where we are heavier in distribution like our electronics segment.

In our automotive segment, we saw mainly direct to customers and given the nature of how contracts are structured pricing actions take longer.

In our industrial segment drive the blend of both strategy.

Given this mix, we expect price to offset about half of our current cost headwinds.

We.

<unk> $76 million in operating cash flow and $58 million in free cash flow in the quarter.

Year to date, we generated $94 million in free cash flow.

We've invested about $70 million in working capital from sales growth year to date, including giving.

Our business teams latitude to hold some extra inventory of critical materials and parts to support customers.

We expect our free cash flow conversion of around 100 percentage of net income for the year, which assumes $80 million and capital expenditures.

We also announced a 10% increase.

Kris and our quarterly dividend rate to 53.

This aligns to our multi year capital allocation objective of 20% of free cash flow returned to our shareholders via dividend.

Since its inception over a decade ago, we've grown our dividend 12% on a compound.

With annual basis.

Moving on to our segments on slide 10.

All grew sales sequentially and finished the quarter with double digit operating margins.

Our teams have done a commendable job driving productivity improvements, which have continued to elevate our capacity.

Starting with electronics sales were $325 million growing 14% sequentially with operating margins of 22, 8% in the quarter up 340 basis points.

This business serves over 100000 end customers and margins benefited from volume.

Compounds and content growth across a broad range of favorable electronics transportation and industrial end markets.

Automotive sales were $133 million in the quarter up 4% with operating margins, finishing at 14, 4% down 140 basis points sequentially.

Italy beyond well telegraphed demand across both passenger and commercial vehicle markets, we benefited from higher passenger vehicle content growth from mix.

Operating margins in this segment are most exposed to commodity price increases due to product composition and content.

<unk> with lower price realization offset due to customer structure.

Our teams have done a terrific job managing through volatile with demand and supply chain patterns to drive operating margins in our targeted range.

Sales from the industrial segment up $65 million grew.

<unk>, 3% sequentially with operating margins of 12, 9% up 570 basis points.

Key highlights included improved benefits, our manufacturing footprint optimization and strong performance from the Heartland acquisition.

We remain on a solid path towards our target of high teens.

Teens margins for the segment.

Turning to our third quarter outlook on slide 11 demand demand remains healthy at the same time the markets are pretty fluid.

We factored in currently known supplier and customer supply chain impacts and assumed no new material disruption.

30 days from Covid.

We expect third quarter sales in the range of $510 million to $524 million down 1% sequentially at the midpoint.

We expect the electronics and industrial segment sales sequentially flat to slightly up with a modest sequential.

Corruption it'll decline in auto.

Demand across all of our end markets remains very healthy and we're continuing to meet customer requirements.

The automotive landscape, we've seen a number of Oems, noting shortages of critical components from other suppliers, which we expect to curtail their third quarter production.

Sequential level.

We project third quarter adjusted EPS to be in the range of $3.07 to $3.23.

Down 8% sequentially at the midpoint.

This assumes an adjusted effective tax rate of 16% for the quarter.

The forecast includes.

Production incentive unfavorable sequential comps on non operating items, including tax rate and nonrecurring investment gains as well as the effect of increasing input cost headwinds.

Factoring in what we know today, we expect fourth quarter sales to be seasonally down from the.

Fitzwater, but better than typical seasonality.

We're projecting full year adjusted operating margins in our targeted range of 17% to 19%.

And we have updated our adjusted effective tax rate projection, just 16, 17% for the full year 2000.

'twenty 1.

Our teams are executing on the drivers we can control and our full year outlook, our full year outlook reflects the strength of our portfolio.

And with that I'll turn it back to David for some final comments.

Thanks Neil.

On slide 12 halfway.

The third year, we have delivered strong performance with an ongoing dynamic market environment.

We expect a strong second half supported by our order backlog and bookings.

Continue to closely monitor supply chain bottlenecks, and COVID-19 related challenges, including of course, our suppliers and customers.

While these factors.

Through the introduced instability to the remainder of the year, we prove out our sound business fundamentals enable us to effectively grow during these challenging times.

Strong track record.

Our company is well positioned for continued profitable growth as we deliver on our long term strategy.

Now I'll turn the call back.

Could it operator for Q&A.

Thank you to ask a question you will need to press star 1 on your telephone to withdraw your question. Please price per pound key.

And our first question comes from the line of Luke junk with Baird. Your line is open. Please go ahead.

Thanks, and good morning, Dave and you know.

First question I wanted to ask about the overall tightness, we're seeing around the electronics supply chain right now, especially some of the capacity that you're able to bring to bear on that front and what I'm wondering is is there an opportunity to take pricing more strategically in your electronics business right now and in general maybe if we could talk about what the interplay of it looks.

Right now with your distribution customers, especially.

Sure.

So if we looked at it certainly very dynamic environment and there are a lot of supply constraints out there and a lot of different pockets within the electronics area.

We've talked about this in the past historically.

Looks like.

We try to have enough ability to respond to spikes in demand or upticks in demand and our goal is to always outperform our competitors bearing these opportunistic times.

When we do that.

We're able to serve that that helps our revenues grow.

Yes.

In some cases.

You'll get that for during the times that you have the constraints.

Then I will go back flow back to the competitors.

But what we've found is often we gain some share and hold that during these times because we help service.

Customers compared to competitors.

<unk>. So there is that interplay between what do we do on pricing versus opportunities to grow share with all of that kind of the calculus as we look at clearly on the electronics side, our input costs are up significantly.

So we are working to pass along those increased cost to customers.

And I've had reasonable success, and so theres always that interplay between the longer term opportunity in the near term pricing needs.

Okay. Thanks for that and then switching gears to the auto side wondering how you see the auto content store setting up for the second half of the year in terms of enjoying higher content on say more expensive.

Vehicles curious if you see staying power in terms of what Oems can produce or ultimately you want to produce of course.

How that might ramp as chip production eventually comes back on line 3 little PS.

Yes, it's a great. It's a great question and 1 we ask ourselves and our customers.

Often on where we're at on that clearly.

The current mix of customers that we're serving and the vehicles that they're producing.

First and foremost putting number 1 priority on electrification, which we think will be an ongoing trend. So we don't see that shift and we see that continuing to be a positive.

It is quite a bonds for us in the second half and beyond.

With regard to traditional vehicles and.

Their focus on like in North America trucks, and Suvs higher end vehicles in Europe, and even in Asia.

Yes, certainly that's been a positive influence.

<unk> and our outgrowth of the market for sure.

We see that probably continuing through most for the back half of the year How's.

However, at some point in time, the mix will shift back.

In North America that has not been a lot of fleet cards that have been selling or certainly not U S.

Manufacturer.

On cars.

And sedans that tend to have a little lower content. So at some point there'll be a balance that kind of comes back in order there.

But we don't see today happening in the back half of the year.

Great. Thanks for the color I'll leave it there.

Great. Thanks.

Appreciate your questions, we'll take our next caller please.

Our next question comes from the line of Matt Sheerin with Stifel. Your line is open. Please go ahead good morning.

Yes.

Hi, good morning, everyone.

David just regarding your commentary about cattle inventories still being lean.

But some signs of.

Some OEM inventory build.

Do you have a sense of what those inventories at your customers are big customers look like and in terms of distribution do you know what in terms of sell through in other words, the distribution customers aren't there all day, beginning to build inventory and is that something we need to worry about.

At some point in the next 2 to 3 quarters.

Thanks, Matt.

With regard to our distribution partners themselves.

Very good visibility, there and understanding where they're at what their sell through of our products and things like that.

I would say is.

Although our distribution partners would like.

Increased their inventory position with our products they have been unsuccessful in being able to do that because they are sell through has been so robust.

So as we stated in the in the prepared remarks inventories are pretty lean stuff at our distribution partners and we have not seen those improve.

From their perspective, so they continue to be lean.

<unk>.

So we don't see any danger, there we do see that.

There are Oems, who are attempting to build inventory.

Are there cases, where they are able to do that in many cases, where they are unable to.

And our teams continue to look there we don't have pure visibility in those areas.

<unk> certainly as you kind of look even at public companies. So we ended up selling into where their days of inventory may not be up their absolute inventory of raw materials and web and things like that are absolutely up.

Therefore, there is inventory that's built at those Oems to some extent.

So we don't have perfect visibility.

We know has an influence and then on top of that you put in the fact and this is more kind of broadly not just electronics, but with very long supply chain and shipping times 4 modules sub components those sorts of things around the world inherently you have extra weeks of inventories that are on the water.

You know, where they're being shipped between locations and things like that so inherently there is probably some buildup of inventory in the market.

But clearly we're not seeing it at distribution at this point in time.

Okay. Thank you and then on automotive you talked about the pricing dynamics obviously.

Being different than electronics with the distribution channel.

At what point do you start to see.

Those prices go up is that just sort of annual contracts, which would be the beginning of next year or are there any riders in contracts that enable you to increase prices on near term.

Yeah, so automotive.

Automotive OEM space, we do have a small amount of our contracts have riders for some metals, but it's a relatively small amount of the business.

The bulk of our business.

On the auto side, we tend to have long term multiyear contracts.

Yeah.

That inherently we negotiate even more price downs will be 2 years from now ex etc.

Those multi year contracts.

We're not able to successfully pass through a price increase today and those however.

We're continually re negotiating long term contracts with different.

Customers and what we find is certainly when we're negotiating contracts today, we get much more favorable conditions.

So the reality is it will impact us over time, even over the next couple of years, where there'll be some favorability that comes from that we do have some cases, where we're not don't have long term contracts and in those cases, we have already passed.

True pricing.

Increases, where we can and even sometimes surcharges on freight and things like that.

So it's a mix.

But it just takes a lot longer with these with these long term contracts on the auto side.

Got it okay. Thank you.

Thanks, Matt I appreciate your questions, we'll take our next call.

Please.

And our next question comes from the line of David Kelley with Jefferies. Your line is open. Please go ahead.

Good morning, David Alright, Hey, good morning, David I mean on and Tricia, maybe a couple of questions from my end.

I wanted to start with the auto outgrowth discussion and I think you've referenced maybe.

Maybe you're tracking a bit higher given the choppiness of the OEM build.

And just based on what we're hearing through earnings to date, clearly strong component demand some inventory replenishment in the channel. So so my first question is do you use a are you seeing that trend be do you see that continuing into the second half of the year given.

Given what still feels like very lean dealer inventory levels and still early auto industry recovery.

Yeah.

Good question David.

The automotive our growth it is a difficult picture to really get a Chris view on as a component supplier.

Sure.

And the challenges of that can be everything from lack of visibility to tier 1 inventory levels.

Inventory levels of modules and sub assemblies that our products are in and even today now partially finished vehicles that are sitting out there in storage that are not showing up as car build.

But obviously have our content on it because we've been able to supply.

All of those things add to the complexity of having a perfect picture of what's going on on any kind of inventory builds in things. We know that our current outgrowth is well beyond our our long term expectation on the business.

Again, driven by very strong <unk> demand as well as the positive mix of very highly optioned vehicles that have higher content from us.

As I stated earlier, we don't see that that mix shifting dramatically in the next couple of quarters at some point it well there is a balance on the types of vehicles.

Vehicles that are being produced and sold.

But it's not a near term sort of issue on it and clearly there is some evidence of overtime, where inventories have gone up with our automotive customers.

We get more anecdotal sorts of evidence for that so for instance, we have some.

I like sensor assemblies that we sell directly to the auto assembly factories and.

In that case, we do returnable containers.

When you run out of returnable containers.

No there isn't excess level of inventory at that OEM of those modules.

We have visibility to a certain tier ones at certain.

Patients, where we know inventory levels are elevated because as we work to make sure. We're supplying everybody we sometimes need to have those tough discussions to make sure. We're not shipping to somebody who already has plenty of inventory when somebody else with a neat so.

There certainly is evidence of that.

Very.

Locomote to kind of come down and come up with a specific number.

Okay got it that's super helpful, David and certainly makes sense and maybe kind of extrapolating.

That commentary and thinking about the automotive guide and I think he pointed out down sequentially for revenues is the expectation.

<unk>.

I think there's an assumption out there that maybe LPP ramps up from the second quarter to third quarter. So if we think about your guidance.

Our reflection of that uncertainty in the channel.

Or are you potentially.

Or maybe it's a bit of both but are you potentially more cautious on your underlying.

Very different B P assumption just given some of the ongoing shortages that are out there.

I think it's probably driven by more by the ladder for from our perspective on what's low with light vehicle production going to be like in the third quarter.

C C IHS whatsapp protections are which are lowering.

Regularly.

<unk>.

So our assumptions are on passenger vehicle that third quarter is going to be kind of flattish in the second quarter with probably more downside risks and upside risk on that and any other calculus that goes in there.

Automotive segment is commercial vehicle and on the commercial vehicle side while.

Theres very strong end market demand, our particular mix of customers.

Seeing a heavier shutdowns in the third quarter than we did the circa related supply issues with other components not our components, but other components. So that's what's caused us to be maybe a bit.

Cautious on our archive from an automotive perspective.

Okay got it that's helpful and thanks for bringing up the commercial vehicle exposure that was actually my 1 quick last question did you I may have just missed it but did you provide the contribution of kind of what the commercial vehicle growth was within the quarter just curious.

<unk>, how meaningful that was.

Yeah.

We didn't specifically call that out in the prepared remarks.

On that obviously commercial vehicle demand is quite strong and our commercial vehicle business is up very nicely.

During the quarter, but we didn't call that out.

Specifically in the prepared remarks are quite strong.

Year over year comparisons and even sequentially up but we do see some challenges from second quarter to third quarter. There because we just have some specific large customers that we see them, having higher shutdowns because of shortages.

And I would just add David in that.

Quarter.

Passenger vehicle growth.

Are those parts of the business in commercial vehicle growth pretty consistent.

Segment net not much difference between the 2.

Okay, great. Thanks, David David Thanks, I appreciate it I'll pass it along.

To answer your questions, David we'll take our next caller. Please.

Our next question comes from the line of.

Dora <unk> with Longbow Research. Your line is open. Please go ahead.

Nick.

Yeah. Thanks, Hi, good morning, everyone and congrats on great results in the quarter very impressive.

I just want.

On the margins.

We are much better than expected flow through in the June quarter, but we're kind of thing you kind of given a way back in the September quarter with a similar fall through.

On the downside.

I'm just trying to understand the dynamic between the segment margins.

Looks like electronics, you guys have.

That's a good ability to pass through those price increases from inflation increases, but if we start thinking about what margins could be down sequentially should we start thinking about an automotive and industrial, particularly and I'm just trying to understand because you had such a strong June quarter margin and now youre starting to give away essentially.

I think that youre seeing more analog simulation and inflation cost and input cost headwinds.

Headwinds.

Yeah, So 2 parts to that equation, Inc.

1 you commented on the pricing and we mentioned it.

Depending on the go to market strategy, where we had heavier distribution.

I mean shouldn't like electronics, you see price realization coming through faster offsetting some.

Net cost headwinds that we have.

<unk> had a lot of comments on automotive and how that takes longer because of the multi year customer contract construct that's out there as it relates to input costs.

And 1 of my comments earlier in the prepared comments was we had talked about a 250 or 300 basis point headwind out there 90 days ago today that headwind has increased 50 to 100 basis points for every segment. So it's really we got that cost that were offsetting pricing is coming faster in electronics and thats.

You'd start to see maybe some of the shifts in the margin short term.

Okay got it.

And you guys are currently having a better results in the automotive if I compare your results to some of your peers.

David if I take the midpoint of the.

The power electronics flat industrial flat in automotive down I think from the full year your automotive sales could be up close to 30%.

I Wonder if you can just decompose that relative to what the market growth is and what.

How much is content growth and maybe from other factors.

Yes.

The guys.

Math is not not wildly off on where things are at from what we currently see a car builds and things like that.

So it's quite robust growth in the auto side I think there are probably a couple of things will allow us to maybe perform and grow a little stronger than others..1 is our ability to supply.

Yes.

I think we were probably in a better position than most to be able to flex up our manufacturing again strategically we tend to make sure. We can do the best we possibly can doesn't mean, there arent shortages there we're dealing with we are.

But I think our ability to respond demand to the demand has been pretty strong.

So I think that is helpful. And then I think the other thing for US is perhaps this vehicle mix.

Shifting to the highly option higher end vehicles might have a higher impact on us than it does maybe some other suppliers.

So if you're looking at so I think thats a shift to pull that up.

Electrification trends.

Highly option vehicles those are all very very positive for us as well.

Got it thanks, guys. Good luck.

Thanks for your questions Nick.

Thank you as a reminder to ask a question you will need to press star 1 to withdraw your question. Please press <unk>.

And our next question comes from the line of Karl Ackerman with Cowen. Your line is open. Please go ahead.

Good morning Carl.

Hey, Good morning, guys. This is Eddie for Carl.

My question is last quarter you referenced.

Bookings have extended well beyond what you referred to.

As normal.

And I'm wondering whether you've seen bookings begin to moderate.

If so could you describe briefly describe which areas of the market may have seen some moderation in <unk>.

I have a follow up please.

Sure Good question.

We certainly talk about electronics would've book to bills.

Look like and what our bookings track too.

And we are not quoting a particular book to bill ratio, because quite frankly with extended lead times in our order patterns are growing.

And orders that are extending out further than normal it's not a real meaningful number.

Strong bookings.

Yes that we have in the business, particularly in electronics, but across the board.

And if anything they are stronger today slightly than what they were a quarter ago.

But that's really related to how far out people are booking.

Okay.

And then near term necessarily so bookings continue to be.

Best for Us.

Okay, great Great and my follow up is what percent of your outlook for third quarter is locked in today and.

Another words, what portion of her outlook requires book and ship business and how does that compared to last year. Thank you.

Yes, certainly with.

The environment.

And it's very different in different parts of the business.

Automotive.

Pass car business, you have scheduling agreements, so theyre, just scheduling and Chris agreements out there you get you get chip releases for the week or any of the day and ship those so.

You're quite right not really bookings that's locked in so so much in that line, but in the electronics or industrial side. They tend to have lead times and you get bookings there.

And in those areas, yes, we have quite strong bookings that are there.

We would have higher than normal.

Bookings completed further.

So theres not a lot of bookings we have to take on to hit our third quarter in those areas, we're pretty pretty strong demand at this point that's booked out.

I appreciate your questions Eddie will take our next caller. Please.

Our next question comes from the line of David Silver with CL King Your line.

Line is open. Please go ahead.

Good morning, David.

Hey, good morning, Thank you.

I joined the call a couple of minutes late to this first question is going to be very naive sounding but.

I was just wondering if you did kind of a.

A walk or connected the dots between.

And your second.

Second quarter guidance 90 days ago as part of your first quarter Conference call.

And the results you reported today and in particular, I mean, I'm thinking on the revenue side.

And I'm, just wondering I recall, Dave I think you mentioned that lead times were.

Expanding I think moderately or lengthening moderately during the first quarter call and I did hear you mention they seem to be lengthening again so.

Maybe if you could just talk about maybe the better than 10% increase in your revenues this quarter relative to your.

Sure.

<unk>.

90 days earlier and how much was price how much was volume where there is some rush orders or you mentioned maybe customers building inventory just how do you think about that.

Double digit.

Increase versus your.

Your guidance on the revenue.

Thank you.

Sure David I'll take the first part of your question just on Q2 in general and what changed over the course of this 90 day.

We had commented in the beginning that we really saw strong demand across most of our end markets, which was good a little I'd say continue.

And in some cases, a little bit stronger than we were expecting but I would say coupled with the combination of.

Our set up and being able to flex maybe a little bit more than some other from David made some comments on that in the Q&A about yeah. We tried to build in a little extra capacity. So that we can flex to somebody's peaks.

Many of the room and I would add our teams really around the world on the manufacturing supply chain side and have.

Has done some tremendous work to improve productivity efficiency to help drive additional capacity for us to meet the orders that are out there. So I'd say the combination of you know demand.

Demand market market conditions.

Our strategy on being ready for times like this and then just really the performance of our team that's really what drove the Q2 beat for US with regard to lead times clearly.

Our lead times on most of our products are extended.

As we deal with shortages from our.

<unk> <unk> and charter as it exist and there are things like resins, some of our products, we're putting semiconductors within them and things like that so we deal with some of those same shortages that others do.

So those things impact our lead time, but maybe 1 of the largest impact to us.

Is logistics lead.

Times it.

It just takes a long time to get products around the world today much longer than it typically does so you may have heard me a quarter ago talking about actually the our extended lead times. The bulk of it was actually increases in in our logistics times and that clearly has not gotten better.

So by logistics patterns continue to be challenged and so therefore, it takes extra weeks to get products around the world.

So that contributes to it along with these other types of shortages and capacity constraints. So yes, our lead times have continued to extend a bit.

Okay.

Thank you for that.

My next question is probably something I haven't asked anybody on a conference call in about 10 years.

But.

You know you're your stock is up a little bit today on on very low volume.

I'm.

I'm looking at your stock price in absolute terms willing to triple.

Your daily trading volume well into double digits. So this is a question about <unk>.

Stock split so many companies choose the time, a stock split with when a dividend increase occurs and that was this quarter, a very hefty dividend hike.

Just wondering you know internally or when it's reviewed.

With the board.

Dave what is your philosophy about.

The potential for a stock split to maybe improve liquidity and maybe on a day like today, giving some incremental buyers a little bit more comfort about.

I'm thinking of their ability to get in and get out.

Of your stock without really affecting the price. Thank you.

So I'll weigh in immuno can join in my comments I said like on that yeah. It.

It certainly is a conversation we've had with our board of directors over time.

And.

It's a regular thing we will visit and discuss bringing outside advisors to help us analyze whether that's helpful for us or not.

We do that.

Yes.

The bulk of our investor base tend to be long term investors.

Those are the types of investors that we like and target as well.

That's quite consistent with with the base that we have and in that case, we don't get a lot of pressure that says we need to get in and out quickly.

So they are willing to do that over time, because theyre not looking to do move in and they're back out right away. So therefore, we haven't seen it as a major strategic.

Well for us on how our stock price behaves.

We'll continue to look at it and evaluate and at the time. He was right at some point, we might do that but it's certainly not a priority for us at this point in time.

Yeah, I'll add just a 2 and 3 had a common.

Part of the the third parties can talk to you know we've had this kind.

British and also with the various buy side and sell side folks as well and the general feedback we get is hey, Dave mentioned, especially because we've got generally very long term holding base. Their views has been although we need to get into the stock and we don't have a problem doing that so.

Finally, we're happy that you keep the short term.

Oh got it stopped frankly and the other thing is we've got a very large institutional basically don't really have very many retail holders and that's really that's the retail holders they get.

That might want to lowest stock price of institutional don't really feel that as a problem.

Okay, great. Thank you very much.

Appreciate your questions David that concludes our Q&A session. Thank you for joining us on today's call and your interest in little views. We look forward to talking with you again soon have a great day.

This concludes today's conference call. Thank you for participating you may now disconnect.