Q1 2023 Littelfuse Inc Earnings Call

Speaker 1: With an expanded focus towards sensors within electrification applications, we also secured significant new business in power management.

Speaker 1: Within Electronification, we captured business in telematics and comfort and convenience applications. The

Speaker 1: We also continued to expand our business in traditional low voltage applications based on our proprietary technologies and superior designs.

Speaker 1: Our design wins and pipeline of business opportunities support the continuation of long-term, double-digit content outgrowth.

Speaker 1: In electrified commercial vehicles, we leveraged our expanded capabilities from the Carling and Embed Tech Acquisitions.

Speaker 1: to win global business with major OEMs. We won new business and delivery vehicles, trucks, and two-wheelers for battery management systems, power distribution, and body control modules.

Speaker 1: In rail traction for trains, we want business in high voltage power converters.

Speaker 1: In Electronification of Commercial Vehicles, we want business and delivery fleet vehicles within GPS trackers and in construction equipment for digital switching keypads.

Speaker 1: In broader commercial vehicle markets, we increased our product content in heavy duty trucks and material handling based on our global support and long-term quality.

Speaker 1: For off-board charging infrastructure, our engineering capabilities and differentiated range of products such as our power semiconductors, electronic components, and fuses secured significant business.

Speaker 1: We look forward to accelerating our long-term growth and off-board charging applications with our comprehensive offerings expanded further with our newly acquired Western Automation products.

Speaker 1: We are confident our investments for growth within transportation applications will strengthen our market leadership.

Speaker 1: Moving on to slide nine, sustainability and connectivity and safety are drivers for growth in the electronics end market.

Speaker 1: trusts, that the ongoing push towards efficiencies

Speaker 1: Our responsiveness, global reach and product features one is business and water meters and LED lighting.

Speaker 1: As it relates to greater connectivity requirements,

Speaker 1: Our technical support and broad portfolio, including products from the addition of C&K switches, WANUS business and communications infrastructure, home technologies, and power supplies for electronic devices.

Speaker 1: Our products are vital to safety and protection of human life as we secured business within critical life-saving medical devices.

Speaker 1: The pipeline of business opportunities is robust. We are extremely well positioned to expand our electronics content across a wide range of applications focused on sustainability, connectivity, and safety.

Speaker 1: Our new business wins represent a very diverse range of in-market applications and geographies.

Speaker 1: As we engage with our customers' engineering teams, our collaborations are accelerating next generation product development and design in activities.

Speaker 1: We fully expect the organic growth from new business activities coupled with our acquisitions will enhance and sustain our long term growth.

Speaker 1: I will now turn the call over to Mina to provide additional color on our financial performance and outlook.

Speaker 2: Thanks, Dave. Good morning, everyone, and thanks for joining us today. Let's start with slide 11. We're pleased with our performance for the first quarter, finishing above our sales and earnings guidance range.

Speaker 2: Revenue of $610 million in the first quarter was down 2% versus last year and on a sequential basis was essentially flat.

Speaker 2: Revenue was down 8% organically versus the prior year with acquisitions adding 7% growth and foreign exchange reducing revenue 1%.

Speaker 2: Gap operating margins were 18.1%.

Speaker 2: Adjusted operating margins of 19% finished at the high end of our target range, and adjusted EBITDA margins were above our target range, finishing just under 25%.

Speaker 2: We drove strong margin performance realizing the benefits from our portfolio diversification, continued efforts on price realization, and ongoing operational execution despite the challenging electronics environment.

Speaker 2: First quarter GAAP diluted earnings per share was $3.54 and adjusted diluted EPS was $3.64.

Speaker 2: Our GAAP effective tax rate was 18.5% and adjusted effective tax rate was 18.8%, finishing within our expectations. We generated operating cash flow of $53 million and free cash flow with $28 million in the quarter, up 26% from the prior year period.

Speaker 2: We continue to balance continued inventory investments to serve many of our customers while reducing some inventories as supply chain challenges moderate in certain areas.

Speaker 2: As per our typical seasonal trends, we expect to drive stronger cash generation in the back part of the year.

Speaker 2: During the quarter, we welcomed the Western Automation team to Little Fuse.

Speaker 2: Incorporating this acquisition, we ended the quarter with net debt to EBITDA leverage at 1.4 times, below the low end of our 1.5 to 2.5 times target range.

Speaker 2: Our balance sheet remains strong with over $400 million of cash on hand and ample available capacity on our credit facility.

Speaker 2: We are well positioned to continue our disciplined capital allocation strategy, prioritizing investments for growth while also returning capital to our shareholders.

Speaker 2: Let's move to first quarter segment highlights starting with electronics on slide 12.

Speaker 2: Sales were down 2% overall and 12% organically, the difference largely from last year's acquisition of C&K switches. Despite the sales impact from expected channel inventory rebalancing, operating margins finished just over 25%, while adjusted EBITDA margins approached 31%.

Speaker 2: built up sequentially. We continue to drive margins well above our historical target levels, a product of content growth, pricing discipline, and top-tier operational execution.

Speaker 2: Moving to our transportation segment on slide 13, organic growth was down 8%.

Speaker 2: Passenger vehicles were down 6%, and commercial vehicles down 9% organically.

Speaker 2: As Dave mentioned, we continue to see customers and distributors reducing their inventory levels in the quarter.

Speaker 2: Operating margins were over 5%, expanding 160 basis points sequentially, while adjusted EVIDDA margins grew 180 basis points to nearly 12%.

Speaker 2: We continue to drive additional price realization and have taken further cost reduction actions to align to the current business environment.

Speaker 2: We're also in process of some operational footprint adjustments and expect these activities will continue to drive an improving margin trajectory.

Speaker 2: On slide 14, our industrial segment drove another strong quarter of above-market growth with organic sales up 13%.

Speaker 2: We continue to prioritize higher growth areas such as renewables, energy storage, and industrial automation and safety.

Speaker 2: Operating margins finished above 20% and adjusted EBITDA margins above 24%, both improving significantly sequentially and versus prior year.

Speaker 2: Turning to the forecast on slide 15, market trends remain similar to what we saw through the first quarter. Des Waitem abandons farmers from ironmore,

Speaker 2: We expect continued growth across industrial and electrification themes with more modest growth across passenger and commercial vehicle markets.

Speaker 2: Certain electronics and markets remain soft and we expect electronics distributor inventory rebalancing continuing into the third quarter. We also expect a modest continuation of customer and distribution inventory reductions affecting our transportation segment.

Speaker 2: With this backdrop, we expect second quarter sales in the range of $607 to $633 million.

Speaker 2: At the midpoint, we project sales to be flat versus last year with an organic decline of 7%.

Speaker 2: Sequentially, we expect growth in total sales across our transportation and industrial segments partially offset by a decline across electronics.

Speaker 2: We expect adjusted EPS to be in the range of $3.20 to $3.45, which assumes a 16% tax rate.

Speaker 2: Our second quarter guidance also includes higher stock compensation expense due to retirement provisions equating to approximately 25 cents of EPS. Slide 16 includes some additional views for the full year 2023.

Speaker 2: We expect foreign exchange to have about a 35 cent unfavorable impact on EPS and neutral impact to our sales at current exchange rates.

Speaker 2: We expect to maintain our company average operating margin within our long-term target range of 17 to 19 percent.

Speaker 2: On other full year modeling items, we now expect $67 million in amortization expense.

Speaker 2: And as noted last quarter, we are assuming $40 million in interest expense at current interest rates, a full year tax rate of approximately 18%, and we expect to invest $110 to $120 million in capital expenditures. The ongoing resiliency of our business model and diversification of our portfolio were losing out on ironTON whate dishonored this and in one case off North America Agr Sidney and Motetam Dunh and those they would have.</p>< Range

Speaker 2: continue to invest for the broad array of growth opportunities we see ahead of us.

Speaker 2: Thank you to our partners around the world for your trust and commitment to us and to our teams for driving value for our stakeholders every day.

Speaker 2: And with that, I'll turn it back to Dave for some final comments.

Speaker 1: Thanks, Mital.

Speaker 1: In summary on slide 17, we are off to a strong start this year.

Speaker 1: Our performance within this dynamic environment speaks to the resiliency of the Little Fuse business model and the strength of our growth strategy.

Speaker 1: and presence in high growth in markets, technologies, and geographies, which has diversified our business and improved the resiliency of our profitability.

Speaker 1: Our experienced teams have honed our playbook to successfully manage through dynamic environments.

Speaker 1: As we continue to manage through some near-term market challenges, we are confident that our ongoing execution, diversification, and strategic investments for growth will deliver sustained long-term value for all of our stakeholders.

Speaker 2: operating cash flow of $53 million and free cash flow with $28 million in the quarter, up 26% from the prior year period.

Speaker 3: And at this time, if you'd like to ask a question, simply press star followed by the number one on your telephone keypad. Our first question will come from the line of Joshua Buchalter with Cowan. Please go ahead. The open session has ended.

Speaker 4: Good morning, Jeff. Hey, guys. Thanks. Good morning. Thank you for taking my questions, and congrats on the resilient results. So, first of all, I wanted to clarify some comments you made on the channel inventory situation in the electronic segment. It sounded like, Dave, you mentioned that there were healthy levels, but that the correction was going to last into the third quarter. Could you just clarify? OK.

Speaker 1: and above kind of our normal operating ranges that we would expect. The good news is that it is in almost all categories declining on a month-to-month basis so that inventory reduction is happening in the channel, kind of as expected. We do expect, though, it will take some time to bleed that down. The good news is...

Speaker 1: The POS, the self-root with our distributors, remains pretty stable.

Speaker 1: So we kind of model that and we do expect that it's going to take us kind of into or through the third quarter to really work our way through that given the current BOS levels. Okay, so getting more healthy and there's still some work to do is sort of the takeaway.

Speaker 1: Yeah, we knew they were elevated. We've kind of built into our modeling and the guidance that we gave for the first quarter and into the second quarter that it will continue to bleed down. The good news is it's behaving kind of as expected.

Speaker 4: Okay, got it. Thank you. And then for my follow-up, I wanted to ask about gross margin. I mean, you did essentially flat revenue and margins expanded over 200 basis points. Can you walk through some of the drivers there? And in particular, any update you can give on the pricing environment, it sounds like, and given the results, you're still comfortably able to pass along.

Speaker 2: strength and continued elevation on the electronics margins, even despite as Dave talked about, you know, we're in the midst of the channel rebalancing of inventory. And then also, you know, some good uptick on our industrial business as well. And, you know, we've targeted as we've talked about historically, high teens margin profile, the business continues to grow at an above market rate and some good.

Speaker 5: taking the questions and congrats on the solid execution and navigating this environment.

Speaker 5: execution and navigating this environment. Thank you.

Speaker 5: Yeah, so maybe first just kind of thinking I wanted to ask you talked about the footprint adjustments and just curious if you could give us a little more detail there on what the expectation is and maybe what that incorporates.

Speaker 2: Sure, you know, we with David with across our transportation segment and, you know, really across our business, given the size given the number of acquisitions that we've been doing over the past few years, you know, one of the areas of synergies that we look at are just overall when we think about the real estate portfolio that

Speaker 2: planning a little more time. So, you know, especially with our our carling acquisition that we made, pretty large acquisition, pretty broad footprint. So there's some activities we're doing there. And then I call also, I talk about the normal course of business that we have as our business evolves and it grows.

Speaker 2: We look at some product line movements that we do, again, ordinary course of business. Okay, anything in terms of magnitude of the savings you would expect to flow through?

Speaker 2: Yeah, you know, we, it's part of the overall progression that we're talking about as it relates to margins. You know, the margins improved for the transportation segment on a sequential basis. We continue to expect improvement as we keep going through the quarters, not still, not where it needs to be, but we're going to make improvements and this is a part of that.

Speaker 5: Okay, great. And then just one last one real quick is just geographically, are you seeing anything in terms of maybe demand improving or where there's greater levels of inventory? Just kind of thinking about Asia and Europe and the U.S. Anything in particular to call out there?

Speaker 1: Yeah, I think maybe just a little color on that. If you look at, obviously we're kind of going through inventory rebalances and things like that and there are some in-market dynamics that are shifting.

Speaker 1: Certainly, if you look at our first quarter, you have the region that was the softest and was down the most was Asia by a meaningful amount. And that's driven by inventory rebalancing as well as some of the in-markets. So think in electronics, some of the consumer-facing sorts of goods, which we've talked about for the last couple of quarters. That continues to be soft.

Speaker 1: inventory rebalancing. Europe was actually up for us from an organic standpoint, so we saw some growth in Europe .

Speaker 2: Thanks so much. Appreciate your questions, David. We'll take our next caller, please.

Speaker 6: Our next question comes from the line of Luke John with Baird. Please go ahead. Good morning. Good morning, Tricia. Thanks for taking the questions. Dave, hoping we could start with the sub-symmetrons and electronics. I'm thinking semiconductor versus passive products. It seems like the semi-pieces continuing to hold up well whereas passive is of course where the inventory...

Speaker 1: is certainly an area that had begun to rebalance on inventory a couple quarters ago, and that continues to go through that rebalancing.

Speaker 1: The protection portion of our semiconductor had held in very strong and can continue to be quite strong. That has begun to now go into a rebalancing mode. The power semiconductor portion of our business there has not been over inventory. That's an area where there's been a little more challenge with the demand cycle over the last couple of years.

Speaker 1: And in that case, we continue to have very strong position there, and inventories, if anything, are a bit light in the power semiconductor world. So a bit of a mixed bag and moving pieces within it.

Speaker 6: And then a similar question for transportation would be great to get some additional color on past car versus commercial vehicles. So especially the latter, I think you mentioned some de-stocking at distributors in the commercial vehicle market. In terms of li delta one, I have no idea if I want to convert just because of people close to

Speaker 1: Sure. You know, we've been seeing that a bit in the last couple of quarters, particularly in the passenger car side of the business. We've continued to see inventory rebalancing in past car in the first quarter. The good news is we think we're through the bulk of it in the passenger car side of the business, so we think that's largely behind us. There might be a little bit of noise, but for the most part...

Speaker 1: That's behind us. Commercial vehicle is an area where certainly customer inventories – in customer inventories as well as distributors have been a bit heavy, and we saw that declining in the first quarter. And we do expect that to continue to decline and have correction in that inventory balances over the next quarter or two.

Speaker 6: Thank you for that. And then if I can just sneak in one more. Mina, it would be great to get your perspective on the margin improvement that we're seeing in transportation initially. It is picking up sequentially consistent with your expectations, but what about the rate of margin improvement? How is that performing versus your expectation for margins? Starting here in early May and should we be thinking double digit?

Speaker 2: just highlighted some comments that with with some of the de-stocking going on that of course impacts our volume, our production levels, and that's a bit of a headwind for us when that happens. And then just in general when it comes to the automotive market while you know well we feel sometimes we feel good about the low 80 million car project.

Speaker 2: We talked a little bit earlier about some of the footprint consolidation work, whether it's manufacturing supply chain and other areas. So we continue to move forward on that, which is helping us. I've talked the past several quarters about price, and we've made good progress when it comes to discussions with customers, pointing out our value that we bring to the table. And then in terms of

Speaker 2: price that we've gotten and still in select areas, price that we're going after. And then overall, when we think about the energies that we're looking at with the collective commercial vehicle businesses, we've added Carling in the past year, and there's continues to be good opportunities there of things that we've done and continue to do.

Speaker 2: both from a growth and just leverage perspective. So I still feel good about the trajectory that we expect to have going into the coming quarters.

Speaker 6: Thank you for that. I'll leave it there.

Speaker 3: Appreciate your questions, Luke. Thank you. As a reminder, to ask a question, simply press star 1 on your telephone keypad. Our next question will come from the line of William Kerwin with Morningstar. Please go ahead.

Speaker 6: Good morning, Will. Hi, all. Hi, good morning. Thanks for the question. I just wanted to ask a little bit of a longer-term one about the competitive landscape in electric vehicles, particularly in China. I'm curious how you would look at your positioning with Chinese or Asian OEMs versus those in North America and Europe .

Speaker 5: And then also how you view the risk of disruption maybe from upstart competitors entering the electric vehicle space out of Asia. Sure. We've talked about this in the past where

Speaker 1: The content opportunity for us in the high voltage side of an EB is significantly larger than in the overall 12-volt side of things. The good news is in EB, the 12-volt systems largely remain intact. So therefore, our strong position in the low voltage side will continue. We don't see that kind of shifting or changing at all.

Speaker 1: We do expect and we're having great progress on getting design wins and shipping into the EV, the high voltage side of the business. We've been open about the fact that we don't expect to have the same market share in the high voltage side as we do in the low voltage side. And we're seeing that kind of play out as expected.

Speaker 1: We're not the only people who are aware of electrification, so there are more competitors focused on that. So therefore, we expect that lower market share. We still expect to be the leader in protection in the electrical systems, including the high voltage side, and we're seeing that play out.

Speaker 1: China specifically, you asked about and the difference between multinational OEMs versus local Chinese OEMs. Clearly on the EV side, there's been a very strong shift to the local OEMs winning and gaining share pretty meaningfully with customers like BYD and GLE.

Speaker 1: years, and we're continuing to have success with them.

Speaker 6: Okay, excellent. Thank you. And then a light pivot for my follow-up, but I'm curious if you could comment on sort of off-board charging infrastructure, electric vehicle charging. It sounds like the Western acquisition plays into that a little bit, and don't think we've heard too much about sort of the charging station opportunity over the past couple of hours, so just curious if we could get an update on the strategy there.

Speaker 1: Yeah, no, absolutely. It's a great question. And you're absolutely right. The Western Automation acquisition that we made, over 50 percent of the revenues in that business are being designed into and sold into EV off-board charging applications with particular strength in Europe . They're a European company, so they have strong relationships with the survey unit.

Speaker 1: OEMs that are manufacturing these charging systems. So that was certainly one of the strategies for us in that acquisition, that it builds out a broader portfolio of components and modules that we can design into off-board charging.

Speaker 1: We're seeing great success there and we're excited about the opportunity because it strengthens our relationships with the OEMs in Europe through Western Automation and it broadens the technology offering that we can give to the remainder of our customer base, particularly where we have a lot of strength in North America and in...

Speaker 1: Asia as well. So we think that's a meaningful opportunity for us over time and we're already seeing some success with that. Excellent. Thank you. I'll jump back into the queue, but congrats again on a good quarter. Thanks. Thanks, Will. Appreciate your questions. We'll take our next caller, please.

Speaker 3: Your next question comes from the line of David Silver with CL King. Please go ahead. Good morning, David.

Speaker 7: Yeah, hi, good morning. Thank you.

Speaker 7: My first question is kind of a variation, I think, of some of the discussions on margin. But if I was just to focus on the electronic segment, 25.1 percent this quarter operating margin, you know, I believe Dave has talked about maybe a mid-20s margin as far as the

Speaker 7: being quote unquote sustainable. And, you know, I would just say the current environment is far from optimal yet you're kind of it.

Speaker 7: a level that you've described as long-term sustainable in the past. So just with that as background, I'm just wondering if the very strong margin performance in the current environment, is that a reflection of maybe one or two things? But one is that you are

Speaker 7: seeing some inventory liquidation and you talked about steady POS sales, I guess. Is there something about the current sales that are happening that are structurally or meaningfully higher margin than maybe the

Speaker 7: sales earlier in the, let's say, in the pandemic when there were some buffer inventories built up, or would you say across your electronics portfolio, it's just structurally more broad broad based and not specific to, let's say, this phase of the overall cycle.

Speaker 8: Thank you.

Speaker 2: Sure, David, it's Mina, and maybe I'll take this one a bit. So, you know, with electronics, and we've been talking the past few years, where we've had some very, we've had some quarters with some very strong margins, and I have used the phrase where all the stars aligned, right, where, because we've seen in an industry that typically you typically see price downs.

Speaker 2: Every year we've gone after price realization because of inflation in other areas. Combine that price with the volumes that we saw the past couple of years along with just that favorable mix coming through and we've seen some very strong margins. At the same time I also said that was not really a sustainable level for some of those areas and I said really in this

Speaker 2: I'll call it this bit of a rebalancing year. They expected electronics, the electronics margins to stay over 20%. So we finished the quarter at 25%, little bit stronger than we had anticipated versus 90 days ago. You know, Dave highlighted a couple of things that while we see the channel rebalancing going on as we.

Speaker 2: et cetera, has really added to that elevated margin level, whereas we used to talk about the margin profile being upper teens, and now I'm talking about it being over 20%. So I'd say, you know, for this year, for 2023, we've talked about keeping that average margin over 20%, and I feel good about that today. Okay.

Speaker 7: less than 12 months.

Speaker 7: And everybody asks about maybe the project funnel, but I would like to maybe just ask you about, I guess your bandwidth or your integration capability here. So in other words, when you're discussing that you maybe have some dry powder based on NetEd to EBITDA.

Speaker 7: Are you also thinking that internally, you know, your integration teams or just your overall capability to deal with additional targets? I mean, do you have a capability to continue to pursue opportunities here or is there kind of a theoretical or practical, you know, limit on how many?

Speaker 1: integration projects you want to handle at a particular time. Thank you. Thanks, David. Clearly M&A is a key part of our growth strategy and it's an enabling part of our ability to drive

Speaker 1: growing and sustained organic growth of the business over time as well. So we view it very, very strategic. So first and foremost, we look at M&A opportunities from a strategic fit to our strategies within the businesses.

Speaker 1: And although we have made some meaningful acquisitions over the last couple of years, some of them are very much bolt-ons, like Western Automation is a fairly simple, straightforward, one-location type of business that bolts right into a business unit. That's pretty straightforward. C&K is a little more complex and takes a bit more to kind of work our way through that.

Speaker 1: And what I would say is they're led by the business units themselves. So we have business units which have lots of bandwidth right now to take on additional acquisitions and we have other business units that maybe, for instance, like in electronics where they're working through C and K, it's a little more challenged on that piece of it to kind of work through and it might take another couple quarters before we feel it.

Speaker 7: I appreciate it. Thank you.

Speaker 9: Appreciate your questions, David. We'll take our next caller, please.

Speaker 3: Our next question comes from the line of Patrick Chacard with Oppenheimer. Please go ahead. Good morning Patrick.

Speaker 5: Thanks for taking the question. You mentioned overall portfolio resiliency. Would you describe electronics results as more resilient than expected? And Dave, you mentioned stable sell-through. It is an ability to Mubarak.

Speaker 5: Can you describe how durable you view sell-through characteristics as we move through the rest of the year?

Speaker 1: Sure. Let me kind of start with the resiliency question and if we step back and look at the whole company, for sure, we think the resiliency kind of of the business model that we've built out is actually improving. And the markets that we're serving and the diversity of the technologies.

Speaker 1: and markets and applications that we're serving, it put us in probably a better position than maybe we were even five years ago when we went through kind of correction cycles and things like that. So we think the resiliency of the business continues to be quite good. We also think within the electronics.

Speaker 1: reporting segment, it also has improved. As Mina kind of mentioned, so you think about our power semiconductor portfolio that fits within the electronics reporting segment, that's a high percentage of that is being sold into industrial applications, which tend to be a little more balanced and not quite as.

Speaker 1: extreme in the cyclicality. So I think that helps balance things out in there.

Speaker 1: Then kind of moving on to the POS and stability of that, we watched that very carefully. We don't have tremendous visibility what that's going to be a quarter from now or six months from now. That's a little hard to call. But we've seen it be pulled up reasonably stable, and that's kind of across the regions and the markets that we serve. So …

Speaker 5: If we continue to see that stability, then we feel good about our ability to drive down inventories at a pretty good rate. Okay, thanks. And maybe for a follow-up, and conversely, wondering how you view the results of transportation versus the internal expectations heading into the quarter. And maybe you could elaborate on some market dynamics there.

Speaker 1: of it, which I think you're kind of asking mostly about, but the passenger car side of our business, there's a meaningful part of the revenues that we sell into passenger car applications to fall outside of our transportation segment. They come largely out of our electronics segment, but even some of it out of the industrial segment. So when we look at that and we talk about within transportation segment, we're talking about the transportation segment.

Speaker 1: what our kind of our content story and our growth levels are, we have to take a step back and look at how we're doing overall with PASCAR. And if we look at overall on PASCAR, if we take out the impacts, small impact we had of FX, which was negative, and inventory reductions we identified, we still overall as a company are course.

Speaker 1: across our portfolio at about a 6% outgrowth compared to car build. So we still feel good about the content story and the outgrowth opportunity for us in PASCAR. Quarter to quarter that can vary. Certainly there's inventory work that's going on right now and reduction of inventories that has an impact on it.

Speaker 1: But it also, unfortunately, it's not clean enough. It shows up in other parts of the business as well. So what it does is it reinforces our continued belief that our outgrowth story remains robust. You look over the last three years, we've had double-digit outgrowth. We remain confident. Our design wins continue to be extremely robust.

Speaker 1: with a heavy emphasis, of course, coming from the electrification side on PASCAR. So we remain confident in this double-digit outgrowth as we look forward as well.

Speaker 1: with a heavy emphasis, of course, coming from the electrification side on PASCAR. So, we remain confident in this double-digit outgrowth as we look forward as well. Okay, thanks for the color. I'll pass it on.

Speaker 3: Thanks, Patrick. Appreciate your questions. Again, for any questions, please press star one. Our next question will come from the line of Joshua Buchalter with Cowen. Please go ahead.

Speaker 4: Hey, thanks for letting me hop back in the queue. One follow-up. You know, we've heard from a few industry players about the potential for power semiconductors to replace some of the passive electronics in the vehicle, such as fuses and low voltage relays. Given you're well known for your passives and fuses, but also you have a portfolio of power semiconductors –

Speaker 1: kind of got to divide it up into pieces and applications within in these markets. And so if you go back many years ago, there used to be passive components that were used to protect battery packs in a cell phone, right? And that did transition mainly to solid-state sorts of protection in those applications.

Speaker 1: There is some shift in the low amperage, low voltage side of the business in a past car that has gone to a replacement for the relay, which we don't produce. So kind of everywhere there's a relay, there's a fuse. So relay-fuse combination. There's been a lot of shift in the low amperage, low voltage side of the business in a past car that has gone to a replacement for the relay, which we don't produce.

Speaker 1: some movement towards solid state solutions there on small amperage ranges. That happens to be a very small part of our business today. Will that maybe increase in amperage over the years?

Speaker 1: perhaps, but the growth of kind of where all of our growth, even in the low voltage side in automotive, is really coming from kind of the mid-level amperage and high amperage applications. Just the content, a very small voltage, small amperage device tells for...

Speaker 1: area. We do think in the high-voltage side, over time, there may be opportunities for some applications to kind of move toward solid-state away from some of the relay types of products. We have capabilities as our power semiconductor focuses on.

Speaker 1: that medium and high power side of things. There is opportunities potentially in the future as costs may improve to be able to do that. And that's an area where we would certainly bring capabilities to support. I appreciate all the color there Dave. Actually one more follow up if I can. Can you, I apologize

Speaker 4: let us know how much Western automation was included in the second quarter guide, if at all.

Speaker 2: Yeah, I mean, overall, we talked about the business being about 25 million in annualized revenue. So, you know, you can think of it as, you know, mid single digit revenue in there, but it's pretty small.

Speaker 2: Yeah, I mean, overall, we talked about the business being about 25 million in annualized revenue. So, you know, you can think of it as, you know, mid single digit revenue in there, but it's pretty small. Got it. Thank you.

Speaker 3: Appreciate your follow-up questions, Josh. Thank you. We'll take our next caller, please. Your next question comes from the line of David Williams with Benchmark. Please go ahead.

Speaker 5: Hi, David. Hey, hey, thanks for letting me ask another question. I really appreciate it. Just wanted to kind of think about the customer tone overall and thinking about maybe the second half. It seems like things have been a little more pessimistic in terms of a second half, kind of a macroeconomic perspective. Do you get a sense of maybe the de-stocking levels?

Speaker 1: So it's a pretty dynamic environment that we're settling into these days. So we really aren't given a lot of color on what we see as the second half. Just hard to get a good handle on that and view of that. Clearly, we believe inventory rebalancing will continue into the second half.

Speaker 1: So as much as I'd like to think it's done and we're back to, you know, through that, we still got some progress to make there over the next, you know, few months.

Speaker 1: And so therefore we do expect that into the back half of the year. You're absolutely right that inventory reductions, the inefficiency, the ability to build inventories and then reduce inventories and the distribution channels, picking electronics, is a very inefficient process.

Speaker 1: So when we do hit the bottom and get to the inventory levels where we need them to be, and if end markets begin to show any signs of improvement, for sure we'll see a bounce off the bottom. That will happen. When will that happen? I think it's difficult to call at this point. Okay, that's very helpful. But I get from customers.

Speaker 1: do you think they're being rational in the level of depletion that they're trying to get inventories to or do you think that's falling below where you would typically see? No, I think they're being rational and it's kind of as expected. And unfortunately, I've lived through a lot of these situations where we've gone through inventory rebalancing and the behavior is pretty normal and kind of as expected.

Speaker 5: Fantastic. Well, thanks again for the time. I certainly appreciate it. Thanks, everyone.

Speaker 5: for the time. I certainly appreciate it.

Speaker 9: Sure, we appreciate your follow-up questions, David. That concludes our Q&A session. Thank you for joining us on today's call and your interest in Little Fuse. We look forward to speaking with you during the May 8th Oppenheimer Industrial Growth Conference and May 31st TD Cow & Technology Media and Telecom Conference.

Speaker 9: questions, David. That concludes our Q&A session. Thank you for joining us on today's call and your interest in LittleFuse. We look forward to speaking with you during the May 8th Oppenheimer Industrial Growth Conference and May 31st TDCoW and Technology, Media and Telecom Conference. Have a great day.

Speaker 9: May 8th, Oppenheimer Industrial Growth.