Q4 2023 Littelfuse Inc Earnings Call

Kelly. Please proceed.

Good morning.

And welcome to the little Fuse fourth quarter 2023 earnings Conference call with me today are Dave Heinzmann, President and CEO, and <unk>, <unk> Executive Vice President and CFO.

Yesterday, we reported results for our fourth quarter and a copy of our earnings release and slide presentation is available on the Investor Relations section of our website.

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

Please advance to slide two for our disclaimers.

Our discussions today will include forward looking statements.

These forward looking statements may involve significant risks and uncertainties. Please review Yesterdays 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 on the Investor Relations section of our website.

Good day, everyone and welcome to little Fuse fourth quarter 2023 earnings Conference call. Today's call is being recorded at this time I'll turn the call over to head of Investor Relations David Kelley. Please proceed.

I will now turn the call over to Dave.

Good morning, and welcome to the little Fuse fourth quarter 2023 earnings Conference call with me today are Dave Heinzmann, President and CEO, and <unk>, <unk> Executive Vice President and CFO.

Thank you David Good morning, and thanks for joining us today.

Start with highlights on slide four.

2023 was a solid year for little twos as our global teams remain focused on driving sustainable long term growth and profitability.

Yesterday, we reported results for our fourth quarter and a copy of our earnings release and slide presentation is available on the Investor Relations section of our website.

We made considerable progress with existing and new customers as our differentiated technologies and global scale allowed us to secure meaningful new business wins and drive industry innovations.

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

Please advance to slide two for our disclaimers.

We are helping our customers solve complex challenges further positioning us as a leading enabler of structural growth themes, including sustainability <unk>.

Our discussions today will include forward looking statements.

These forward looking statements may involve significant risks and uncertainties. Please review Yesterdays 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.

Activity and safety for years to come.

We also delivered resilient margin performance and record cash generation, all while navigating a challenging macro environment.

We assume no obligation to update any of this forward looking information.

For the full year, we recorded sales of $2 $4 billion and achieved an adjusted operating margin of 16, 5%.

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 on the Investor Relations section of our website.

Our 2023 results reflect our ability to execute through cycles, delivering more resilient profitability versus prior macro downturn.

I will now turn the call over to Dave.

Dave: Thank you David Good morning, and thanks for joining us today.

Our ongoing portfolio diversification strategy, and well positioned cost structure allowed us to mitigate the impact of channel inventory reductions and pockets of in demand weakness as we delivered full year adjusted earnings per share of $11 74.

Dave: Let's start with highlights on slide four.

Dave: 123 was a solid year for little twos as our global teams remain focused on driving sustainable long term growth and profitability.

We made considerable progress with existing and new customers as our differentiated technologies and global scale allowed us to secure meaningful new business wins and drive industry innovations.

Furthermore, we demonstrated the resiliency of our business and strength of execution as we generated $457 million in operating cash and $371 million in free cash flow both records for the company.

Dave: We are helping our customers solve complex challenges.

Dave: Further positioning us as a leading enabler of structural growth themes, including sustainability connectivity and safety for years to come.

Yeah.

We launched our five year growth strategy in early 2021 and have delivered strong performance within the first three years as shown on slides five and six.

We also delivered resilient margin performance and record cash generation, all while navigating a challenging macro environment.

Within our strategy, we target double digit average annual sales growth, coupled with sustained profitability and leveraged earnings growth.

Dave: For the full year, we recorded sales of $2 $4 billion and achieved an adjusted operating margin of 16, 5%.

Three years in we have averaged 18% annual revenue growth driven by organic momentum and complementary acquisitions that enhanced our leading technical and engineering expertise within the high growth end markets.

Similarly, three years into the strategy, we have delivered average annual adjusted earnings growth of 22%.

As we have effectively leveraged our disciplined cost structure and sales growth to deliver strong profit and earnings expansion.

I want to thank our global teams for their persistent commitment to serving our customers and significantly growing our business.

Turning to the current dynamics in our served end markets. We continue to see inventory destocking across our electronics commercial vehicle distribution channels in the fourth quarter.

Dave: Sure.

We are also seeing a subset of OEM customers continue to work down inventory levels.

In the quarter, our electronics book to Bill remained below one.

We expect inventory destocking well into the new year, but as inventory levels stabilize we expect to return to normalized order rates during 2024.

So we are experiencing a longer than typical electronics channel destocking following robust growth in 2021, and 2022, we are well positioned to drive strong performance in the recovery.

On slide seven turning to electronics end market demand and design activity demand continued to be soft in consumer products personal devices and appliances in the quarter.

Despite these near term headwinds, we continue to be a leading technology enabler and abroad electronics market and.

And has the track record to deliver strong execution and meaningful long term growth.

Structural electronics end market drivers, such as artificial intelligence automation and more stringent safety requirements remain a key opportunity.

As our customers continue to rely on us for technology expertise.

And enable innovation.

And we are seeing excellent traction with new product introductions across key electronics platforms as well as continued robust design activity across our diverse technology offering.

Taking a closer look at electronics design activity, we had meaningful wins across a broad set of product categories and end market applications highlighted by data center medical and building solutions among others in.

In the quarter, we wanted multiple circuit protection opportunities for building solution customers in Europe.

We also won business for a smart home application for multiple regions.

We added meaningful win in a medical equipment application in the Americas.

Finally, we delivered multiple data center wins in the quarter across technology offerings, including switches and fuses.

Long term, we believe the use of artificial intelligence and computing will drive strong demand for our products in data center applications.

Taking a step back our superior reliable technology offerings positions us well to continue winning and across an increasingly diverse and evolving electronics end market.

Turning to slide eight and industrials.

We continue to drive growth with customers delivering solid momentum in utility energy storage and industrial drives.

Though we experienced further softness in residential HVAC.

Construction and charging infrastructure in the fourth quarter.

While we see renewable commercial HVAC and industrial safety growth into 2024, we expect softer demand in other pockets of the broader industrial sector.

Despite the ongoing softness in certain industrial end markets, we see a longer term momentum across our diverse exposures, reflecting ramping infrastructure spend increasing electrical efficiency requirements and global commitments to Decarbonize Asian.

We believe we will continue to benefit via deep engineering expertise and product offerings as well as continued strong execution reflected in ongoing strong design wins and broad customer momentum.

Taking a step back industrial design activity remains robust across our exposures.

We saw success in North America, and renewables, where we won a multi technology application for a utility level solar customer in.

We won business for multiple Hvac's solutions, driven by our designing capabilities and customer support.

We also secured wins for a broad set of EV infrastructure applications across multiple regions, including for level, two and DC fast Chargers, where our superior quality and reliability are critical for the safety of these high power systems.

Finally, we had a multi technology win for an industrial OEM in North America, where we will be providing our temperature sensors and contractors.

Moving to slide nine within transportation and our passenger vehicle exposure, we continue to leverage our balanced product capabilities and broad technology leadership to enable ongoing industry innovations.

We are seeing continued electrification new business and design momentum and.

And we believe our more conservative EV planning, which assumed a gradual industry transition is proving prudent as our investments go to market strategy and planned content expansion are unchanged.

Our traditional core low voltage products also continue to deliver key wins globally, and we remain the leading provider in many core product categories.

As an example, we continue to see strong traction in China in the quarter, demonstrating our entrenched customer relationships and broad product leadership.

Furthermore, we are a key enabler of electronic vacation advancements, including in vehicle technology, such as telematics and active safety adoption such as Adas.

Factoring in the broad product offering and technology leadership, we continue to have a well rounded automotive content outgrowth story.

Looking ahead.

We will also continue to ramp current sensor investment ahead of launches supported by our meaningful design pipeline and strong wind cadence as a reminder, current sensors play an important role on electric drive and battery management applications.

As we have discussed previously we are confident in our positioning as a key player in the emerging category as supported by our strong customer traction to date, but also our technology offering and long standing expertise within the vehicle electrical system.

Given our long time circuit protection leadership, we're a key customer partner and technology enabler at the electrical system engineering level and current sensors are designed in by those same customer engineers and for the same applications as our core offering.

Strategically we view current sensors is a great example of an adjacent technology that will further round out our already strong position in all vehicle electrical systems application.

As part of our regular portfolio review process, we are continuing to review our passenger vehicle sensor portfolio as we transition our focus to current sensor launches expected in the coming quarters.

Regarding our commercial vehicle exposure, we're taking a long term strategic view on our business and footprint.

We expect our previously disclosed commercial vehicle actions will last through 2024.

As we continue our product line pruning initiatives and cost structure reductions.

While this will impact our full year 2024 results, including a more pronounced impact on our transportation segment.

We believe our actions will position our commercial vehicle business for long term success and we remain confident in our positioning in the market.

We expect to ultimately exit certain low margin product lines to optimize our product and customer mix.

Nino will provide additional color on the impact to 2024 results.

Taking a closer look at passenger vehicle design activity, we closed the year strong with multiple wins across both our low and high voltage product portfolio for customers in all regions.

Casey.

Our safety critical solutions are essential for next generation architecture, and we secured wins for high voltage fuses current sensors and for onboard charging applications in EMEA with several Oems we.

As part of our regular portfolio review process, we are continuing to review our passenger vehicles sensor portfolio as we transition our focus to current sensor launches expected in the coming quarters.

We also continued to show momentum in China, and securing a meaningful low voltage win in the quarter.

Our commercial vehicle exposure.

Taking a long term strategic view on our business and footprint.

Finally within commercial vehicles, we secured wins for high voltage products and switch applications in construction equipment and low current switches for material handling applications.

We expect our previously disclosed commercial vehicle actions will last through 2024.

So we continue our product line pruning initiatives and cost structure reductions.

We also won business in Australia for our heavy duty truck application, leveraging our strong switch technology offerings and broader portfolio to design a semi custom solution.

While this will impact our full year 2024 results, including a more pronounced impact on our transportation segment.

We believe our actions will position our commercial vehicle business for long term success and we remain confident in our positioning in the market.

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

We expect to ultimately exit certain low margin product lines to optimize our product and customer mix.

Thanks, Dave Good morning, everyone and happy New year. Thank you for joining us today.

Please turn to slide 11 to start with our fourth quarter results revenue.

I mean, we will provide additional color on the impact to 2024 results.

Revenue in the quarter with $534 million down 13% versus last year.

Taking a closer look at passenger vehicle design activity, we closed the year strong with multiple wins across both our low and high voltage product portfolio for customers in all regions.

<unk> were down 14% after adjusting for foreign exchange.

GAAP operating margins were 12, 1% and adjusted margins of 13, 2%.

Our safety critical solutions are essential for next generation architecture, and we secured wins for high voltage fuses current sensors and for onboard charging applications in EMEA with several Oems.

Adjusted EBITDA margin finished at 19, 6%.

Fourth quarter GAAP diluted earnings per share was $1 71, and adjusted diluted EPS was $2 and content.

We also continued to show momentum in China, and securing a meaningful low voltage win in the quarter.

Let's turn to slide 12 for full year performance.

Finally within commercial vehicles, we secured wins for high voltage products and switch applications in construction equipment and low current switches for material handling applications.

We finished the year with sales at 236 billion.

Down 6% versus last year and down 10% organically.

GAAP operating margins were 15, 3% adjust.

We also won business in Australia for our heavy duty truck application, leveraging our strong switch technology offerings and broader portfolio to design a semi custom solution.

Adjusted operating margin finished at 16, 5% and adjusted EBITDA margin was 23.

3%.

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

Excluding an FX headwind of 60 basis points.

And EBITDA margins would have finished at about 17% and 23% respectively.

Thanks, Dave Good morning, everyone and happy New year. Thank you for joining us today.

We're very pleased with resiliency of our company margin to here, which were 200 basis points stronger than our performance in the prior down cycle.

Please turn to slide 11 to start with our fourth quarter results revs.

Revenue in the quarter with $534 million.

Down 13% versus last year.

Our portfolio diversification and strength of execution had been foundational and achieving our upper teens operating margin target, while managing through a correction cycle.

Sales were down 14% after adjusting for foreign exchange.

GAAP operating margins were 12, 1% and adjusted margins 13, 2%.

GAAP diluted EPS, $10, and 34 and <unk>.

<unk> EBITDA margin finished at 19, 6%.

Adjusted diluted EPS finished at $11 and <unk> 74.

Fourth quarter GAAP diluted earnings per share was $1 71, and adjusted diluted EPS was $2 and consent.

Our full year GAAP effective tax rate was 21% and adjusted effective rate was 21%.

Let's turn to slide 12 for full year performance.

Our full year rate finished about 150 basis points higher than projected due to a greater shift in earnings mix across jurisdictions.

We finished the year with sales of $2 $36 billion.

Down 6% versus last year and down 10% organically.

The true up for the full year rate is it reflected in our higher than anticipated fourth quarter tax rate.

GAAP operating margins were 15, 3% adjusted operating margins finished at 16, 5% and adjusted EBITDA margins were 22, 3%.

Turning to cash we generated operating cash flow of $457 million and free cash flow of $371 million for the year both records for the company.

Excluding an FX headwind of 60 basis points.

And EBITDA margins would have finished at about 17% and 23% respectively.

Our free cash flow conversion from net income was 143% significantly higher than our target of a 100% as we proactively manage working capital declines aligned to our sales decrease.

We're very pleased with the resiliency of our company margins this year, which were 200 basis points stronger than our performance in the prior down cycle.

Our cash generation continues to validate the strength of our business model and we expect to generate approximately 100% free cash flow conversion going forward.

David Kelley: Our portfolio diversification and strength of execution had been foundational and achieving our upper teens operating margin target, while managing through a correction cycle.

During the year, we allocated about $200 million in cash towards strategic acquisitions, including the down payment of the 200 millimeter fab.

Speaker Change: GAAP diluted EPS was $10 34, and adjusted diluted EPS finished at $11 74.

David W. Heinzmann: Our full year GAAP effective tax rate was 21% and adjusted effective rate was 21%.

We've returned $62 million to shareholders via our quarterly dividend and repaid debt of $121 million.

David W. Heinzmann: Our full year rate finished about 150 basis points higher than projected due to a greater shift in earnings mix across jurisdictions.

We ended the year with over $550 million in cash on hand, and net debt to EBITDA leverage of one three times.

The true up for the full year rate is reflected in our higher than anticipated fourth quarter tax rate.

Our cash generation model, coupled with our strong balance sheet gives us the ability to allocate capital for both growth and return to shareholders.

David W. Heinzmann: Turning to cash we generated operating cash flow of $457 million.

Let's move to segment highlights for the fourth quarter and full year, starting with electronics on slide 13.

David W. Heinzmann: And free cash flow of $371 million for the year both records for the company.

Sales were down organically, 21% and 16% for the quarter and year respectively.

Our free cash flow conversion from net income was 143% significantly higher than our target of 100% as we proactively manage working capital declines aligned to our sales decrease.

Channel Destocking continued through the quarter with an ongoing decline in weeks of inventory at our channel partners.

Across end market consumer facing areas remains soft and we saw increasing signs of weakness across a broad set of industrial end markets.

David W. Heinzmann: Our cash generation continues to validate the strength of our business model and we expect to generate approximately 100% free cash flow conversion going forward.

Automotive market remained strong.

Dave: During the year, we allocated about $200 million in cash towards strategic acquisitions, including the down payment of a 200 millimeter fab.

Operating margins in the quarter were 18%, while EBITDA margins finished at 24, 7%.

We finished the year with segment operating margins over 22% and EBITDA margins over 28% well positioned above our 20% operating margin target.

Dave: We returned $62 million to shareholders via our quarterly dividend and repaid debt of $121 million.

We demonstrated that broader resiliency across the segment from continued portfolio diversification disciplined execution and improved cost structure.

Dave: We ended the year with over $550 million in cash on hand, and net debt to EBITDA leverage of one three times.

Dave: Our cash generation model, coupled with our strong balance sheet gives us the ability to allocate capital for both growth and return to shareholders.

Moving to our transportation segment on Slide 14 segment organic sales declined 5% for both the quarter and the year.

Dave: Let's move to segment highlights for the fourth quarter and full year, starting with electronics on slide 13.

Okay.

In the passenger vehicle business sales grew 5% organically in the quarter and 4% for the year.

Dave: Sales were down organically, 21% and 16% for the quarter and year respectively.

Growth in the quarter was led by continued product launches, we supported especially in China tempered by impacts from the extended UAW strike earlier in the quarter.

Dave: Channel Destocking continued through the quarter with an ongoing decline in weeks of inventory at our channel partners.

Within commercial vehicles sales for the quarter were down 13% organically and down 14% for the year as inventory Destocking continued at our distribution partners.

Dave: Across end markets consumer facing areas remains soft and we saw increasing signs of weakness across a broad set of industrial end markets.

Dave: Automotive markets remained strong.

For the segment operating margins were four 7% and 5% for the quarter and year, respectively. While EBITDA margin finished at 10, 8% in the quarter and 11, 2% in the year.

Dave: Operating margins in the quarter were 18%, while EBITDA margins finished at 24, 7%.

Dave: We finished the year with segment operating margins over 22% and EBITDA margins over 28% well positioned above our 20% operating margin target.

Profitability has improved across the passenger vehicle business and the footprint optimization, which we've largely completed.

Dave: We demonstrated the broader resiliency across the segment from continued portfolio diversification disciplined execution and improved cost structure.

We have extended our margin improvement initiatives to a review of our auto sensor portfolio and we will exit an existing low margin product lines.

Dave: Moving to our transportation segment on Slide 14 segment organic sales declined 5% for both the quarter and the year.

We are also expanding investment and support our growing current sensor offerings with a solid pipeline of design wins, we are increasing resources in advance of product launches in the coming quarters.

Dave: Okay.

Dave: In the passenger vehicle business sales grew 5% organically in the quarter and 4% for the year.

Dave: Growth in the quarter was led by continued product launches, we supported especially in China tempered by impacts from the extended UAW strike earlier in the quarter.

As Dave noted, we are extending our strategic portfolio review across the commercial vehicle business we.

We expect this to lead to broader portfolio pruning across our customer and product line mix.

Dave: Within commercial vehicles sales for the quarter were down 13% organically and down 14% for the year as inventory Destocking continued at our distribution partners.

We're also expanding our cost reduction activities, both near term and longer term structural actions.

We expect these segment wide activities to extend over several quarters for 2024, we expect the auto sensor and commercial vehicle portfolio pruning to reduce transportation segment sales growth by 6% to 8% heavier weighted towards the commercial vehicle products we have.

Dave: For the segment operating margins were four 7% and 5% for the quarter and year, respectively. While EBITDA margins finished at 10, 8% in the quarter and 11, 2% in the year.

Dave: Profitability has improved across the passenger vehicle business through footprint optimization, which we've largely completed.

We remain positive on the long term growth profile and mid teens margin profitability target for this segment and expect these actions and investments to drive progressive margin expansion.

We have extended our margin improvement initiatives to a review of our auto sensor portfolio and will exit some existing low margin product lines.

On slide 15, the industrial segment grew 5% organically for the year.

Dave: We are also expanding investments for our growing current sensor offerings with a solid pipeline of design wins, we are increasing resources in advance of product launches in the coming quarters.

Signs of expanding industrial end market weakness led to a 5% organic sales decline in the quarter.

Sales were softer than expected in the quarter with ongoing weakness across the residential HVAC markets, along with slower construction and MRO markets as well as some Oems working down pockets of excess inventory.

Dave: As Dave noted, we are extending our strategic portfolio review across the commercial vehicle business we.

Dave: We expect this to lead to broader portfolio pruning across our customer and product line mix.

Operating margins finished at 12, 7% in the quarter and 16, 4% for the year both growing over prior year.

Dave: We're also expanding our cost reduction activities, both near term and longer term structural actions.

Adjusted EBITDA margins were over 18% in the quarter, expanding over 300 basis points and over 21% for the year expanding over 200 basis points.

We expect these segment wide activities to extend over several quarters for 2024, we expect the auto sensor and commercial vehicle portfolio pruning to reduce transportation segment sales growth by 6% to 8% heavier weighted towards the commercial vehicle products we have.

Let's turn to the forecast on slide 16.

We still see a moderating macro environment.

Many of the electronics end markets have stabilized, but we have not seen significant signs of improvement.

Dave: We remain positive on the long term growth profile and mid teens margin profitability target for this segment and expect these actions and investments to drive progressive margin expansion.

Also seeing more softness across a broader set of industrial markets, including some customers working down excess inventory levels from 2023.

Dave: On slide 15, the industrial segment grew 5% organically for the year.

We expect inventory rebalancing at our distribution channel partners, both electronics and commercial vehicle continuing into the first half of this year.

Dave: But signs of expanding industrial end market weakness led to a 5% organic sales decline in the quarter.

Dave: Sales were softer than expected in the quarter with ongoing weakness across the residential HVAC markets.

And we expect 2024 car build levels to be flat over 23, and about 89 million cars.

Dave: Long with slower construction and MRO markets as well as some Oems working down pockets of excess inventory.

Inflationary trends have moderated in some areas, but we see continued increases in wages and energy costs as well as transportation costs with the current geopolitical dynamics.

Dave: Operating margins finished at 12, 7% in the quarter and 16, 4% for the year both growing over prior year.

With this backdrop, we expect first quarter sales in the range of $505 million to $530 million.

Adjusted EBITDA margins were over 18% in the quarter, expanding over 300 basis points and over 21% for the year expanding over 200 basis points.

At the midpoint, that's a sales decline of 15% versus last year.

We expect sales to decline across both electronics and industrial segments with slight growth in the transportation segment.

Speaker Change: Let's turn to the forecast on slide 16.

Speaker Change: We still see a moderated macro environment.

We project adjusted EPS to be in the range of $1 65 to $1 85, which includes a tax rate in the range of 20% to 21%.

Speaker Change: Many of the electronics end markets have stabilized, but we've not seen significant signs of improvement. We're also seeing more softness across a broader set of industrial markets, including some customers working down excess inventory levels from 2023.

Please turn to slide 17 for our full year 2024 expectations.

We expect a return to sales growth during the year, but expect that to be tempered about 2% to 3% based on the transportation segment portfolio actions.

Speaker Change: We expect inventory rebalancing at our distribution channel partners, both electronics and commercial vehicle continuing into the first half of this year.

Speaker Change: And we expect 2024 car build levels to be flat over 23, and about 89 million cars.

At current foreign exchange rates FX is not expected to materially impact our full year sales that has about a 7% headwind to earnings.

Speaker Change: Inflationary trends have moderated in some areas, but we see continued increases in wages and energy costs as well as transportation costs with the current geopolitical dynamics.

We expect company operating margins to continue averaging in the upper teens for the year with variability across quarters.

By segment, we expect electronics operating margins to continue averaging above 20% industrial margins in the upper teens and transportation to improve progressively to high single digit operating margins by year end.

With this backdrop, we expect first quarter sales in the range of $505 million to $530 million.

Speaker Change: At the midpoint, that's a sales decline of 15% versus last year.

Speaker Change: We expect sales to decline across both electronics and industrial segments with slight growth in the transportation segment.

In addition, we're assuming $66 million in amortization expense and about $40 million in interest expense and we expect to invest $100 million to $110 million in capital expenditures.

Speaker Change: We project adjusted EPS to be in the range of $1 65 to $1 85, which includes a tax rate in the range of 20% to 21%.

We are estimating a full year tax rate of around 21%.

Speaker Change: Please turn to slide 17 for our full year 2024 expectations.

With the ongoing global tax legislation a headwind on tax rates, we expect to maintain our tax rate in the low 20% range going forward.

Speaker Change: We expect to return to sales growth during the year, but expect that to be tempered about 2% to 3% based on the transportation segment portfolio actions.

We are continuing to evaluate opportunities to mitigate these rate increases.

Speaker Change: At current foreign exchange rates FX is not expected to materially impact our full year sales, but has about a <unk> <unk> headwind to earnings.

Despite the impact from the slower macro environment, our 2023 financial performance was much stronger than past market cycles.

Speaker Change: We expect company operating margins to continue averaging in the upper teens for the year with variability across quarters.

We distinctly improved our profitability and cash generation as we continue to enhance our operating model and capabilities.

Speaker Change: By segment, we expect electronics operating margins to continue averaging above 20% industrial margins in the upper teens and transportation to improve progressively to high single digit operating margins by year end.

Our 2024 priorities will focus on areas, we can control.

Readiness for our return to growth.

Driving profitability improvements within the transportation segment, and continuing our trajectory of best in class profitability and cash generation.

Speaker Change: In addition.

Speaker Change: <unk>, we're assuming $66 million in amortization expense and about $40 million in interest expense and we expect to invest $100 million to $110 million in capital expenditures.

I'd like to recognize our employees and partners for their contributions and the continued progress we've made as a company.

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

Thanks, Neal and summary on Slide 18, 2023 was a solid year for little views and exemplary of our resilient business model.

Speaker Change: We are estimating a full year tax rate of around 21%.

Speaker Change: With the ongoing global tax legislation a headwind on tax rates, we expect to maintain our tax rate in the low 20% range going forward.

We generated record cash flow and executed well as evidenced by a resilient margin performance, which outpaced our profitability levels in prior downturns.

Speaker Change: We are continuing to evaluate opportunities to mitigate these rate increases.

We saw continued robust design activity and believe we have strengthened our customer relationships expanded our leadership and broadened our presence in attractive high growth end markets.

Speaker Change: Despite the impact from the slower macro environment, our 2023 financial performance was much stronger than past market cycles. We.

Three years into our most recent five year growth strategy, we are outpacing our targets and our strong execution is overshadowing a continued dynamic underlying macro environment.

Speaker Change: We distinctly improved our profitability and cash generation as we continue to enhance our operating model and capabilities.

Speaker Change: Our 2024 priorities will focus on areas, we can control ready.

And while we expect continued macro variability into the new year, we remain confident that we will return to growth during 2024.

Speaker Change: Readiness for our return to growth <unk>.

Speaker Change: Driving profitability improvements within the transportation segment, and continuing our trajectory of best in class profitability and cash generation.

We also have a very strong balance sheet and significant financial capacity and strategic M&A, we will continue to be a capital deployment focus.

Speaker Change: I'd like to recognize our employees and partners for their contributions and the continued progress we've made as a company.

We believe our diversified business model strong technology offerings across the end markets and well positioned cost structure will drive continued long term top tier value for our stakeholders.

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

Speaker Change: Okay.

Dave: Thanks Neil.

Dave: In summary on Slide 18, 2023 was a solid year for little do an exemplary of our resilient business model.

Again, I want to thank our global little fuse team for their unwavering commitment to our customers and supplier partners.

Dave: We generated record cash flow and executed well as evidenced by a resilient margin performance, which outpaced our profitability levels in prior downturns.

We were recently recognized again as one of America's most responsible companies by Newsweek and honor that would not be achievable of all the hard work of our team as well as our strong customer and supplier partnerships.

Dave: We saw continued robust design activity and believe we strengthened our customer relationships expanded our leadership and broadened our presence in attractive high growth end markets.

And with that I will now turn the call back to the operator for Q&A.

Okay.

At this time I would like to remind everyone to ask a question Press Star then the number one on your telephone keypad.

Dave: Three years into our most recent five year growth strategy, we are outpacing our targets and our strong execution is overshadowing a continued dynamic underlying macro environment.

Your first question comes from the line of Luke junk with Baird. Your line is open.

Good morning, Thanks for taking my questions.

Dave: And while we expect continued macro variability into the new year, we remain confident that we will return to growth during 2024.

For starters here, Dave hoping you could just double click on areas of your passive portfolio that might turn the fastest since you returned to growth any new clues there and then any updated perspective from your distributor partners, who would also be helpful. Just in terms of the progress that they've made working inventory lower and then maybe if you can square.

Dave: We also have a very strong balance sheet and significant financial capacity and strategic M&A, we will continue to be a capital deployment focus.

Dave: We believe our diversified business model strong technology offerings across the end markets and well positioned cost structure will drive continued long term top tier value for our stakeholders.

All of that just figures and so you continue to expect to return to growth during 2024.

Sure. Thanks, Thanks, Lou for the question.

Dave: Again, I want to thank our global little PS team for their unwavering commitment to our customers and supplier partners.

Within within our Passives business, obviously, we've got <unk>.

Several different technologies different stages.

Dave: We were recently recognized again as one of America's most responsible companies by Newsweek and honor that would not be achievable.

And also through distribution some of our semiconductor protection products that heavily flow through distribution.

Hard work of our team as well as our strong customer and supplier partnerships.

And what I would say is we had some.

Kind of hit their peak a little earlier than others started a correction of a little earlier I would say our semiconductor our semiconductor protection business.

Speaker Change: And with that I will now turn the call back to the operator for Q&A.

Speaker Change: Okay.

Speaker Change: At this time I would like to remind everyone to ask a question Press Star then the number one on your telephone keypad.

Started the correction a little later than the others.

Although it's got a heavy auto exposure.

Speaker Change: Your first question comes from the line of Luke junk with Baird. Your line is open.

So that's one that we don't expect to necessarily elongate further.

Luke L. Junk: Good morning, Thanks for taking my questions.

So it's a mix it's kind of hard to give you a good read on it what I will tell you it's been making steady month over month progress.

Luke L. Junk: For starters, you, Dave hoping you could just double click on areas of your passive portfolios that might turning the fastest as you return to growth any new clues there and then any updated perspective from your distributor partners, who would also be helpful. Just in terms of the progress that they've made working inventory lower and then maybe if you can square.

The distribution.

Over inventory situation.

We had estimated in the range of.

We've made our way through maybe 70% of the excess inventory in our distribution channels. So the time.

Luke L. Junk: All of that just figures and so you continue to expect to return to growth during 2024.

Really to return to growth.

It does not require.

End market uptick.

Dave: Sure. Thanks, Thanks for the question.

Requires is that we get to.

Dave: Within within our Passives business, obviously, we've got.

Stable inventory position and then order rates for kind of a return to more normal sorts of levels.

Several different technologies different stages.

As far as timing, it's a little hard to kind of place that in I think.

Dave: And also through distribution some of our semiconductor protection products that heavily flow through distribution.

The downturn has been a little elongated because the end customers and Matt the EMS customers, probably carried a bit more inventory than typical so thats kind of a long dated this.

Speaker Change: And what I would say is we had some that tonnage kind of hit their peak a little earlier than others started a correction of a little earlier.

Speaker Change: I'd say, our semiconductor our semiconductor protection business.

Down cycle. So the visibility is a little challenging it is to say when.

Speaker Change: Starting with the correction a little later than the others, although it's got a heavy auto exposure.

However.

Certainly our belief.

Stocking kind of continues well into 2024.

Speaker Change: So that's one that we don't expect to necessarily elongate further.

We will hit that.

Point, where inventory settles out at its normal operating range and that looks great. The return to growth can be a tailwind for us.

Speaker Change: It's a mix, it's kind of hard to give you a good read on it what I will tell you it's been making steady month over month progress.

Yes.

Got it and then for a follow up maybe a question for you.

Speaker Change: Distribution kind of over inventory situation.

Speaker Change: Estimated in the range.

I am looking at just transportation margins in your expectation for progressive improvement going forward and I was just hoping you could help us rank order some of the drivers in that business between price recovery the portfolio pruning that.

Speaker Change: Yes, we've made our way through maybe 70% of the excess inventory in our distribution channels. So the time.

Speaker Change: Really to return to growth.

Speaker Change: It does not require.

Speaker Change: In market uptick.

We've discussed again today any additional overhead reduction and then ultimately the importance of volume growth in that business on the path to high single digit margins exiting this year.

It requires is that we get to.

Speaker Change: A stable inventory position and then order rates for kind of return to more normal sorts of levels.

Sure. Thanks Luke.

Speaker Change: As far as timing, it's a little hard to kind of place that in I think.

Let me break it down into two parts.

Speaker Change: The downturn has been a little elongated because the end customers and Matt the Ams customers, probably carried a bit more inventory than typical so thats kind of a long dated.

<unk> made up of both nominal.

Commercial vehicle business.

On the automotive.

And the progress that we've made there.

I have been talking for some time about a number of adjustments may be released.

Speaker Change: Down cycle. So the visibility is a little channel that they had to say.

Speaker Change: However.

Julie.

Trading capability better aligned the car builds going on that's largely largely completed we have been seeing the benefits come through on that the team had really awesome.

Speaker Change: Certainly I believe the Destocking kind of continues well into 2024.

Speaker Change: We will hit that.

Speaker Change: Point, where inventory settles out at its normal operating range and that looks great. The return to growth and be a tailwind for us.

Pricing as well and so that's been good.

That adjustment that we've made there Dave talked a little bit about some additional actions that we're taking around looking at that.

Speaker Change: Got it and then for a follow up maybe a question for you.

Specifically around some noncore automotive sensor parts of our business low margin low growth. So that's something that we're continuing to do a little bit of headwind.

Speaker Change: Im looking at just transportation margins in your expectation for progressive improvement going forward and I was just hoping you could help us rank order some of the drivers in that business between price recovery the portfolio pruning that we discussed again today.

Sales line, but that will help from a margin expansion.

And I'd also say, we're investing for the long term, Wisconsin opening up a little bit of a headwind right now.

Speaker Change: Additional overhead reduction and then ultimately the importance of volume growth in that business on the path to high single digit margins exiting this year.

The transportation segment overall.

In general that's been a payback as we start to see sale.

Speaker Change: Sure. Thanks Luke.

I'm about later this year related to 25, so I think good progress in automotive on the commercial vehicle front I'd say, we are working on actions, we definitely have more to go after.

Speaker Change: Let me break it down into two parts or transportation.

Speaker Change: Made up of both nominal.

Speaker Change: Our commercial vehicle business necessarily on the automotive.

Yes.

Speaker Change: We're really pleased with the progress that we've made there.

Volume recovery to Jim's point, it's pretty key here right with all the Destocking that we've been talking about going on sales are down much more than normal timeline of when we get back to more normalized run rate, we will see the margin recovery there.

I have been talking for some time about a number of adjustments, we're making to release.

Speaker Change: Julie.

Speaker Change: Smaller footprint to better align with the current bill billing on net largely largely completed we have been seeing the benefits come through on that the team had really awesome work on pricing as well and so that's that's been good.

Theres footprint work underway already go as well as cost reductions.

Operating.

Good morning administrative areas that we're looking at so we're working through that.

Speaker Change: Good adjustment that we've made there Dave talked a little bit about some additional actions that we're taking around looking at that.

Probably some deeper portfolio pruning here a combination.

Speaker Change: Specifically around some noncore automotive sensor parts of our business low margin low growth. So that's something that we're continuing to do a little bit of headwind to the <unk>.

Thank you talked about with our arguably past couple years.

Steven just taking a step back in our legacy business and Thats going to be a headwind on sales that will help on the margin expansion.

Speaker Change: Sales line, but that will help from a margin expansion perspective.

I think overall.

<unk> taken the steps that we need to take.

Speaker Change: And I would also say, we're investing for the long term with Christmas being up a little bit of a headwind right now.

Working our way through by the way some other headwinds on inflation and FX and we got to get to that but.

Speaker Change: The transportation segment overall.

It is taking us longer than we might like but at the same time, we know what we need to do we have confidence in these markets.

Speaker Change: In general that's going to payback as we start to see sales come.

Speaker Change: About later this year related to 25, so I think good progress in automotive on the commercial vehicle front I'd say were working on actions, we definitely have more to go after that.

And we will get there.

Yeah.

Got it I'll leave it there thank you.

Thanks for your question Luke.

Speaker Change: <unk> recovery to Jim's point, it's pretty key here right with all the Destocking that we've been talking about going on sales are down much more than a normal timeline of when we get back to more normalized run rate, we will see the margin recovery there.

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

Yes. Thank you good morning, everyone.

A question on the electronics segment.

You talked about getting back to 20% operating margin.

Speaker Change: There is footprint work underway more to go as well as cost reductions.

For the year it looks like revenue in Q1 is going to be down 20, plus percent year over year. It looks like operating margins would be below 16% or so if I did the math right.

Speaker Change: Ross operating and also more administrative areas that we're looking at so we're working through that and I would say probably some deeper portfolio pruning here a combination of they talked about with our arguably past couple of years. We acquired currently even just taking a step back in our legacy business.

So what are the drivers other than volume.

Return to volume growth, which we don't know exactly when that's going to hit what are the other drivers of.

Speaker Change: And that's going to be a headwind on sales that will help on the margin.

Of getting those margins up, particularly in an environment. When we may start to see some more pricing pressure as volumes come back.

Speaker Change: I think overall.

Speaker Change: We are taking the steps that we need to take.

Sure.

Speaker Change: Working our way through and by the way some other headwinds on inflation and FX and we've got to get into that but.

I could take a step back on electronics a lot of the work that we had done was really very foundation slightly you talked about the past few years also break that medallion installation team.

Speaker Change: It is taking us a little longer.

Speaker Change: Then we might like but at the same time, we know what we need to do we have confidence in these markets and the businesses and we will get there.

Acquisition, a lot of supply chain work.

Volume played.

Key part in that as well and just some operational issues.

Yeah.

Speaker Change: Got it I'll leave it there thank you.

Speaker Change: Thanks for your question Luke.

For us on the pricing side pricing was really meant to offset the cost.

Speaker Change: Yeah.

Speaker Change: Your next question comes from the line of Matt Sheerin with Stifel. Your line is open.

Cost deflation that we've seen with wasn't a change in the market or or changes in the long term strategy necessarily but that was related to make sure that we're keeping up and staying ahead on the cost inflation side, so with the sustainable.

Matt Sheerin: Yes. Thank you good morning, everyone.

A question on the electronics segment.

Matt Sheerin: You talked about getting back to 20% operating margin.

Matt Sheerin: For the year it looks like revenue in Q1 is going to be down 20, plus percent year over year. It looks like operating margins would be below 16% or so if I did the math right.

One of the things that we've done all the efficiencies et cetera as volumes started to come back like Dave talked in an earlier question about at some point, we'll see inventory destocking.

We'll start to see some recoveries.

Matt Sheerin: So what are the drivers other than volume.

The incremental from those our memory sales dollar tends to be pretty strong right. So that'll be a big part of margin recovery.

Matt Sheerin: Return to volume growth, which we don't know exactly when that's going to hit what are the other drivers of.

Matt Sheerin: Of getting those margins up, particularly in an environment. When we may start to see some more pricing pressure as volumes come back.

During this time.

Manage our cost structure in our discretionary spending.

Given the challenging market times, so while we may have quarters scanner.

Sure.

Speaker Change: I could take a step back on electronics a lot of the work that we had done was really very foundation right. When you talked about the past few years with a new das installations to the Ics acquisition, a lot of supply chain work volume plays.

90% range I still expect the year to be in.

Paul.

Okay. Okay, great. Thank you and just back to the.

The order rates and electronics could you tell us Dave what's the book to Bill is and has that changed materially in the last quarter or so.

Speaker Change: Key part in that as well and just some operational issues we've had.

Yes, we have not really.

Speaker Change: For us on the pricing side right. The pricing was really meant to offset the cost.

Remains well below one still and we really haven't seen it change too much from third quarter to fourth quarter to the.

Cost inflation that we've seen with wasn't a big change in the market or or changes in the long term pricing strategy necessarily but that was really to make sure that we were keeping up and a large piece of staying ahead on the cost inflation side, so with the sustainable.

End of January it's been reasonably stable.

There is continuing to kind of work to kind of bringing down that inventory level.

The distribution partners of ours so.

Although it is certainly not above one where we'd love to see it.

Speaker Change: More of the things that we've done all the efficiencies et cetera, as volume starts to come back like Dave talked in an earlier question about at some point, we will see inventory destocking.

Been reasonably stable it at that.

Level of job.

Okay, Great and just one last question if I may just regarding your M&A strategy and obviously that's been a big part of your growth rate you have been very successful there, but it sounds like youre sort of isn't really focus here.

Speaker Change: We'll start to see some recovery.

Speaker Change: The incremental from known our memory sales dollar tends to be pretty strong for us so that'll be a big part of margin recovery.

On trying to improve margins across the business dealing with this correction so.

Speaker Change: During this time.

Speaker Change: Manage our cost structure in our discretionary spending.

Speaker Change: Given the challenging market times. So while we may have quarters that are not at that 20% range I still expect the year to be at that level.

Are we to assume that youre going to be maybe more focused on the business than acquisitions or if there is.

Two of opportunities.

Speaker Change: Okay. Okay, great. Thank you and just back to the.

Do that.

Yes.

Speaker Change: The order rates and electronics could you tell us Dave what's the book to Bill is and has that changed materially in the last quarter or so.

We believe we can walk and chew gum at the same time on this so so absolutely M&A continues to be a focus area for us our balance sheet is quite strong.

Dave: Yes, we have not really.

Dave: <unk> well below one still.

We have a good funnel of opportunities as we've kind of looked to diversify the end markets we're targeting.

Dave: And we really haven't seen it change too much from third quarter to fourth quarter.

The technology niches, where we think we can add value with our current customers. We continue to evaluate those.

The end of January it's been reasonably stable.

Dave: They're continuing to kind of work kind of bringing down that inventory level.

Yes, we havent had the acquisitions, we've announced in the last couple of quarters. However, they can.

Dave: The distribution partners of ours.

Can be a little lumpy. So we continue to drive that we continue to see that as a way to sustain and continue to grow our organic growth pattern over the long time. So while we clearly are bulbs focus on execution and making sure that we're managing through the downturn.

Dave: Although its certainly not above one where we'd love to see it.

Dave: It's been reasonably stable it at that.

A level of job.

Speaker Change: Okay, Great and just one last question if I may just regarding your M&A strategy and obviously that's been a big part of your growth rate you have been very successful there, but it sounds like youre sort of isn't really focus here.

More effectively than we have in the past with row demonstrating.

We still see M&A as a key opportunity for us and we are continue to be.

Speaker Change: Try and improve margins across the business dealing with this correction so.

Zns space.

Speaker Change: Are we to assume that youre going to be.

Okay fair enough thanks very much.

Thanks for your questions Matt.

Speaker Change: To be more focused on the business and acquisitions or if there is.

Your next question comes from the line of David Williams with the Benchmark Company. Your line is open.

Speaker Change: Tractor of opportunities will you do that.

Speaker Change: Yes no.

Hey, good morning, Thanks for letting me ask a few questions here. So I guess, maybe if you could just talk first about the <unk>.

Speaker Change: We believe we can walk and chew gum at the same time on this so so absolutely M&A continues to be a focus area for us our balance sheet is quite strong.

Geographic demand divergences, maybe in auto, but also industrial if youre seeing anything from the industrial standpoint that stands out geographically. Thank you.

Speaker Change: We have a good funnel of opportunities as we've kind of looked to diversify the end markets. We're targeting kind of the technology niches, where we think we can add value with our current customers. We continue to evaluate those.

Sure.

I would say if we look at the fourth quarter from a geographic standpoint.

Maybe the big area of differences in transportation.

Yes, we havent had the acquisitions, we've announced in the last couple of quarters. However.

China was quite strong in the fourth quarter and really outperformed what we expected there.

Speaker Change: Can be a little lumpy. So we continue to drive that we continue to see that as a way to sustain and continue to grow our organic growth pattern over the long time. So while we clearly are focused on execution and making sure that we're managing through the downturn.

The launch of a lot of new vehicles.

Both the high voltage, but an awful lot of low voltage applications, where we saw really strong performance. There I would say North America, although overall car build was okay.

With the UAW strike in the fourth quarter.

Speaker Change: More effectively than we have in the past, which we're demonstrating.

Forward, particularly were a little softer for us than we anticipated.

Speaker Change: We still see M&A as a key opportunity for us and we continue to be quite busy on that space.

Hi content opportunities there, so maybe hurt us a little bit there.

Speaker Change: Okay fair enough thanks very much.

But overall, that's kind of the mix we saw on transportation on the industrial side.

Speaker Change: Thanks for your questions Matt.

Speaker Change: Your next question comes from the line of David Williams with the Benchmark Company. Your line is open.

What I would say is our.

It was probably heavier North America.

David Kelly: Hey, good morning, Thanks for letting me ask a few questions here. So I guess, maybe if you could just talk first about the geographic demand divergences, maybe in auto but also industrial if youre seeing anything from the industrial standpoint.

With growth in Europe and in Asia.

And we generally continue to see broad based softness in China.

So kind of across everything, but transportation, we see a lot of softness in the Chinese market right now.

David Kelly: Stands out geographically thank you.

David Kelly: Sure.

David Kelly: I would say if we look at the fourth quarter from a geographic standpoint.

Other than that I think North America.

We saw particular softness in residential HVAC, which as a market that we target and industrial.

Maybe the big area of differences in transportation.

Speaker Change: Air China was quite strong in the fourth quarter and really outperformed what we expected there.

You may have seen reports, there with kind of excess inventory of units in the field and at distribution.

Speaker Change: The launch of a lot of new vehicles.

Some of the HVAC residential in North America was down like 30% in the fourth quarter, So certainly that that weighed a bit on us there.

Speaker Change: Both the high voltage, but an awful lot of low voltage applications, where we saw really strong performance. There I would say North America, although overall car build was okay.

Okay.

Great. Thank you and then maybe just the Destocking seems like it's been kind of rolling through and been heavier in certain segments, but just are you seeing I guess areas, where the inventory is running lean or has come back to more normalized levels or are you seeing maybe just commentary across your segments in terms of the inventory.

Speaker Change: With the UAW strike in the fourth quarter.

Speaker Change: Particularly were a little softer for us than we anticipated.

Hi.

Speaker Change: Hi content opportunities there, so maybe hurt us a little bit there.

Speaker Change: But overall, that's kind of the mix we saw on transportation on the industrial side.

Thanks.

Speaker Change: What I would say is.

Yes, I think on the inventory side of things.

Speaker Change: Our industrial it was probably heavier North America.

In general and our channel partners in the industrial space I would say inventories remain kind of.

With growth in Europe and in Asia.

Speaker Change: We generally continue to see broad based softness in China.

At normal levels. So we don't have any.

Significant concerning areas in the industrial distribution space there are some Oems like residential HVAC with where.

Speaker Change: Kind of across everything plus transportation, we see a lot of softness in the Chinese market right now other than that I think North America.

We sell into that are that are a little heavy.

And of course in our transportation side of our business. The automotive piece, we don't really use distribution. So thats more of a direct relationship commercial vehicle is a space, where we're seeing that over inventory in our channel partners, that's been coming down for us.

Speaker Change: We saw particular softness in residential HVAC, which is a market that we target and industrial.

Speaker Change: You may have seen reports there with kind of excess inventory of units in the field and a distribution.

Speaker Change: No.

Speaker Change: Some of the HVAC residential in North America was down like 30% in the fourth quarter, So certainly that that weighed a bit on us there.

As it has been in electronics as I spoke about earlier.

We're well into the burn of excess inventory.

Speaker Change: Yeah.

And.

The challenge a little bit is.

Speaker Change: Great. Thank you and then maybe just the Destocking seems like it's been kind of rolling through and been heavier in certain segments, but just are you seeing I guess areas, where the inventory is running lean or has come back to more normalized levels or are you seeing maybe just commentary across your segments in terms of the inventory.

Watching Pos with our distribution partners because the end customers are also burning inventory. So that's kind of put a dampening impact on the Pos with our customer with our distribution partners, so watching that balance between their Pos and where it's at.

And our inventory position at what speed, we're burning inventory.

Speaker Change: Okay.

Speaker Change: Yes, I think on the inventory side of things.

That's something we of course have.

Speaker Change: In general and our channel partners in the industrial space I would say inventories remain kind of.

Always kept an eye on and continue to watch but.

Clearly, we're well into the inventory destocking.

Speaker Change: Normal level, so we don't have any.

Yes, it's a little challenging to see when exactly that is but it will be coming and when it comes then then we will get that return to growth.

Speaker Change: Significant concerning areas in the industrial distribution space. There are some Oems like residential HVAC, where we sell into that are that are a little heavy.

Okay.

Yeah.

Speaker Change: And of course in our transportation side of our business. The automotive piece, we don't really use distribution. So thats more of a direct relationship commercial vehicle is a space, where we're seeing that over inventory in our channel partners, that's been coming down of course.

Thanks for your questions David.

Okay.

Again, if you'd like to ask a question press star one on your telephone keypad.

Our next question comes from Joshua <unk> with TD Cowen Your line is open.

Hey, guys. Good morning, Thank you for taking my questions.

Speaker Change: As it has been in electronics as I spoke about earlier.

It sounds like within the electronics and some of the other segments as well as we go through this extended destocking.

Speaker Change: Well into the burn of excess inventory.

Your utilization rates and factory loadings are kind of just.

Speaker Change: And the.

Speaker Change: The challenge a little bit is.

Watching Pos with our distribution partners because the end customers are also burning inventory. So that's kind of put a dampening impact on the Pos with our customer with our distribution partners, so watching that balance between their Pos and where it's at.

Youre keeping them flat right now is the inventory burn through is that a fair assumption and I guess any metrics you can give on how.

Depressed utilization rates internally are right now as we think about what leverage could look like.

As demand Pos kicks back in thank you.

And our inventory position at what speed, we're burning inventory.

Sure sure utilization rates of course vary by product lines.

Speaker Change: That's something we of course have.

Speaker Change: Always kept an eye on and continue to watch but.

Factory locations and certainly utilization rates are lower than than we were.

Speaker Change: Clearly, we're well into the inventory destocking.

We'd like to operate apps.

Speaker Change: Yes, it's a little challenging to see when exactly they turn is but it will be coming and when it comes then then we will get that return to growth.

So when we do begin to see a return.

Nice drop throughs on the return to volume as we.

Speaker Change: Yeah.

We see that.

Speaker Change: Okay.

And it varies by technology right.

Speaker Change: Thanks for your questions David.

Heavy the fixed cost is in the factories. So in some cases, we're able to flex our costs pretty aggressively.

Speaker Change: Again, if you'd like to ask a question press star one on your telephone keypad.

And balance to our flow through orders and it's not a major overhang for us other areas its a little more challenging.

Speaker Change: Our next question comes from Joshua <unk> with TD Cowen Your line is open.

Joshua: Hey, guys. Good morning, Thank you for taking my questions.

And so that's really a balance and it's by business unit by technology, how we manage that but.

Joshua: It sounds like within the electronics and some of the other segments as well as we go through this extended destocking.

But clearly.

Joshua: Your utilization rates and factory loadings or kind of just.

As volumes begin to come back later this year.

Joshua: Youre keeping them flat right now as the inventory Burns through is that a fair assumption and I guess any metrics you can give on how depressed utilization rates internally are right now as we think about what leverage could look like.

So it should be very healthy.

Thanks, David and maybe for me thank.

Thank you for the color on the revenue impact of the sensor product portfolio.

Review anything you can give us on gross or operating margins and potential opex savings as you go through this.

Joshua: Demand at Pos kicks back in thank you.

Speaker Change: Sure sure utilization rates of course vary by product lines.

The realignment thank you.

Yeah, Hi.

Speaker Change: Factory locations and certainly utilization rates are lower than than we were.

I would say in general that I talked about for overall for between vacation.

Speaker Change: We'd like to operate.

We see progressive improvements through 'twenty four it will be improving both our gross profit.

Speaker Change: So when we do begin to see a return.

Speaker Change: Nice drop throughs on the return to volume as we.

Margin and we will see an improved opex level is down lower.

We see that.

The opex level as we go through some of these restructuring.

Speaker Change: And it varies by technology right now.

Speaker Change: Heavy the fixed cost is in the factories. So in some cases, we're able to flex our costs pretty aggressively.

Probably going to be a little more pronounced in both profit because with volume.

<unk> been talking about.

We need to see volume come back in different areas.

Speaker Change: And balance to our flow through orders and it's not a major overhang for us other areas its a little more challenging.

That margin Incrementals.

Couple that with the footprint actions that we're taking can still pick up later in the blended pricing that we're working on as well.

Speaker Change: And so that's really a balance and its by business unit by technology, how we manage that but.

A more pronounced benefit.

Speaker Change: But clearly.

Yeah, and I think it's important to recognize.

Speaker Change: As volumes begin to come back later this year.

Yes.

Speaker Change: Yes, the drop there should be very healthy.

Automotive sensor pruning, we're doing is kind of more of what we've done in the past this is kind of normal for us.

Speaker Change: Yeah.

Speaker Change: Thanks, David and maybe for me.

Speaker Change: Thank you for the color on the revenue impact of the sensor product portfolio.

And it's a bit of a headwind on growth.

In the automotive passenger car piece of it however.

Speaker Change: To review anything you can give us on gross or operating margins and potential Opex savings as you go through this.

From a expense standpoint, we've shifted resources to current Jesse.

The realignment.

Our current sensing and our investment in that space is kind of ahead of revenue as you know we've had really nice design win cadence and the current sensor side of things.

Speaker Change: Yeah.

Speaker Change: I would say in general that I talked about for overall for between vacation.

Speaker Change: We see progressive improvements through 'twenty four it will be improving both our gross profit booking improved gross margin and we will see an improved opex level as well as lower opex.

Revenues will start to kick in late 2024 and through 2025.

But of course are shifting resources and investing further in current sensing.

Speaker Change: The opex level as we go through some of these assumptions I'd say, it's probably going to be a little more pronounced in gross profit because with volume Dave has been talking about.

And kind of balances off.

Where we're going there also I think important to pruning is much heavier on the commercial vehicle space than it is in the passenger car space and in that case.

Speaker Change: Turning to see volume come back in different areas.

That margin incremental tends to be pretty strong couple that with the footprint actions that we're taking can still pick up later in the blended pricing that we're working on as well.

Clearly, we will be taking cost out on both the variable side on the fixed side to address that.

Thanks, Dave Thanks Neal.

Speaker Change: You'll see more pronounced benefit coming from gross profit.

Thanks for your questions Josh.

Speaker Change: I think it's important to recognize.

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

Speaker Change: Yes.

Speaker Change: Automotive sensor pruning, we're doing is kind of more of what we've done in the past this is kind of normal for us.

Okay.

Yes.

Yes, hi, good morning, Thank you.

Speaker Change: It's a bit of a headwind on growth.

I guess I was just wondering you've talked a lot about the <unk>.

Speaker Change: Automotive passenger car piece of it however.

Rooney Thats going on.

Speaker Change: From a expense standpoint, we've shifted resources to current sensing and so.

On the sensors side.

I guess I was just going to ask if maybe you could extend that thinking too.

Speaker Change: Current sensing and our investment in that space is kind of ahead of revenue as you know we've had really nice design win cadence and the current sensor side of things.

Maybe a couple of your recent acquisitions in general and I'm thinking the TNK switch acquisition.

Speaker Change: Revenues will start to kick in late 2024 and through 2025.

Maybe at this stage.

<unk> has been thoroughly vetted and worked through but.

Speaker Change: But of course are shifting resources and investing further in current sensing.

What would you say looking back I mean, what would you say.

Yeah.

Speaker Change: Kind of balances off.

The pruning or where the maybe.

Speaker Change: Where we're going there also I think important for pruning is much heavier on the commercial vehicle space than it is in the passenger car space and in that case.

Somewhat outdated element in the portfolios there have been and how do you think those areas are set set up for.

Speaker Change: Clearly, we will be taking costs out on both the variable side on the fixed side.

2024.

Speaker Change: Yes.

Speaker Change: Okay.

Yes, so I think particularly look at portfolio pruning and managing that first of all it's a normal part of what we do every year Johnson ongoing sort of process.

Speaker Change: Thanks, Dave Thanks Neal.

Speaker Change: Thanks for your questions Josh.

Speaker Change: Yeah.

Speaker Change: Your next question comes from the line of David Silver with CL King Your line is open.

I would say the fortunate thing is and CK, we don't see significant areas of pruning that we're needing to do there.

Speaker Change: Okay.

Speaker Change: Okay.

David Kelly: Yes, hi, good morning, Thank you.

There has been price optimization that we've had to address there.

David Kelly: I guess I was just wondering you've talked a lot about the <unk>.

Kind of going through the Destocking phase here, but we don't see a lot of pruning that's necessary in this case, we've talked to actively about it the biggest area of pruning is in commercial vehicle and a big big part of that is Carlin.

David Kelly: Rooney, that's going on.

On the sensors side.

David Kelly: I guess I was just going to ask if maybe you could extend that thinking too.

David Kelly: Maybe a couple of your recent acquisitions in general I'm thinking the TNK switch acquisition.

And we talked about this a couple of quarters ago.

The first year of ownership of Carloading Theres, a huge backlog right and so we were very focused on supporting customers and working our way through that backlog and cleaning that up.

David Kelly: Maybe at this stage Carling has been thoroughly kind of vetted and worked through but.

David Kelly: What would you say looking back I mean, what would you say.

Probably put the pruning a little bit to the to the backburner, while we were going through that.

David Kelly: Yeah.

The pruning or <unk> or the <unk> may be.

We started in earnest and that activity last year.

Somewhat outdated element.

David Kelly: Portfolios there have been and how do you think those areas are set that set up for.

Carrying over into this year and those pruning actions there.

Again, we're talking about automotive sensors coming up but.

David Kelly: 2024.

It's important to recognize the printing we're doing in automotive sensors pretty small it's not significant the bigger pruning is really in the commercial vehicle space.

Speaker Change: Yes, so I think particularly look at portfolio pruning and managing that first of all it's a normal part of what we do every year Johnson ongoing sort of process.

It is a heavy amount of that is carlin.

Speaker Change: I would say the fortunate thing is and CK, we don't see significant areas of pruning that we're needing to do there.

Yes, David.

Youre hearing us talk more about this earlier today, but I think a couple of steps back.

Speaker Change: There has been price optimization that we've had to address there.

I would say hardens, our our value creation, whether it's legacy businesses.

Speaker Change: Kind of going through the Destocking phase there, but we don't see a lot of the pruning that's necessary in the C and K, we've talked to actively about it the biggest area of pruning is in commercial vehicle and a big big part of that is Carlin.

This is the portfolio manager overall.

With every with every acquisition, we make you don't see everything Joey you listen to <unk>, but as part of the value creation process. We'll go through we'll take a look at the products were selling well take a look at profitability regions customers and product lines.

Speaker Change: And we talked about this a couple of quarters ago.

Speaker Change: The first year of ownership of Carling Theres, a huge backlog right and so we were very focused on supporting customers and working our way through that backlog and cleaning that up.

Frankly may not have the strategic stick with where we're going with the company and we will do some different things with that so.

The only reason you hear us talking a little bit more about it today.

Speaker Change: Which probably put the pruning a little bit to the to the <unk>.

We feel that it's going to be material as we go into 2024.

Speaker Change: Back burner, while we were going through that.

Speaker Change: We started in earnest and that activity last year.

Two our sales returned to growth we wanted to make sure that we just we highlight that's too bad.

Speaker Change: Carrying over into this year those pruning actions there.

And where our transportation segment grows when it looks maybe lower than it should be it will be because of the accounting, it's not because there's anything wrong disconnect your lines.

Again, we're talking about automotive sensors coming up but.

Speaker Change: It's important to recognize the printing we're doing animal sensor is pretty small it's not significant the bigger pruning is really in the commercial vehicle space.

Yeah.

Thank you for that and I certainly understand pruning is probably an ongoing process all the time and when you choose to talk about it as more more selective.

Speaker Change: It is a heavy amount of that is carlin.

Speaker Change: Yes, David.

Speaker Change: Youre hearing us talk more about this earlier today, but I think a couple of steps back.

I had a follow up question alright.

Speaker Change: I would say hardens, our our value creation, whether it's legacy businesses.

I apologize a little sore throat today.

On the EV development programs that you're involved in so.

Acquisitions and portfolio management overall.

Speaker Change: With every with every acquisition, we make right you don't see everything jewelry jealousy GBT die, but as part of the value creation process. We'll go through we'll take a look at the products were selling well take a look at profitability regions customers and product lines. Some frankly may not have the strategic stick with where we're going with the company.

I do recall that you're working with virtually every major and emerging.

<unk>.

Operation globally and.

That gives you kind of a little bit of insight into I.

I guess development progress, but theres been a number of headlines as youre, well aware of kind of companies potentially kind of rethinking.

Speaker Change: Some different things with that so.

Speaker Change: The only reason you hear us talking a little bit more about it today.

The trajectory of their spend and maybe the direction of their spend.

We feel that it's going to be.

Cereal as we go into 2024.

More directly but.

Speaker Change: Two our sales return to growth we wanted to make sure that we just we highlight that so that you understand where our transportation segment grows when it looks maybe lower than it should be it will be because of the pruning, it's not because there's anything wrong with concha y.

From your perspective, maybe comparing today to let's say six months ago.

What would you say the the attitude or the approach has the approach to development either in scale or in direction.

Speaker Change: Yeah.

For your major EV customers has there been a shift.

Speaker Change: No. Thank you for that and I certainly understand pruning is probably an ongoing process all the time and when you choose to talk about it as more and more selective.

That you think is worth calling out and just.

The final point I mean, this would be the.

Speaker Change: I had a follow up question.

EV developments that ended up in your electronics.

Speaker Change: I apologize a little sore throat today.

Segment, rather than programs for I guess, the more traditional vehicles in your transportation program. Thank you.

Speaker Change: On the EV development programs that you're involved in so.

<unk> segment. Thanks sure sure. So so certainly lots of lots of press. These days around EV adoption rates and what's going on there what I can tell you is that our win cadence in both electrification and electronic vacation applications in the auto space continues to be quite robust.

Speaker Change: I do recall that you're working with virtually every major and emerging EV.

Speaker Change: Operation globally and.

Speaker Change: That gives you a kind of a little bit of insight into.

Speaker Change: The development progress, but theres been a number of headlines as youre, well aware of kind of companies potentially kind of rethinking that.

In fact, our win rates in 2023 versus 2008 or 2022 were up 17%.

Speaker Change: Trajectory of their spend and maybe the direction of their spend.

And the value of the wins that we achieved in those those spaces overall.

Speaker Change: More directly.

Speaker Change: From your perspective, maybe comparing today to let's say six months ago.

So while perhaps we are always taking a little bit more of a.

Speaker Change: What would you say the <unk>.

Prudent view of how quickly evs would evolve.

Speaker Change: Attitude or the approach has the approach to development either in scale or in direction for.

So we always have modeled a bit.

Speaker Change: Your major EV customers has there been a shift.

Lighter slope to the growth and maybe what's been out in the press or maybe what the broader projections have been so while it's certainly slowdown in some spaces, it's not wildly different than kind of what our expectations have been at the EV adoption rate.

That you think is worth calling out.

Speaker Change: Just a final point I mean this would be the.

Speaker Change: Easy developments that ended up in your electronics.

Speaker Change: Segment, rather than programs for I guess, the more traditional vehicles in your transportation program. Thank you transportation segment. Thanks sure sure. So so certainly lots of lots of press. These days around EV adoption rates and what's going on there what I can tell you is that all.

In Asia, <unk> adoption rates continue to be extremely robust and the bulk of that the big swing up and adoption rate has really been driven out of Asia, followed by Europe.

So we see a little bit of slowing but I think it gets maybe outsized kind of view, particularly here in North America, where the adoption rates have been relatively slow.

Speaker Change: Our win cadence in both electrification and electronic vacation applications in the auto space continue to be quite robust in fact, our win rates in 2023 versus 2008 or 2022 were up 17%.

So what I would tell you is the engineering groups were working with at the Oems continue to be very very focused on electrification and electronic vacation in the vehicles. So the design cycles continued to be robust our win in.

Speaker Change: And the value of the wins that we achieved in those those spaces overall.

In those space and the cadence of wins continues to be quite robust so.

Speaker Change: So while perhaps we are always taking a little bit more of a.

We're not overly concerned with maybe a slightly slower slope and adoption rate in <unk>.

Speaker Change: Prudent view of how quickly evs would evolve.

Okay, great. Thank you very much.

Speaker Change: So we always have modeled a bit.

Thanks for your questions David.

Speaker Change: Lighter slope to the growth and maybe what's been out in the press or maybe what the broader projections have been so while it's certainly slowdown in some spaces, it's not wildly different than kind of what are your expectations have been at the EV adoption rate.

I will now turn the call over to management for closing remarks.

Thanks, everyone for joining us today that concludes our Q&A session. Thank you for joining us again and for your interest in level views have a great day.

Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.

Speaker Change: In Asia, <unk> adoption rates continue to be extremely robust and the bulk of the the big swing up and adoption rate has really been driven out of Asia, followed by Europe.

Speaker Change: So we see a little bit of slowing but I think it gets maybe outsized kind of view, particularly here in North America, where the adoption rates have been relatively slow.

Speaker Change: So what I would tell you is the engineering groups were working with at the Oems continue to be very very focused on electrification and electronic vacation and the vehicles. So the design cycles continued to be robust our win in.

Speaker Change: In those space and the cadence of wins continues to be quite robust so.

Speaker Change: We're not overly concerned with maybe a slightly slower slope and adoption rate in <unk>.

Speaker Change: Okay, great. Thank you very much.

Speaker Change: Thanks for your questions David.

Speaker Change: I will now turn the call over to management for closing remarks.

Speaker Change: Thanks, everyone for joining us today that concludes our Q&A session. Thank you for joining us again and for your interest in level views have a great day.

Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.

Speaker Change: Yeah.

Okay.

Speaker Change:

Speaker Change:

Speaker Change: [music].