Q2 2024 Littelfuse Inc Earnings Call
Operator: Good day, everyone, and welcome to the Littelfuse second quarter 2024 earnings conference call. Today's call is being recorded.
Good day, everyone and welcome to the little Skews second quarter 'twenty 'twenty four earnings conference call.
Today's call is being recorded.
At this time I would like to turn the call over to the head of Investor Relations David Kelley. Please proceed.
Okay.
David Kelly: And at this time, I would like to turn the call over to the head of investor relations, David Kelly; please proceed. Good morning, and welcome to the Littelfuse second quarter 2024 earnings conference call. With me today are Dave Heinzmann, President and CEO, and Meenal Sethna, Executive Vice President and CFO. Yesterday, we reported results for our second quarter, and a copy of our earnings release and slide presentation is available in the investor relations section of our website. A webcast of today's conference call will also be available on our website. Please advance to slide 2 for our disclaimer. Our discussions today will include four looking states.
Speaker Change: Good morning, and welcome to the little fused second quarter 2024 earnings Conference call with me today are Dave Heinzmann, President and CEO.
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Speaker Change: Executive Vice President and CFO.
Speaker Change: Yesterday, we reported results for our second quarter and a copy of our earnings release and slide presentation is available on the Investor Relations section of our website.
Speaker Change: A webcast of today's conference call will also be available on our website. Please advance to slide two par disclaimers.
Speaker Change: Our discussions today will include forward looking statements.
David Kelly: These forward-looking statements may involve significant risk and uncertainty. Please review yesterday's press release and our forms 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.
These forward looking statements may involve significant risks and uncertainties.
These 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.
David Kelly: Also, our remarks today refer to non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measure is provided in our earnings release, available in the investor relations section of our website. I will now turn the call over to Dave. Thank you, David. Good morning, and thanks for joining us today.
Speaker Change: Also our remarks today refer to non-GAAP financial measures.
Speaker Change: Reconciliation of these non-GAAP financial measures to the most comparable GAAP measure is provided in our earnings release available in the Investor Relations section of our website.
Speaker Change: I will now turn the call over to Dave.
David W. Heinzmann: Thank you David Good morning, and thanks for joining us today, let's.
David W. Heinzmann: Let's start with highlights on slide four. Our second quarter results exceeded our expectations, reflecting our resilient business model, diverse and balanced technology offering, and broad customer base. Our seasoned global teams navigated through a continued dynamic environment and delivered solid results while we saw solid design inactivity and secured significant new business cross-sustainability connectivity and safety megatrends. We again delivered strong free cash flow, a testament to our proven operating model, while our balance sheet and significant financial capacity position us to enhance our long-term growth strategy. We will continue to prioritize capital allocation towards thoughtful M&A while maintaining our commitment to returning capital to shareholders.
David W. Heinzmann: Let's start with highlights on slide four.
Dave: Our second quarter results exceeded our expectations, reflecting our resilient business model diverse and balanced technology offering.
Rod: Rod customer reach.
Rod: <unk> global teams navigated through a continued dynamic environment and delivered solid results. While we saw solid design in activity and secured significant new business across sustainability and activity with safety Mega trends.
Rod: We again delivered strong free cash flow a testament to our proven operating model, while our balance sheet and significant financial capacity positions us to enhance our long term growth strategy.
Rod: We will continue to prioritize capital allocation towards thoughtful M&A.
Rod: Maintaining our commitment of returning capital to shareholders.
David W. Heinzmann: Our second quarter results exceeded the high end of both our sales and earnings guidance. Meenal will provide additional color on our financial performance and outlook. I want to thank our global team for their hard work, dedication, and meaningful achievements through the first half of 2024. Turning to slide five, we highlight several of our key accomplishments from our recently published 2023 Sustainability Report, which is available on our website. Sustainability is core to Littelfuse, as our history is deeply rooted in providing solutions to our broad customer base and across our diverse set of in-markets that ultimately drive an increasingly sustainable world, whether advancing electrification and transportation, providing robust solutions for renewable energy, or enabling safety-critical medical technology.
Dave: Our second quarter results exceeded the high end of both our sales and earnings guidance ranges.
Dave: We will provide additional color on our financial performance and outlook.
Dave: I want to thank our global team for their hard work dedication and meaningful achievements through the first half of 2024.
Dave: Turning to slide five we highlight several of our key accomplishments from our recently published 2023 sustainability report, which is available on our website.
Speaker Change: Dana ability as cord, a little views as our history is deeply rooted in providing solutions to our broad customer base across our diverse set of end markets that ultimately drive an increasingly sustainable world.
Speaker Change: Whether advancing electrification in transportation, providing robust solutions for renewable energy or enabling safety critical medical technology sustainability is incorporated into our daily actions across our businesses.
David W. Heinzmann: Sustainability is incorporated into our daily actions across our business. I am proud of the efforts of our global teams who strive to deliver internal progress and external enhancement for the betterment of our communities, employees, customers, and investors. Ultimately, we've used sustainability as an integral part of our long-term growth strategy, highlighted on slide six, for diving into our end markets and design. Wanted to highlight a few key market channels and OEM inventory. We believe the passive electronics channel destocking that negatively impacted 2023 and the first half of 2024 results is largely behind. Our passive electronics book-to-bill remains above 1 as passive electronics channel inventory levels have normalized.
Speaker Change: I am proud of the efforts of our global teams, we strive to deliver internal progress and external enhancement for the betterment of our communities employees customers and investors.
Speaker Change: Ultimately, we view sustainability as an integral part of our long term growth strategy highlighted on slide.
Speaker Change: Before diving into our end markets and design activity I wanted to highlight a few key market channel and OEM inventory trends.
Speaker Change: We believe the passive electronics channel Destocking that negatively impacted 2023, and the first half of 2024 results is largely behind us.
Speaker Change: Passive electronics book to Bill remains above one as passive electronics channel inventory levels have normalized.
David W. Heinzmann: We expect a return to more normalized order rates as is typical following a destocking period. However, thus far in 2.3, we are seeing some ongoing signs of cautiousness from customers and hesitancy to restock passive electronics inventory following what ultimately has been a historic and elongated de-stocking cycle. We're also seeing moderating inventory reductions across our protection semiconductor products, and we expect more stable order trends in the second half of the year. Finally, we observed further industrial OEM destock, which had a more pronounced impact on our power semifinals.
Speaker Change: We expect to return to more normalized order rate is typical following a destocking period.
Speaker Change: However, thus far into Q3, we are seeing some ongoing signs of cautiousness from customers and hesitancy to restock passive electronics inventory following what ultimately has been a historic and elongated destocking cycle.
Speaker Change: We're also seeing moderating inventory reductions across our protection semiconductor product lines, and we expect more stable order trends in the second half of the year.
Speaker Change: Finally, we observed further industrial OEM destocking in the quarter.
Speaker Change: Had a more pronounced impact on our power semiconductor exposure.
David W. Heinzmann: Since we see continued soft industrial demand, which I will provide more detail on shortly, we expect these conditions will impact us through the second half of the year. Now, let's turn to our in-market and design activity, starting with electronics on slide seven. Second quarter electronics markets remain soft, although we are seeing initial signs of demand recovery. Consumer Products, Appliances, and Building Technologies demand was again soft in the quarter, although customers are increasingly optimistic about a nearing recovery led by AIM.
Speaker Change: We see continued soft industrial demand, which I will provide more detail on shortly we expect these conditions will impact us through the second half of the year.
Speaker Change: Now, let's turn to our end market and design activity, starting with the electronics on slide seven.
Speaker Change: Second quarter electronics markets remained soft, although we are seeing initial signs of demand recovery.
Speaker Change: Tumor product appliances and building technologies demand was again soft in the quarter, although customers are increasingly optimistic and are nearing recovery led by AI applications.
David W. Heinzmann: Demand for data center and especially AI-driven data center applications was robust in the second quarter. Taking a step back, we believe customers are increasingly upbeat in a subset of regions such as Taiwan. While design and activity continues to be healthy and encouraging across our global, regardless of our near-term trend, we remain well-positioned to enable ongoing innovation and drive long-term, three-cycle growth across our diverse electronic market. We believe this is evidenced by our strong design wind cadence in the quarter.
Speaker Change: Demand for data center, and especially AI driven data center applications was robust in the second quarter.
Speaker Change: Taking a step back we believe customers are increasingly upbeat and subset of regions, such as Taiwan, while design and activity continues to be healthy and encouraging across our global exposures.
Speaker Change: Regardless of our near term trends, we remain well positioned to enable ongoing innovation and drive long term through cycle growth across our diverse electronic market exposures.
Speaker Change: We believe this is evidenced by our strong design win cadence in the quarter.
David W. Heinzmann: We've delivered numerous wins ranging from innovative data center solutions to safety-critical medical applications. Specifically, in the quarter, we secured several data centers, including Fuse Business for Customers in Asia and for liquid cooling applications in North America. We've also secured business for a data center customer in Asia that will utilize our switch tech. We've delivered multi-technology and safety-critical wins for medical customers in Europe and South Korea for defibrillator applications, as well as medical switch technology for a customer in North America.
Speaker Change: We delivered numerous wins ranging from innovative data center solutions for safety critical medical applications.
Speaker Change: Specifically in the quarter, we secured several data center wins, including fuse business for customer in Asia and for our liquid cooling application in North America.
Speaker Change: We also secured business for a data center customer in Asia that will utilize our switch technology.
Speaker Change: We delivered multi technology and safety critical wins for our medical customers in Europe, and South Korea.
Speaker Change: <unk> applications as well as medical switch technology.
Speaker Change: Or a customer in North America.
David W. Heinzmann: Finally, we secured a client's business with customers in Europe and multiple regions in Asia that will utilize our diverse set of technologies, including our sensor and circuit protection capabilities. Moving on to transportation and markets, and design wins on slide eight. Our passenger vehicle exposure again benefited from our balanced product capability, broad technology leadership, and global customers. We continue to see strong interest in our core products as customers delay EV launches and pivot to internal combustion and hybrid vehicles in North America and Europe markets. In China, we again delivered strong results in low voltage applications. We support local OEMs that continue to experience robust growth. Second quarter global passenger vehicle production was modestly lower versus the prior year.
Speaker Change: Finally, we secured appliance business with customers in Europe, and multiple regions in Asia that will utilize our diverse set of technologies, including our sensor and circuit protection capabilities.
Speaker Change: Moving on to transportation end markets and design wins on slide eight.
Speaker Change: Our passenger vehicle exposure again benefited from our balanced product capabilities broad technology leadership and global customer reach.
Speaker Change: We continue to see strong interest in our core products as customers delayed EV launches and pivot to internal combustion and hybrid vehicles in North America and Europe markets.
Speaker Change: In China, we again delivered strong results in low voltage applications, we support local Oems that continue to experience robust growth.
Speaker Change: Second quarter global passenger vehicle production was modestly lower versus the prior year.
David W. Heinzmann: And we expect a modest decline in the full year 2024. Nevertheless, we remain well-positioned to deliver on long-term passenger vehicle growth drivers since we continue to enable electrification, as well as next-generation electrification advances, across hybrid and electric vehicle architectures for a diverse and global customer.
Speaker Change: And we expect a modest decline in the full year of 2024.
Speaker Change: We remain well positioned to deliver on long term passenger vehicle growth drivers as we continue to enable electronic fixation as well as next generation electrification advancements across hybrid and electric vehicle architectures for our diverse and global customer base.
David W. Heinzmann: Regarding our commercial vehicle exposure, our ongoing profitability initiatives led by our Pruning and Pricing Act continue to bear fruit while we remain encouraged by design and activity and traction with our broad customers. We are seeing continued but soft market conditions driven by our ag construction business. However, on-road truck and bus demand was more resilient than expected in the second quarter.
Speaker Change: Regarding our commercial vehicle exposure, our ongoing profitability initiatives led by our pruning and pricing actions continue to bear fruit, while we remain encouraged by design in activity and traction with our broad customer base.
Speaker Change: We are seeing continued soft market conditions, driven by our AG construction exposures. However on road truck and bus demand was more resilient than expected in the second quarter.
David W. Heinzmann: Looking forward, we see continued soft demand led by Europe and China, extending into the second half of the year. In the long term, we remain well positioned to deliver electrification and electrification innovation across our broad commercial vehicle exposure, including material handling, agriculture, construction equipment, and heavy-duty truck and bus. In the quarter, we secured meaningful new transportation business across both passenger and commercial vehicle and market, and Passenger Vehicles. We secured a high-voltage fuse opportunity with a customer in South Korea. We also delivered multiple low voltage fused winds across our global customer base, including for customers in the Americas, Europe, and China.
Speaker Change: Looking forward, we see continued soft demand led by Europe, and China regions extending into the second half of the year.
Speaker Change: Long term, we remain well positioned to deliver electronic vacation and electrification innovation across our broad commercial vehicle exposures.
Speaker Change: Material handling.
Speaker Change: Agriculture, construction equipment and heavy duty truck and bus market.
David W. Heinzmann: We also secured a win within a battery management system for a customer in South Korea, as well as for a key customer in China. Finally, we continue to gain traction with our broad switch portfolio to secure meaningful business in North America during the quarter. Commercial Vehicle. We featured several wins highlighted by Construction Equipment Business for customers in North America, Japan, and South Korea. We also delivered an on-road truck wind for a customer in Brazil and a bus wind in Mexico. Turning to slide nine.
Speaker Change: In the quarter, we secured meaningful new transportation business across both passenger and commercial vehicle end market.
Speaker Change: In passenger vehicles, we secured our high voltage fuse opportunity with the customer in South Korea.
Speaker Change: We also delivered multiple low voltage fuse wins across our global customer base, including for customers in the Americas Europe and in China.
Speaker Change: We also secured a win within a battery management system for a customer in South Korea, as well as for a key customer in China.
Speaker Change: Finally, we continue to gain traction with our broad switch portfolio. This was secured meaningful business in North America during the quarter.
Speaker Change: In commercial vehicles, we secured several wins highlighted by construction equipment business, where customers in North America, Japan, and South Korea.
Speaker Change: We also delivered on road truck win for a customer in Brazil, and a bus win in Mexico.
Speaker Change: Turning to slide nine industrial markets in design activity.
David W. Heinzmann: Industrial Markets and Design. In the quarter, we saw ongoing demand weakness led by industrial equipment and factory automation. Construction, and Charging Infrastructure Applications.
Speaker Change: In the quarter, we saw ongoing demand weakness led by industrial equipment and factory automation construction and charging infrastructure applications.
David W. Heinzmann: Demand remains mixed for renewable applications with energy storage robust, while the solar market was again soft in the second quarter. Industrial safety applications continue to show further signs of growth, and we are benefiting from residential HVAC volume recovery, although at a modest pace today.
Speaker Change: <unk> remains mixed for renewable applications with energy storage robust, while the solar market was again soft in the second quarter.
Speaker Change: Net industrial safety applications continue to show further signs of growth and we are benefiting from residential HVAC volume recovery, although at a modest pace to date.
David W. Heinzmann: Broadly, Power Semiconductor customers continue to work down inventories and push out of work. Looking forward, we believe stock-in-demand conditions will persist through year-end with a more pronounced impact where we have semiconductor exposure. Taking a step back, long-term industrial growth trends remain attractive, supported by ongoing infrastructure spend, increasing electrical efficiency requirements, advancements in automation, and global commitments to decarbonization.
Speaker Change: Power semiconductor customers continue to work down inventories and pushed out orders looking forward. We believe soft end demand conditions will persist through year end with a more pronounced impact where we have semiconductor exposure.
Speaker Change: A step back long term industrial growth trends remain attractive supported by ongoing infrastructure spend increasing electrical efficiency requirements.
Speaker Change: Advancements in automation and global commitments to de Carbonization.
David W. Heinzmann: Industrial design activity remains strong across our exposures, customers seek to drive ongoing, In the second quarter, we had success in the North America HVAC market, where we won business with multiple customers across a variety of product categories. We continue our recent industrial safety momentum, touring meaningful business with a North American customer, and Renewables, which secured business for a residential solar application and for a wind turbine application in Asia. We also delivered multiple EV charging wind turbines in the corridor across several regions.
Speaker Change: Industrial design activity remained strong across our exposures as customers seek to drive ongoing innovation in the second quarter. We had success in the North America HVAC market, where we won business with multiple customers across a variety of product categories.
Speaker Change: We continued our recent industrial safety momentum touring meaningful business with a North America customer.
Speaker Change: In renewables, we secured business, where our residential solar application and for a wind turban application in Asia. We also delivered multiple EV charging wins in the quarter across several regions.
Speaker Change: Finally, we secured business within an industrial smart meter applications in North America customer.
Meenal Anil Sethna: Finally, we secured business within an industrial smart meter application in North America. Across our businesses, we continue to deliver innovative solutions to our broad customers because of our diverse in-market exposure. We remain well-positioned to deliver on our long-term, double-digit annual revenue growth target as evidenced by our continued design-win momentum supporting sustainability, connectivity, and safety megatrends. I will now turn the call over to Meenal to provide additional color on our financial performance and outlook. Thanks, Dave. Good morning, everyone, and thank you for joining us today.
Speaker Change: Across our businesses, we continue to deliver innovative solutions to our broad customer base for our diverse end market exposures.
Speaker Change: We remain well positioned to deliver on our long term double digit annual revenue growth target as evidenced by our continued design win momentum supporting sustainability and activity and safety Megatrends.
Speaker Change: I'll now turn the call over to Neil to provide additional color on our financial performance and outlook.
Meenal Anil Sethna: Please turn to slide 11 to start with details on our second quarter results. Revenue in the quarter was $558 million, down 9% versus last year and down 8% organically. The product line pruning actions we discussed reduced sales 2% in line with our expectations in the prior quarter. GAAP operating margins were 11.7%, and adjusted operating margins were 12.7%. Adjusted EBITDA margins finished at 18.6%. Foreign exchange and commodities had an 80 basis point unfavorable impact on margins, largely due to commodity inflation and primarily driven by copper and silver exposure. Second quarter GAAP diluted earnings per share was $1.82, and adjusted diluted EPS was $1.97. Our second quarter GAAP effective tax rate was 26%, and adjusted effective tax rate was 25%.
Neil: Thanks, Dave Good morning, everyone and thank you for joining us today. Please.
Neil: Please turn to slide 11, let's start with details on our second quarter results.
Neil: Revenue in the quarter with $558 million or 9% versus last year and down 8% organically.
Speaker Change: Perfectly and putting Atkins can be discussed reduced sales, 2% in line with our expectations and the prior quarter.
Speaker Change: GAAP operating margins were 11, 7% and adjusted operating margins were 12, 7%.
Speaker Change: Adjusted EBITDA margins finished at 18, 6%.
Speaker Change: Foreign exchange and commodities had an 80 basis point unfavorable impact to margin largely due to commodity inflation and primarily driven by copper and filter exposure.
Speaker Change: Second quarter GAAP diluted earnings per share was $1 82, and adjusted diluted EPS was $1 97.
Speaker Change: Our second quarter GAAP effective tax rate was 26% and adjusted effective tax rate was 25%.
Speaker Change: Our adjusted effective tax rate was slightly higher than expected due to increased ship across jurisdictions.
Meenal Anil Sethna: Our adjusted effective tax rate was slightly higher than expected due to income shifts across jurisdictions. Please turn to slide 12 for updates on capital allocation. We continue to deliver strong cash generation year to date. Operating cash flow in the quarter was $69 million, and we generated $50 million in free cash flow.
Speaker Change: Please turn to slide 12 to update on capital allocation.
Speaker Change: We continued to deliver strong cash generation year to date.
Speaker Change: Operating cash flow in the quarter were $69 million and we generated $50 million in free cash flow.
Meenal Anil Sethna: Year-to-date, we generated $92 million in free cash flow, yielding a 98% conversion rate. We've continued to reduce both inventory days and dollars this year, contributing to our solid cash flow performance. We expect to deliver on our targeted 100% free cash flow conversion for the full year, aligned with our long-term goals. We ended the quarter with $562 million of cash on hand and net debt to EBITDA leverage of 1.6 times.
Speaker Change: Year to date, we generated $92 million in free cash flow, yielding 98% conversion rate.
Speaker Change: We've continued to reduce the inventory days and dollars for Hugh contributing to our solid cash flow performance.
Speaker Change: We expect to deliver on our targeted 100% free cash flow conversion for the full year aligned with our long term goals.
Speaker Change: We ended the quarter with $562 million of cash on hand, our net debt to EBITDA leverage of one six times.
Meenal Anil Sethna: Given the strength of our balance sheet, we will continue to prioritize our free cash flow for thoughtful acquisitions, and we will continue to return capital to our shareholders through our dividend and periodic share buyback. In the quarter, we returned $41 million of capital to shareholders, including $25 million via share repurchases and $16 million via a cash dividend. Through the first half of 2024, we've returned $73 million of capital to shareholders. Our Board of Directors approved an 8% increase in our quarterly cash dividend, equating to a $2.80 annual rate.
Speaker Change: Given the strength of our balance sheet will continue to prioritize our free cash flow with thoughtful acquisitions and.
Speaker Change: And we will continue to return capital to our shareholders through our dividend and periodic share buyback.
Speaker Change: In the quarter, we returned $41 million of capital to shareholders, including $25 million via share repurchases and $16 million cash dividend.
Speaker Change: Through the first half of 2024, we've returned $73 million of capital to shareholders.
Speaker Change: Our board of directors approved an 8% increase in our quarterly cash dividend equating to a $2 80% annual rate.
Meenal Anil Sethna: We've grown our dividend 12% on a compounded annual basis since inception, a testament to our long-term earnings and cash generation power. We will remain disciplined in our capital allocation strategy as we strive to maximize long-term shareholder value. Please turn to slide 13 for our product segment highlights, starting with the electronics product segment. Sales were down 13% versus last year and 12% organically. Sales across passive products were down 4% versus last year, while semiconductor products declined 19%.
Speaker Change: We've grown our dividend, 12% on a compounded annual basis.
Speaker Change: A testament to our long term earnings and cash generation power.
Speaker Change: We will remain disciplined capital allocation strategy as we strive to maximize long term shareholder value.
Speaker Change: Please turn to slide 13, and fill out our product segment highlights starting with the electronics products segment.
Speaker Change: Sales were down 13% versus last year and 12% organically.
Speaker Change: Sales across passive products were down 4% versus last year, while semiconductor products declined 19%.
Meenal Anil Sethna: Passive products were impacted by ongoing but moderating inventory declines, and we're starting to see similar trends across our protection semiconductor products. A continued weakness we saw in industrial markets particularly impacted our power semiconductor product sales in the quarter. Operating margins in the quarter were 15.1%, while EBITDA margins finished at 21.6%.
Speaker Change: Passive products were impacted by ongoing but moderating inventory declines and we're starting to see similar trends across our protection semiconductor products.
Speaker Change: The continued weakness we saw in industrial markets, particularly impacted our power semiconductor products sales in the quarter.
Speaker Change: Operating margins in the quarter were 15, 1%, while EBITDA margins finished at 21, 6%.
Meenal Anil Sethna: Margins improved 210 and 180 basis points sequentially, reflecting our portfolio diversification efforts and strong execution. We're proud of the margin resiliency of our electronics product segment through this extended destacking cycle and are confident in the team's ability to drive continued expansion. Moving to our transportation product segment, on slide 14, segment sales were down 2% and down 1% organically; sales were negatively impacted by 4% versus last year from pruning actions we've been undertaking largely within our commercial vehicle business. Across our passenger vehicle business, sales grew 2% organically.
Speaker Change: Margins improved 210, and 180 basis points sequentially, reflecting our portfolio diversification efforts and strong execution.
Speaker Change: We're proud of the margin resiliency of our electronics product segment due to the extended destocking cycle and are confident in the team's ability to drive continued expansion.
Speaker Change: Moving to our transportation product segment on Slide 14 segment sales were down 2% and down 1% organically.
Speaker Change: Sales were negatively impacted 4% versus last year from pruning actions, we've been undertaking largely within our commercial vehicle business.
Speaker Change: Across our passenger vehicle business sales.
Speaker Change: Sales grew 2% organically.
Meenal Anil Sethna: We saw continued strength in China and weaker trends across Europe with some partial offsets due to ongoing sensor product line pruning. Within commercial vehicles, sales for the quarter were down 3% organically as pruning actions and ongoing end market softness were in part offset by continued favorable pricing momentum. For this segment, operating margins were 9%, and EBITDA margins finished at 14.4% in the quarter. We believe our pricing and pruning initiatives, as well as structural cost actions, are bearing fruit as margins align with our expectations. On slide 15, industrial product segment sales were down 7% and 6% organically.
Speaker Change: We saw continued strength in China, and weaker trends across Europe, with some partial offset due to ongoing sensor product line pruning.
Speaker Change: Within commercial vehicles sales for the quarter were down 3% organically.
Speaker Change: <unk> action and ongoing end market softness were in part offset by continued favorable pricing momentum.
Speaker Change: For the segment operating margins were 9% and EBITDA margins finished at 14, 4% in the quarter.
Speaker Change: We believe our pricing and pruning initiatives as well as structural cost actions are bearing fruit as the margin line with our expectations.
Speaker Change: On slide 15, industrial products segment sales were down 7% and 6% organically.
Speaker Change: We continued to see soft industrial end market conditions across our broad and diverse exposures as well as the continuation of inventory reductions at some Oems.
Meenal Anil Sethna: We continue to see soft industrial and market conditions across our broad and diverse exposures, as well as a continuation of inventory reductions at some OEMs. However, we again benefited from solid industrial safety growth, while we also observed early signs of residential HVAC volume recovery in the quarter. Operating margins finished at 11.4%, and EBITDA margins were 16%.
Speaker Change: However, we again benefited from solid industrial safety growth. While we also observed early signs of residential HVAC volume recovery in the quarter.
Speaker Change: Operating margins finished at 11, 4% and EBITDA margins were 16%.
Meenal Anil Sethna: These represented positive improvements of 490 and 410 basis points sequentially, reflecting strong execution following our capacity additions and footprint actions noted in the first quarter. Please turn to slide 16 for the forecast. Summarizing Dave's earlier comments, while we believe the passive electronics inventory de-stocking is largely behind us, we are seeing some ongoing cautious order patterns from customers. We also expect continued weakness across our semiconductor products due to ongoing market softness and inventory destock, and we expect some persistent commodity headwinds.
Speaker Change: These represented positive improvement of 490, and 410 basis points sequentially, reflecting strong execution following our capacity additions and footprint actions noted in the first quarter.
Speaker Change: Please turn to slide 16 for the forecast.
Speaker Change: Summarizing Dave's earlier comments, while we believe the passive electronics inventory Destocking is largely behind US we are seeing some ongoing cautious order patterns from customers.
David W. Heinzmann: We also expect continued weakness across our semiconductor products due to ongoing market softness and inventory destocking.
Speaker Change: And we expect some persistent commodity headwinds.
Meenal Anil Sethna: With these assumptions, we expect third-quarter sales in the range of $540 to $570 million. This includes about a 3% headwind from FX and expected product pruning versus last year. Across our segments, we expect sales to be largely flat relative to the second quarter. We're projecting third quarter EPS to be in the range of $1.95 to $2.15, which includes a tax rate of 26%. This incorporates about 25 cents in headwinds from FX and commodity rates, as well as a higher tax rate versus the prior year.
Speaker Change: With these assumptions, we expect third quarter sales in the range of $540 million to $570 million.
Speaker Change: This includes about a 3% headwind from FX and expected product pruning versus last year.
Speaker Change: Across our segments, we expect sales to be largely flat relative to the second quarter.
Speaker Change: We are projecting third quarter EPS to be in the range of $1 95 to $2.15 and includes a tax rate of 26%.
Speaker Change: This incorporates about 25% and headwinds from FX and commodity rates as well as the higher tax rate versus the prior year.
Meenal Anil Sethna: Please turn to slide 17 for our full year 2024 expectation. For the full year, we expect our product line pruning actions to reduce total sales by about 2% and reduce transportation sales growth by about 6% versus last year. We are seeing mitigating currency movements but increasing commodity costs. At current rates, we expect those to be a headwind of 1% to sales and about $0.40 to EPS for the year. We've demonstrated the resiliency of our electronic segment margins during cycles.
Speaker Change: Please turn to slide 17 for our full year 2024 expectations.
Speaker Change: For the full year, we expect our product line pruning actions to reduce total sales about 2% and reduce transportation sales growth about 6% versus last year.
Speaker Change: We are seeing mitigating currency movements, but increasing commodity cost.
Speaker Change: At current rates, we expect those to be a headwind of 1% of sales and about 40 to EPS for the year.
Speaker Change: We've demonstrated the resiliency of our electronics segment margins through cycles with <unk>.
Meenal Anil Sethna: We've also delivered solid transportation and industrial segment margin traction, reflecting operational execution and structural initiatives. However, we do expect a more gradual margin ramp, reflecting continued subdued market demand and cautious order patterns across our customers and channels. With these market undercurrents, we expect company operating margins to finish in the range of 12 to 14% for the full year. Across our segments, we expect electronic operating margins to average in the mid-teens and industrial operating margins in the low-teens.
Speaker Change: Also delivered solid transportation and industrial segment margin traction, reflecting operational execution and structural initiatives.
Speaker Change: However, we do expect a more gradual margin ramp reflecting continued subdued end market demand and cautious order patterns across our customers and channels.
Speaker Change: With these market undercurrent, we expect company operating margins to finish in the range of 12% to 14% for the full year.
Speaker Change: Of course, our segments, we expect electronics operating margins to average in the mid teens and industrial operating margins in the low teens.
Meenal Anil Sethna: We continue to expect transportation to exit the year with high single-digit operating margins. On other modeling items, we're assuming $63 million in amortization expense and $39 million in interest expense, about two-thirds of which we expect to offset through interest income from our cash investment strategy. We are estimating a full-year tax rate of about 23%, slightly higher than our prior estimate due to income shifts across jurisdictions.
Speaker Change: We continue to expect transportation to exit the year with high single digit operating margin.
Speaker Change: And other modeling items, we're assuming $63 million in amortization expense and $39 million and interest expense about two thirds of which we expect to offset through interest income from our cash investment strategies.
Speaker Change: We are estimating a full year tax rate of about 23% slightly higher than our prior estimate due to income shifts across jurisdictions.
Meenal Anil Sethna: And we expect to invest about $100 million in capital expenditures. We continue to execute well in a dynamic environment and remain well-positioned to support our broad customer base and diverse market exposure. We are confident in our positioning, reflecting our diverse technology offerings, strong relationships across a global customer base, and ongoing profitability improvements. We will continue our path forward, investing in class profitability and cash generation, driving value creation for our state. Thank you to our Littelfuse colleagues worldwide for their unwavering commitment to steering our company forward every day. And with that, I'll turn it back to Dave for some final comments. Thanks, Meenal.
Speaker Change: And we expect to invest about $100 million and capital expenditures.
Speaker Change: We continue to execute well through a dynamic environment, we remain well positioned to support our broad customer base and diverse market exposures.
Speaker Change: We are confident in our positioning reflecting our diverse technology offering strong relationships across our global customer base and ongoing profitability improvement.
Speaker Change: We will continue our path forward the best in class profitability and cash generation driving value creation for our stakeholders.
Speaker Change: Thank you to our little fused colleagues worldwide and their unwavering commitment and steering our company forward every day.
Speaker Change: And with that I'll turn it back to Dave for some final comments.
David W. Heinzmann: Our solid second quarter results reflect our strong execution through an ongoing dynamic environment. We also believe our portfolio diversification efforts and relentless focus on providing innovative solutions to our customers bolster our second quarter performance. Our strong balance sheet and first half cash generation provide us with considerable flexibility. We continue to prioritize thoughtful but disciplined acquisitions in attractive end markets. We remain confident we are on the path to continued double-digit annual revenue growth through cycles and leveraged earnings, which we believe will translate to talk to your value creation for our sake.
David W. Heinzmann: Thanks, Neal our solid second quarter results reflect our strong execution through an ongoing dynamic environment.
David W. Heinzmann: We also believe our portfolio diversification efforts and relentless focus on providing innovative solutions to our customers bolstered our second quarter performance.
David W. Heinzmann: Our strong balance sheet and first half cash generation provide us with considerable flexibility as we continue to prioritize thoughtful disciplined acquisitions in attractive end markets.
David W. Heinzmann: We remain confident we are on the path to continued double digit annual revenue growth through cycles, and leveraged earnings expansion, which we believe will translate that top tier value creation for our stakeholders.
David W. Heinzmann: I want to again thank our global Littelfuse team for the relentless hard work and commitment to our customers and supplier partners through the first half of 2024. And with that, I will now turn the call back to the operator for Q&A. Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue.
David W. Heinzmann: I want to again, thank our global <unk> team for their persistent hard work and commitment to our customers and supplier partners through the first half of 2024.
Speaker Change: And with that I will now turn the call back to the operator for Q&A.
Speaker Change: Thank you.
Speaker Change: We will now begin the question and answer session.
David W. Heinzmann: If you would like to withdraw your question, simply press star 1 a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
Speaker Change: You have dialed in and we'd like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue.
Speaker Change: If you would like to withdraw your question simply press Star one a second time.
Speaker Change: If you are called upon to ask your question and our listening via speaker phone on your device. Please pickup your handset and ensure that your phone is not on mute when asking your question.
Operator: Again, press star one if you would like to join the queue. And your first question comes from Luke Junk on the line with Baird. Your line is open. And Mr. Junk, please check your mute button. Oh, sorry about that. It was on mute.
Speaker Change: Again press Star one if you would like to join the queue.
Speaker Change: And your first question comes from.
Speaker Change: Joe line of Luke junk with Baird. Your line is open.
Speaker Change: Okay.
David Kelly: Mr. <unk>, please check your mute button.
Speaker Change: Yes, sorry about that thanks.
Luke L. Junk: Thanks for taking the question, and good morning. Dave, maybe we could start with delineating electronics book-to-bill between passive and on the semi side. Maybe just how much above 1.0 on the passive side, and are you seeing any sequential progress in semis? And within all of that, you mentioned AI is the driver in the quarter as well. Just curious how that might be impacting orders. Sure. Thanks, Luke.
Joe: For taking the question and good morning.
Joe: Dave maybe if we could start with delineating electronics book to Bill between passive and on the semi side and maybe.
Speaker Change: Just how much above one point on the passive side and are you seeing any sequential progress in <unk>.
Speaker Change: Then all of that you mentioned AI as a driver in the quarter as well just curious how that might be impacting orders. Thank you.
David W. Heinzmann: And so we've talked about overall electronics book to bill being over 1.0, so it's slightly above 1, and we're seeing there. And there is a little bit of a delineation between the semiconductor portion of it and the passives. We've also talked about kind of cautiousness in order patterns. So if you look at our passives business, we were above one last quarter. And we continue to be slightly above one this quarter.
Speaker Change: Sure. Thanks Luke.
Speaker Change: Yeah. So we've talked about overall electronics book to Bill at being over 1.0, So it's slightly above one what we're seeing there and there is a little bit of a delineation between the semiconductor portion of it in the passives.
Speaker Change: We've also talked about kind of cautiousness and order patterns.
Speaker Change: So if you look at our passives business, we were above one last quarter, we continue to be slightly above one this quarter.
David W. Heinzmann: And so the book-to-bills is reasonably stable, but we're not seeing as much of a pickup as we would typically see. And I think that's really cautiousness driven by the OEM customers in placing orders. So it remains healthy, and sell-through remains healthy. However, we're just not seeing that pickup yet.
Speaker Change: And so the book to bills are reasonably stable, but we're not seeing as much of a pickup as we would typically see and I think thats really cautious.
Speaker Change: Cautiousness, driven by the OEM customers and placing orders so it remains healthy and sell through remains healthy. However, we're just not seeing that pick up yet.
David W. Heinzmann: On the semiconductor side, as we've talked about, because we've intentionally invested in the semiconductor, particularly the power semiconductor side, kind of invested in the industrial space, as we think it creates a better balance for our business over time. Industrials is soft. So book-to-bills have been below one in the industrial, or in the power semi-portion of the business. However, we've seen through July actually, those order rates begin to stabilize. So they're approaching one again, even on the Power Semi side, but just keep in mind that when you think about lead times for the Power Semi, they're longer.
Speaker Change: On the semiconductor side as we've talked about.
Speaker Change: We've intentionally in the semiconductor particular power semiconductor side kind of invested into the industrial space as we think it creates better balance for our business over time industrials as soft as the book to bills have been below one.
Speaker Change: In the industrial or in the power semi portion of the business. However, we have seen through July actually those order rates begin to stabilize.
David W. Heinzmann: So even if we reach, you know, book-to-bills that are above one, that's really going to be four or five months out before we see sales starting to pick up there. So that's why we talk about really kind of expecting to see that kind of going into next. AI, and data centers in general are the second part of your question.
Speaker Change: So there are approaching one again, even in the power semi side, but just to keep in mind that if you think about <unk>.
Speaker Change: Lead times in the power semi or longer so even if we reach.
Speaker Change: Book to bills at or above one that's really going to be.
Speaker Change: Four five months out before we see sales starting to pick up there. So that's why we talk about really kind of expecting to see that kind of going into next year.
Speaker Change: AI data centers in general was the second part of your question.
Speaker Change: We broadly participate across several different technologies into the data center space.
Speaker Change: And while we don't get.
Speaker Change: A specific uptick related to AI from a technology shift.
David W. Heinzmann: We broadly participate across several different technologies in the data center space, and while we don't get a specific uptick related to AI from a technological shift, the build out of the data centers and the more power consumption and data centers that we see, we get a linear pickup in our business there. Data centers have been pretty robust, and we've seen orders be pretty strong in that space during the second quarter and into the third quarter. I got it.
Speaker Change: The build out of the data centers and the more power consumption in data centers.
Speaker Change: We see we get a linear pickup in our business there and data centers have been pretty robust and we've seen orders be pretty strong in that space.
Speaker Change: During the second quarter, and then into the third quarter.
Luke L. Junk: Thank you for that. I'm also hoping to touch on something that you mentioned in your prepared remarks in terms of channel dynamics beyond passive distribution. I'm thinking of the kind of protective portion of the semiconductor business that's distributed, and, you know, inventory and customers as well. Just given what you're seeing there, could we see one or both of those inflect maybe late in the Q range or maybe more likely in the fourth quarter, David?
Speaker Change: Got it. Thank you for that also hoping to touch on something that you mentioned in the prepared remarks in terms of channel dynamics beyond passive distribution I'm thinking of the kind of protective portion of the semiconductor business, that's distributed and inventory and customers as well.
Speaker Change: Just given what youre seeing there can we see one or both of those inflect maybe late in the queue.
Speaker Change: <unk> range or maybe more likely in the fourth quarter.
David W. Heinzmann: Yeah, I think I think, you know, our protection semiconductor business kind of behaves a little more like our passes business, if you will. It has a slightly higher index to automotive electronics as a higher portion of that business. So what we saw is actually that the protection semiconductor business went into correction mode later than our passives did by a couple quarters. And what we've typically seen is when we begin to see an inflection point and a correction, you know, coming the other way with passives.
Speaker Change: Yes, I think I think.
Speaker Change: Our protection semi conductor business.
Speaker Change: Behaves a little more like our passives business, if you will.
Speaker Change: It has a slightly higher index to automotive electronics.
Speaker Change: As a higher portion of that business.
Speaker Change: So what we saw is actually.
Speaker Change: The protection semiconductor business.
Speaker Change: Went into correction mode later than our passive did buy a couple of quarters.
Speaker Change: And what we've typically seen is when we begin to see that.
Speaker Change: Inflection point and a correction coming.
Speaker Change: Coming to the other direction in passives.
Luke L. Junk: The protection portion of our semiconductor tends to follow a quarter or two behind that, so it's difficult to say exactly when we see that, you know, that turning back up in the protection side. But it's probably a quarter or two behind our past. Got it. And then, if I could sneak one final question in.
Speaker Change: The protection portion of our semiconductor tends to follow a quarter or two behind that so it's difficult to say exactly when we see that.
Speaker Change: That turning back up in the protection side.
Speaker Change: But it's probably a quarter or two behind our passives business.
Meenal Anil Sethna: Meenal, this is a margin-related question, and just looking at the four-year guidance for 12 to 14 percent operating margins, you know, that's applying a step up in the back half at the midpoint, but, you know, at the high end, it would be, you know, pushing, you know, above the mid-teens in the second half versus 12 in the first. Can you just unpack that upside risk, I assume that would be mostly electronics-related, and, you know, ultimately, what could drive that sort of incremental exit during the year?
Speaker Change: Got it and then if I could sneak one final question and this.
Speaker Change: This is a margin related question and just looking at the full year guidance grew 12% to 14% operating margin, that's implying a step up in the back half at the midpoint, but at the high end would be pushing above the mid teens in the second half versus 12 in the first can you just unpack that upside risk if you will.
Meenal Anil Sethna: I guess I'm, you know, really trying to reconcile that with what seems like some more conservatism in the third-quarter guide from a margin standpoint, where, you know, at the midpoint, maybe you're even picking up, you know, pretty flat EBIT if we strip out the incentives, kind of stepping down sequentially.
Speaker Change: That would be mostly electronics related and ultimately what could drive that sort of incremental exiting the year I guess.
Speaker Change: Really trying to reconcile that with what seems like some more conservatism in the third quarter guide from a margin standpoint.
Speaker Change: At the midpoint, maybe or even picking up.
Speaker Change: Pretty flat EBIT, if we strip out the incentive comp stepping down sequentially. Thank you.
Luke L. Junk: I would say in general, just stepping back on margins overall, we've done a lot of work in the past several years around, we talked about portfolio diversification, execution, really improving that foundation, and have expected that that's going to continue to lift the floor, which it has done for us. You know, with the cycle that we're in, we're really trying to look and predict where things are going.
Speaker Change: Sure.
Speaker Change: I would say in general just stepping back on on margins overall, we've done a lot of work in the past several years around.
Speaker Change: Yes, we talked about portfolio diversification execution really improving that foundation and.
Speaker Change: As expected that that that's going to continue to look to Florida, which it has done for us the margin floor.
Luke L. Junk: And you heard some of Dave's commentary on sales; you know, for us, given all the foundational work we've done now, it's really volumes coming back. And so, based on the general view that we've given on starting to see recovery and, in various places, a little bit of improvement across the transportation segment, which is more on the operational side. You know, that's really where we ended up with the 12 to 14% guide range as we think about the full year. Okay, I'll leave it there. Thanks for your questions, Luke. And your next question comes from the line of Matt Sheerin with Stiefel. Your line is open. Yes, thank you. Good morning.
Speaker Change: With the cycle that we're in we're really trying to look and predict out on where things are going and you heard some of Dave's commentary on sales for us given all the foundational work we've done now let's release volumes coming back and so based on the general view that we've given on starting to see recovery.
Speaker Change: In various places.
Speaker Change: Little bit of improvement across the transportation segment, which is more on the operational side, that's really where we ended up with the 12% to 14% guide range as we think about the full year for full year margins.
Speaker Change: Okay I'll leave it there for now thank you.
Speaker Change: Thanks for your questions loop.
Matthew John Sheerin: Another question regarding the guidance for the year and expectations for year-over-year growth and net of that product pruning. Typically, your electronics business is down sequentially, and given, as you say, very cautious order patterns from customers, should we expect that again? And are you expecting year-over-year growth in electronics despite that? And then thoughts around the auto business sequentially in the next couple of quarters, given that we've seen the S&P auto numbers get cut recently? Thanks. Sure, Matt, I'll take that one, and Meenal, feel free to jump in.
Speaker Change: And your next question comes from the line of Matt Sheerin with Stifel. Your line is open.
Matthew John Sheerin: Yes. Thank you good morning.
Speaker Change: Another question regarding the guidance for the year.
Matthew John Sheerin: And expectations for a year over year growth in net debt product pruning tip.
Matthew John Sheerin: Typically you would electronics business is down sequentially and given as you say very cautious order patterns from customers should we expect that again.
Matthew John Sheerin: And.
Speaker Change: Our U R.
Speaker Change: And are you expecting year over year growth in the electronics despite that.
Speaker Change: Thoughts around the auto business sequentially.
Speaker Change: In the next couple of quarters, given that we've seen the S&P auto numbers get cut recently thanks.
Matthew John Sheerin: Sure, Matt I'll take that one and may not feel free to jump in.
David W. Heinzmann: So if we look at kind of the return to growth in the fourth quarter, which is our current view of when we expect to begin to see things turn, absolutely. If you look at normal calendarization and, you know, in a normal environment, we would see electronics sequentially down in the fourth quarter. However, we are seeing the inventory position weeks of inventory for our passive products are back to pre-COVID levels. So they're very normalized sorts of weeks of inventory, you know, in the channel.
Speaker Change: So if we look at kind of returned to growth in the fourth quarter, which is our current view of when we expect to begin to see things turn absolutely. If you look at normal calendars Asian in a normal environment, we would see electronics sequentially down in the fourth quarter.
Matthew John Sheerin: However, we are seeing the inventory position.
Matthew John Sheerin: Weeks of inventory for our passive products are back to pre COVID-19 levels. So they are very normalized sorts of weeks of inventory.
Matthew John Sheerin: And the channel and as we do begin to see that impact the fact that.
David W. Heinzmann: And as we do begin to see that impact, the fact that POS is reasonably stable, and the lack of inventory burn in the back end of the year will begin to show some growth. So we think that growth offsets kind of the normal calendarization that perhaps we see there. And on the automotive side, while car build will likely be down in the back half of the year compared to the previous year, we still have outgrowth that creates opportunities for us to drive growth in that area.
Matthew John Sheerin: POS is reasonably stable.
Matthew John Sheerin: That lack of inventory burn in the back end of the year, we will begin to show some growth. So we think that growth.
Matthew John Sheerin: Offset kind of the normal calendar as Asian that perhaps we see there and on the automotive side.
Matthew John Sheerin: While <unk> will likely be down in the back half of the year compared to previous year, we still have outgrowth that creates opportunities for us to drive growth in that area. So with those kind of pieces. We do feel confident that we're going to begin this turned the corner and see a return to growth in the back end.
David W. Heinzmann: So with those kind of pieces, we do feel confident that we're going to begin to turn the corner and see a return to growth in the back end of the year. Sure, and I'll add to your question on margins related to that, okay?
Matthew John Sheerin: For the year.
Speaker Change: And I'll add on your question on margins related to that right going back to the first question I answered for us given all the work that we've done it's really now volumes coming back that that we feel we're really glad to margins than historically as we have seen growth coming out of cycle.
Meenal Anil Sethna: Going back to the first question I answered for us, given all the work that we've done, it's really volumes coming back that we feel will really drive the margins. And, you know, historically, as we have seen growth coming out of cycles, that growth coming back tends to come back at very, very strong incrementals. So, you know, with this maybe atypical pattern on sales that we're seeing as the market recovers, I think that would also be a little bit of an atypical margin and margin recovery third going into the fourth quarter as sales recover. Okay, that's helpful.
Speaker Change: That growth coming back tends to come back at very very strong incrementals. So with maybe a typical pattern on sales that were seeing with as the market recovers I think that would also be a little bit of an atypical margin and margin recovery.
Speaker Change: Third going into the fourth quarter as the sales start to improve.
Matthew John Sheerin: And just related to your margin commentary, you talked about some headwinds for input costs like copper and silver. And I know typically, in the past, when we've seen significant increases in those costs, you've been able to pass them along. But given the tough demand environment, is that more difficult? And how should we think about pricing in general?
Speaker Change: Okay. That's helpful and just related to your margin commentary you did talk about some headwinds where input costs like copper and silver and I know typically in the past when we've seen significant increases in those costs you have been able to at some point and pass them along.
Speaker Change: But given the tough demand environment is that more difficult in how should we think about pricing and channel.
Meenal Anil Sethna: Yeah, so in general, when we talk about metals and metal prices, you know, I think I've mentioned in the past that that's much heavier weighted towards our transportation segment. So, yes, we are seeing some higher input costs there. Yes, not all, but many of our contracts do include clauses where we do have a copper pass back. The timing may not exactly be aligned quarter to quarter, but yes, there is a copper pass back included there.
Speaker Change: Yeah. So so in general when we talk about metals and metal pricing.
Speaker Change: As mentioned in the past that thats much heavier weighted towards our transportation segment. So yes, we are seeing some higher input costs. There I guess not all but many of our contracts do include clauses, where we do have a copper pass back the timing may not exactly be aligned quarter to quarter, but yesterday.
Meenal Anil Sethna: What I would also say is the other dynamic going on is, you know, we're working even with the metal pricing, et cetera. We're working on pricing independently. We've been doing that.
Speaker Change: There is a path back included there.
Speaker Change: What I would also say the other dynamic going on is we're working even with the metal pricing et cetera, we're working on pricing independently, we've been doing that so beyond the metals and the metals cost increases we've been both on the automotive side as well as in the commercial vehicle side working on pricing. So that's part a.
Meenal Anil Sethna: So, beyond the metals and the metals cost increases, we've been both on the automotive side as well as on the commercial vehicle side working on pricing. So, that's part of the, I'll say, balance in our margin progression that we think about. Okay. All right. Thanks a lot.
Speaker Change: The okay the balance in our margin progression as we think about the transportation segment.
Speaker Change: Okay, alright, thanks, a lot.
Matthew John Sheerin: Thanks for your questions, Matt. And your next question comes from the line of Christopher Glynn with Oppenheimer. Your line is open. Thanks. Good morning, folks.
Speaker Change: Yeah.
Speaker Change: Thanks for your questions Matt.
Speaker Change: And your next question comes from the line of Christopher Glynn with Oppenheimer. Your line is open.
Christopher D. Glynn: I've got a couple on industrial. We had a really, you know, strong sequential lift there, and just curious, you know, what got better there? I think the revenues were, you know, a pretty significant proportion above expectation. Yeah, I think generally, the industrial markets are soft, for sure. And we kind of have a mix of different markets that we're serving. And you're looking specifically at the industrial reporting segment, where we saw, you know, softness there, you know, is, you know, in pockets that are kind of broad based.
Christopher D. Glynn: Thanks, Good morning folks.
Speaker Change: I had a couple on industrial.
Speaker Change: You had a really.
Speaker Change: Strong sequential.
Speaker Change: There.
Speaker Change: And just curious.
Speaker Change: What got better there I think the revenues were.
Speaker Change: Pretty significant proportion above expectations.
Speaker Change: Yes, I think.
Speaker Change: Generally the industrial markets are soft for sure and we kind of have a mix of different markets that we're serving and youre looking specifically at the industrial reporting segment.
Speaker Change: Where we saw softness there.
Speaker Change: Yes.
Speaker Change: Pockets.
Christopher D. Glynn: So EV charging, as an example, continues to be soft within renewables; it's a bit of a mix between the solar types of installation, which has been a really strong driver for us in history; that is soft, but energy storage has been quite strong.
Speaker Change: What are kind of broad based so EV charging as an example continues to be soft.
Speaker Change: Within renewables, it's a bit of a mix between the solar types of insulation, which has been really strong driver for us in history that is soft, but energy storage has been quite strong.
David W. Heinzmann: So we've got kind of moving pieces in both directions there, keeping in mind also from a financial performance point of view, we talked about in the first quarter where we were in the midst of moving into a new factory that we were building out, so always when you're in transition between that, we also transitioned some operations from China to Mexico. That creates a fair amount of noise, you know, and cost associated with that. We've got the bulk of that behind us as we went into the second quarter and certainly almost all of it behind us going into the third quarter. So that kind of helped to uplift the bottom line performance of the industry. Okay, thanks.
Speaker Change: So we've got kind of moving pieces in both directions there.
Speaker Change: Keeping in mind also from a financial performance there we've talked about in the first quarter, where we are in the midst of.
Speaker Change: Moving into a new factory that we're building out the always when you are in transition.
Speaker Change: Between that and we'd also transitioned some operations from China to Mexico.
Speaker Change: That creates a fair amount of noise.
Speaker Change: And costs associated with that we've got the bulk of that behind us as we went into the second quarter and certainly almost all of it behind us going into the third quarter. So that kind of helped to uplift the bottom line performance of the industrial business.
David W. Heinzmann: And then on the initial signs of HVAC recovery, could you put a little bit more color on that? Are the OEMs, you know, is anyone actually kind of building inventory there? And how much is kind of market-first, new designs? Could you put some emphasis on new designs? Yeah, we did.
Speaker Change: Okay. Thanks.
Speaker Change: And then.
Speaker Change: On the initial signs in HVAC recovery.
Speaker Change: Could you put a little bit more color on that or the Oems.
Speaker Change: Anyone actually kind of building inventory, there and how much is kind of market various new designs because you put some emphasis on new designs.
David W. Heinzmann: And so in our exposure to HVAC, particularly in North America, we have a heavier tie to residential HVAC. And that, of course, well-documented, including in your reports, has been an area where there's been over-inventory from our customers' perspective as they're pushing into the field. We've seen our customers' take rate from us improve as they've kind of pushed through some of that inventory in their channels. So their takes from us are starting to show kind of early signs of upticks there as their inventories have begun to stabilize.
Speaker Change: Yes, we did and so and our exposure to HVA say, particularly in North America, we have a heavier tie to residential HVAC.
Speaker Change: And that of course, well documented including in your report has been an area where theres been over inventory.
Speaker Change: From our customer's perspective, as they're pushing into the field, we've seen our customers take rates from us improving as they've kind of pushed through some of that inventory and their channels. So theyre takes from us or starting in kind of.
Speaker Change: Early signs of upticks there.
Speaker Change: As their inventories have begun to stabilize.
David W. Heinzmann: From a design in perspective, we had really good robust activity there across many customers, many of our product technologies, particularly with a lot of focus on industrial HVAC areas where we need to improve our position there. So we saw a lot of design inactivity there, and the teams are very active. So we think long-term that'll play out well for us in the industrial exposure to HVAC. Great. Thank you, Dave. Thanks, Chris.
Speaker Change: From a design perspective, we.
Speaker Change: We had really good robust activity there across many customers many of our product technologies, particularly with a lot of focus on industrial HVAC areas, where we need to improve our position. There. So we saw a lot of design in activity there and the teams are very active so we think long term that that will play.
Speaker Change: You're out well for us.
Speaker Change: The industrial exposure to HVAC.
Nick: Great. Thank you Nick.
Speaker Change: Thanks, Chris Thanks for your questions Chris.
Speaker Change: Okay.
Christopher D. Glynn: Thanks for your questions, Chris. And your next question comes from the line of Saree Boroditsky with Jeffreys. Your line is open. Hey, good morning. This is Grant Smith on behalf of Saree Boroditsky.
Speaker Change: And your next question comes from the line of Sarah <unk> with Jefferies. Your line is open.
Saree Emily Boroditsky: Thanks for taking our questions. You've talked a lot about the cautious order patterns and passes, but I was just hoping you could elaborate a bit on what these customers are kind of telling you, and, you know, what would increase their confidence to maybe start more of the restocking increases. Yeah, you know, our visibility to end customers is a bit more challenging than it is for distribution partners. And what we're seeing is, in our discussions with our distribution partners, they're seeing order patterns from end customers be a bit muted, you know, considering where we're at in the cycle.
Speaker Change: Hey, Good morning. This is Greg Smith on for Sarah Thanks for taking our questions.
Greg Smith: You've talked a lot about the cautious order patterns and passes but I'm, just hoping you could elaborate a bit on what these customers are kind of telling you in and.
Greg Smith: What would increase their confidence to maybe start more restocking increasing orders.
Speaker Change: Yes.
Speaker Change: Our visibility to the end customers are a bit more challenging than they are distribution partners and what we're seeing is in our discussions with our distribution partners, they're seeing order patterns from end customers be a bit muted.
Saree Emily Boroditsky: And I think some of that comes from the fact that OEMs and EMS companies certainly carried a lot of excess inventory over the last couple years, and they've been working to burn that down. They've made meaningful progress in burning down their excess inventories. Carrying costs of inventory are pretty high these days. And, you know, so I think as lead times have shrunk, they'll look at that, and our sense is they're saying, hey, lead times are pretty short. Capacities are not, you know, being pushed.
Speaker Change: Considering where we're at in the cycle and I think some of that comes from the fact that Oems MFS certainly carried a lot of excess inventory over the last couple of years and they've been working to burn that down and have made meaningful progress in burning down their excess inventory carrying cost of inventory.
Speaker Change: Or pretty high these days.
Speaker Change: And so I think as lead times have shrunk.
David W. Heinzmann: So if I hold off a little bit and drop orders in a little later, the odds I'm going to get support for that are pretty high. So I think they're just kind of playing it pretty cautious with their order patterns to place them. These are the situations that drive Capacity constraints, you know, in the future, which is a kind of a typical pattern for electronics, but that's our sense in general. There is that kind of general cautiousness, and we don't sense there's some massive problem in the end market. It's more just being very cautious about coming off of excessive inventories that they've been carrying. Got it, makes sense.
Speaker Change: Ill look at that and our sense is they're saying Hey lead times are pretty short capacities are not being pushed so far.
Speaker Change: I hold off a little bit of drop orders in a little later the odds are going to get support for that are pretty high. So I think theyre, just kind of playing a pretty cautious on their order patterns.
Speaker Change: To place them.
Speaker Change: These are the situations that that drive.
Speaker Change: Passenger constraints.
Speaker Change: In the future, which is a kind of a typical pattern in electronics, but that's our sense. In general is there is that kind of general cautiousness, and we don't sense Theres. Some massive problem in the end market. It's more just being very cautious on coming off of excessive inventories that they have been carrying.
Saree Emily Boroditsky: And you mentioned thoughtful M&A and attractive end markets. Can you expand a little bit on those end markets and maybe on the M&A focus going forward? And, you know, kind of what does the environment look like out there as far as the pipeline and valuations are concerned? Thank you.
Speaker Change: Got it makes sense.
Speaker Change: And you mentioned thoughtful M&A and attractive end markets can you just expand a little bit on those end markets and maybe on the M&A focus going forward and kind.
Speaker Change: Kind of what does the environment look like out there as far as the pipeline and valuations.
David W. Heinzmann: Sure. Um, yeah, and clearly, we worked our funnel very aggressively over time, and we have a very active funnel that we continue to work. What I would say is we look at M&A using our M&A capabilities and our capital that we can deploy in that way to thoughtfully continue to diversify the markets that we serve. So you've seen that over the last three or four years, where our M&A has increased our exposure, as an example, to the industrial market. That's been intentional.
Speaker Change: Sure.
Speaker Change: And.
Speaker Change: Clearly we work our funnel very aggressively over time, and we have a very active funnel that we continue to work.
Speaker Change: What I would say as we look at M&A, using our M&A capabilities and.
Speaker Change: Our capital that we can deploy that way to us.
Speaker Change: Possibly continue to diversify the markets that we serve so you've seen that over the last three or four years, where our M&A has increased our exposure as an example to the industrial markets that's been intentional.
David W. Heinzmann: So we look at things that will help. You know, to offset the balance in our businesses and can create a good balance across the industries that we see attractive. We look for margin profiles over the long term that are going to be attractive and supportive of where we are as a company. And ultimately, it plays into the megatrends that we define our business around. So what are these?
Speaker Change: So we look at things that will help.
Speaker Change: Yes.
Speaker Change: To offset the balance in our businesses and can create a good balance.
Speaker Change: Across the industries that we see attractive we look for margin profiles and long term that are going to be attractive and supportive of where we are as a company and ultimately it plays into the Megatrends that we define our business around so what are these.
David W. Heinzmann: you know, trends that are going to drive growth over the long term. And with those things, those are the criteria as we look to kind of create our search in those areas. So certainly things that are going to continue to build out our industrial markets; that's an area of attractiveness for us. While we're still doing some work to turn around the profitability of our commercial vehicle business, we still think that, over time, it will be an attractive place to be. We always look at potential, you know, kind of bolt-on consolidation opportunities that come along occasionally. At the end of the day, we want to do this.
Speaker Change: Trends that are going to drive growth over the long term.
Speaker Change: And with those things that those are the criteria, we look to kind of create our search in those areas.
Speaker Change: Certainly things that are going to continue to build out our industrial markets. That's an area of attractiveness for us while we're still doing some work to turn around the profitability of our commercial vehicle business. We still think that over time is going to be an attractive place to be.
Speaker Change: We always look at potential kind.
Speaker Change: Bolt on consolidation opportunities that come along occasionally.
Speaker Change: At the end of the day, we want to do.
David W. Heinzmann: M&A into an area that will enable us to continue to support an outsized organic growth model into attractive spaces. As far as what multiples look like and how that's coming along, I would say, as much as we would expect and hope that multiples start dropping off, we haven't seen that so much. The multiples continue to be pretty solid out there, pretty strong.
Speaker Change: M&A into an area that will enable us to continue to support an outsized organic growth model into attractive spaces.
Speaker Change: As far as what multiples look like and how Thats coming along I would say.
Speaker Change: As much as we would expect and hope that multiple start dropping off we havent seen that so much the multiples continue to be pretty solid out there pretty strong.
David W. Heinzmann: So that's an area we've got to be thoughtful about and make sure that the second order screen for us is... Are we going to get the return profile we want out of the acquisition? And it may meet some of the other criteria, but if we're pushing too far on the return profile, we'll step back.
Speaker Change: So that's an area, we've got to be thoughtful about and make sure that the second order.
Speaker Change: Screen for us as.
Speaker Change: Are we going to get the return profile, we want out of the acquisition and it may be some of the other criteria, but if we're pushing too far on the on the return profile, we will step back from it.
Saree Emily Boroditsky: Thanks for taking the question. Thanks for your questions, Grant. And your next question comes from the line of Josh Buchalter with TD Cowan. Your line is: Hey guys, good morning.
Speaker Change: Got it thanks for taking the questions.
Speaker Change: Sure. Thanks for your questions Greg.
Speaker Change: And your next question comes from the line of Josh Buchalter with TD Cowen Your line is open.
Joshua Louis Buchalter: Thanks for taking my questions. We want to start with a bigger picture one. So if we look at where the second quarter came in versus your guidance, you know, it's above the high end to believe. So clearly things surprised you to the upside within the quarter, but then the commentary on the third quarter sounds a bit more cautious.
Joshua Louis Buchalter: Hey, guys. Good morning, Thanks for taking my questions we.
Joshua Louis Buchalter: We wanted to start with a bigger picture one so if we look at where second quarter came in versus your guidance is above the high end I believe.
Speaker Change: Clearly surprised you to the upside within the quarter, but then the commentary on the third quarter sounds a bit more cautious.
David W. Heinzmann: If I think about it and step back, was this a function of you getting inventory cleared, and now it's just you're shipping closer to end demand, but end demand is tepid? I would just be curious to hear your big picture, how you're seeing the business environment, given your breadth and scale. Thank you. Thanks Josh.
Speaker Change: Okay got it and step back was this a function of <unk>.
Speaker Change: Inventory cleared.
Speaker Change: Now its just youre shipping closer to end demand, but end demand is tepid I would just be curious to your big picture.
Speaker Change #100: How youre seeing the business environment, given your breadth and scale. Thank you.
David W. Heinzmann: Yeah, so we had a little more positivity in the second quarter than we anticipated and our ability to execute on that. I talked a little bit about order patterns, you know, on the electronic side, and the cautiousness in ordering often leads to people dropping orders very late, and sometimes that, you know, reduces our visibility and our chance to kind of see that. So we saw some upside on the electronic side, where orders kind of dropped late, and that's been a positive on the industrial side as well.
Josh: Sure. Thanks, Josh.
Speaker Change #102: Yeah. So we had a little more positivity in the second quarter than we anticipated and our ability to execute to that I talked a little bit about order patterns in the electronics side and and the cautiousness and ordering off often leads to people dropping orders in very late.
Josh: And sometimes that reduces our visibility and our chance to kind of see that so we saw some upside in the electronics side, where orders kind of dropped in late and.
Speaker Change: That's been a positive.
Speaker Change: And on the industrial side as well, however, the offset to that in a bit of our cautiousness in the third quarter is particularly light industrial and the broader industrial markets. While we are seeing our inventories have come down to where where they ought to be in the passives and electronic side of things.
David W. Heinzmann: However, the offset to that and a bit of our cautiousness in the third quarter is particularly light industrial and the broader industrial markets, while we're seeing our inventories have come down to where they ought to be and the passives and electronic side of things on our products, particularly the power semiconductor products that are selling into kind of light industrial types of applications. Those markets are soft.
Speaker Change: On our products, particularly the power semiconductor products that are selling into kind of a light industrial types of applications those markets are softer.
David W. Heinzmann: And so therefore, we are seeing in that portion of the business some OEM and channel destocking, as they're bringing down their inventories to match up to the softer markets. So I think that offsets the fact that we've seen stabilization in the electronics. But on the industrial kind of power semiconductor business, we've actually seen order pushouts a bit and delays from our customers there as their end markets have been a bit soft. So that's where the cautiousness maybe a little bit in the third quarter is coming from. Maybe I would add one more, Dave, on the transportation side, especially on the automotive side, right?
Speaker Change: And so therefore, we are seeing on that portion of the business.
Speaker Change: OEM and channel Destocking, as they're bringing down their inventories to match up to the softer markets.
Speaker Change: I think that offset of that we have seen stabilization in the electronics, but on the industrial centric power semiconductor business, we are actually seeing order push outs and delays.
Speaker Change: From our customers there as there and.
Speaker Change: Markets have been a bit soft so that's where the cautiousness, maybe a little bit in the third quarter is coming from maybe I would add one more Dave is on the transportation side, especially on the automotive side right.
Meenal Anil Sethna: It's starting to see a little bit of a downturn through IHS and car bills coming down also, so there's a little bit of caution also on the automotive side, especially some of the Western areas, a little bit more North America, Europe, et cetera. Thank you, Dave and Meenal. I appreciate all the color there.
David W. Heinzmann: We see a little bit.
Speaker Change: Down guide to IHS.
Speaker Change: And car builds coming down also so theres a little bit of caution also on the automotive side, especially because of the western western areas, a little bit more in North America, Europe et cetera.
Joshua Louis Buchalter: Maybe one for Meenal: if I look at the shape of your CAPEX, you know, to hit the $100 million, you have got to step up spending pretty meaningfully in the back half of the year. Maybe you could walk through some of the priorities there. And also, it's been good to see the repurchase in the last couple of quarters. Can we expect that to step down correspondingly in the back half of the year? Or do you think you can maintain the current level of repurchases until you get something you're more excited about from a valuation or strategic perspective in M&A? Thank you both.
Speaker Change #106: Thank you David I appreciate all the color there.
<unk>: Maybe one for <unk>, if I look at the shape of your Capex to.
Speaker Change #104: You hit the $100 million, you got to step up spending pretty meaningfully in the back half of the year, maybe you could walk through some of the priorities there.
Speaker Change: There and then also.
Speaker Change: <unk>.
Speaker Change #103: Good to see the repurchase the last couple of quarters.
Speaker Change #111: Can we expect that to step down correspondingly in the back half of the year or do you think you can maintain the current level of repurchases until you get some something you're more excited about from.
Speaker Change: From a valuation of strategic perspective, and M&A. Thank you both.
Meenal Anil Sethna: Sure. So on your first question, as it relates to CapEx, you know, we monitor that closely, and the great news for us is that we generate the cash that we want to reinvest back into the business. And, you know, Dave talked a lot about organic growth, and we want to make sure we're building the capacity and focusing on organic growth. At the same time, you know, our businesses watch the markets closely.
Speaker Change: Sure.
Speaker Change #119: So on your first question as it relates to Capex, we monitor that closely and we the great news for US is that we generate the cash that we want to reinvest back in the business and Dave talked a lot about organic growth and we want to make sure. We're building the capacity and focusing on the organic growth at the same time.
Speaker Change: Our businesses watch the market closely and if they find that as they work out a few quarters things are maybe not picking up at the same level will delay capacity investments and you may see us.
Meenal Anil Sethna: And if they find that, as they look out a few quarters, things are, you know, maybe not picking up the same way, we'll, we'll, you know, delay capacity investments. And you may see us, you know, as we approach the end of the year, we may not quite get to that hundred million dollars, if that's what we're seeing in there. But it's not a, you know, we're not trying to manage the CapEx for a cash number but more trying to be prudent in when and how we're spending our capital. The other thing I would say is, you know, as you recall, we had signed an agreement last year to acquire a fab from Elmhoff Semiconductor. We call it the Dortmund fab, as it's located in Germany.
Speaker Change: We approached the end of the year.
Speaker Change: May not quite get to that $100 million. If that's what we're seeing in there, but it's not a we're not trying to manage the capex for a cash number but more trying to be prudent and when and how we're spending our capital.
Speaker Change: The other thing I would say is.
Speaker Change: If you recall, we had signed an agreement to last year to acquire fab from Al Moss semiconductor coffee Dortmund fabrics is located in Germany, and we are doing some spending in advance of taking over that fab in the beginning of 2025, so $100 million of crude from the investments that we're making for <unk>.
Meenal Anil Sethna: And we are doing some spending in advance of taking over that fab at the beginning of 2025. So, the hundred million includes some investments that we're making for capacity that we're building out. That's the first part. The second part, in terms of your questions around share buybacks in general, what I would say is our philosophy has always been, as we think about capital allocation, first, it's around prioritizing organic growth, as I just talked about, and making the right investments for organic growth.
Speaker Change: <unk>, we are building out in advance.
Speaker Change: That's the first part the second part in terms of.
Speaker Change #105: Your questions around share buyback in general.
Speaker Change #108: I would say is our philosophy has always been as we think about capital allocation first it's around prioritizing organic growth as I, just talked about and investing making the right investments for organic growth. Dave spent a lot of time talking about thoughtful acquisitions, what that means for us and how we consider the acquisition space then.
Meenal Anil Sethna: Dave spent a lot of time talking about thoughtful acquisitions, what that means for us, and how we consider the acquisition space. Then we've got a dividend that we've had since 2010, double-digit growth on that dividend. If you look over the years, we just increased that again this past quarter. And for us, a share buyback tends to be a more periodic event when we feel like the market is not recognizing our growth strategy and has not really incorporated that into the share prices.
Speaker Change: We've got a dividend that we have had since 2010 double digit double digit growth there on the dividend. If you look over the years, we just increased that again.
Speaker Change #125: Past quarter, and fresh share buyback tends to be a more periodic event.
Speaker Change #124: We feel like the market is not recognizing our growth strategy and is that really incorporated that into two the share prices.
Meenal Anil Sethna: That's when we'll look at buying back shares. That was really the view that we took in the first half of the year on that. And at the same time, we balance that with what's in the horizon, what's pretty close to the funnel when it comes to M&A, and we make those determinations of holding back in some cases or looking at share buybacks. So we're not in a continuous run of share buyback, and we're a little bit more periodic about it. Thank you, Meenal.
Speaker Change: We'll look at buying back shares that was it really the view that we took in the first half of the year on that and at the same time, we balanced that with what's in the horizon with pretty close to the funnel when it comes to M&A and we make those determinations are holding back in some cases, we're looking at share buyback. So we're not a.
Speaker Change: Continuous run of share buyback and it will be a little bit more periodic about it.
Neil: Thank you Neil.
Joshua Louis Buchalter: Thanks for your questions, Josh. And your next question comes from the line of David Williams with Benchmark. Your line is open. Hey, good morning.
Speaker Change: Sure.
Speaker Change: Thanks for your questions Josh.
Speaker Change: And your next question comes from the line of David Williams with Benchmark. Your line is open.
David Neil Williams: Thanks for taking my question. I guess first I wanted to ask, just kind of around the data center applications and AI that you talked about. I understand that's around a lot of the build out that's ongoing, but just kind of curious if you could help understand or help us understand maybe where, what type of applications, you talked about cooling, liquid cooling earlier, but where else are you seeing that, and is there a way to think about maybe the magnitude of that contribution? For more information, visit www. FEMA.gov Yeah, from a data center perspective, we get involved in two aspects of it. One is the infrastructure for the data center building and power system itself.
David Neil Williams: Hey, good morning, and thanks for taking my question I guess first wanted to ask just kind of around the data center applications and AI that you talked about I understand thats around a lot of the build outs that's ongoing but just kind of curious if you could help understand or help us understand maybe what.
Speaker Change #109: What types of applications, you talked about cooling liquid cooling earlier, but where else are you seeing that and is there a way to think about maybe the magnitude of that contribution overall when you think about data centers and just how many are being built out today.
Speaker Change #111: Yes from a data data center perspective.
Speaker Change #114: It involves kind of two aspects of it one is the infrastructure for the data center building and power system itself. So.
David W. Heinzmann: So, you know, within that, you've got Power Backup Systems and Power Distribution within the building. That creates opportunities for us that typically show up in our industrial segment, you know, types of products and technologies that sell into that. And then you get, and every data center owner has a slightly different architecture and approach to these things, but at the rack level, then you start getting more of our electronic components that are being sold at the rack level.
Speaker Change #101: Within that you've got.
Speaker Change #101: Power backup systems and power distribution within the building that creates opportunities for us that typically show up in our industrial segment.
Speaker Change: Types of products and technologies that sell into that and then you get in every data center owner has a slightly different architecture and approach to these things, but at the rack level. Then you start getting more of our electronic components that are being sold into the rack level and it can be.
David W. Heinzmann: And it can be primarily circuit protection, but we'll see some semiconductor business in those spaces. We'll even see, now that we've kind of moved into switches, some switches that are used in that application. And then even in the servers themselves, we'll have content that shows up there.
Speaker Change: Primarily circuit protection, but we will see some semiconductor business in those spaces will even see.
Speaker Change: Now that we've kind of moved into switches. Some switches that are used in that application and then even in the servers themselves will have content that shows up there.
David W. Heinzmann: So, whereas I know there are some others in our space where, on the semiconductor side or on the backplane side, there's a technology shift that's pretty big with latency concerns and things like that that drive both kind of the volume of data center increases but the technology shift. You know, for us, it's more really the volume creation that drives the data center build out that drives our business up. Okay, thanks so much. Certainly some great color there.
Speaker Change: So, whereas I know theres, some some others in our in our space, where on the semiconductor side or on the back claim side. There is a technology shift that's a pretty big with latency concerns and things like that that drives both they are kind of.
Speaker Change: The volume of data center increased but the technology shift for us it's more really the volume creation that drives by the data center build out that drives our business up there.
Speaker Change #112: Okay. Thanks, so much certain some great color there.
David Neil Williams: And then secondly, just from a geographic perspective, you talked about a lot of design, Page PAGE of NUMPAGES www.verbalink.com www.youtube.com or the link in the description. Yeah, I think in general, from a revenue perspective, what I would say about order patterns and things, I think we're seeing kind of modest improvements in Asia, which has been a kind of a tough space for us over the And we're beginning to see that improve a bit. Europe, if anything, Europe from an order pattern is down meaningfully.
Speaker Change: Lee just from a geographic perspective, you talked about a lot of design wins across all your regions, but are you seeing anything from maybe demand or even the design in perspective, that's changed over the last maybe 60 to 90 days were over the last maybe even half of the year just kind of curious.
Speaker Change #117: These activities are staying fairly stable geographically thanks.
Speaker Change #123: Yes, I think in general from a revenue perspective, what I would say in order patterns and things I think we're seeing kind of modest improvements in Asia, which has been a kind of a tough space for us over the last several quarters and we are beginning to see that improve a bit.
Speaker Change #123: Europe with anything Europe from an order pattern is down meaningfully. It's that's probably the bigger shift is as Europe being softer North America has has continued to be our most stable and most solid business and that continues to be the case. So if you think about regionally that's more orders and revenue related from.
David W. Heinzmann: That's probably the bigger shift, Europe being softer. North America has continued to be our most stable and our most solid business, and that continues to be the case. So, if you think about regionally, that's more orders and revenue. From a design perspective, design from a regional perspective sometimes does not line up, first of all, with where we actually ship to and the regions where it's bought.
Speaker Change: The design perspective.
Speaker Change: Design from a regional perspective, sometimes it does not line up first of all with where we actually shipped in the regions, where it's bought it's really where the design activity is I'm not sure. We're seeing a heavy shift there we're seeing pretty solid consistent design activity across the board it varies by automotive versus.
David W. Heinzmann: It's really where the design activity is. I'm not sure we're seeing a heavy shift there. We're seeing pretty solid, consistent design activity across the board. It varies by automotive versus electronics and things like that, but we haven't seen any kind of meaningful shift in that. That's been done.
Speaker Change: Electronics and things like that but we haven't seen any kind of meaningful shift in that.
Speaker Change: <unk> been noticeable.
Speaker Change #128: Thanks, so much.
David Neil Williams: Thanks for your questions, David. And your next question comes from the line of William Kerwin with Morningstar. Your line is open. Hi, everyone.
Speaker Change: Sure. Thanks for your questions David.
Speaker Change: Yeah.
Speaker Change #132: And your next question comes from the line of William Cohen with Morningstar. Your line is open.
William Kerwin: Thanks for letting me get on here at the end. You know, maybe to start, I was hoping you could elaborate on some of the weaknesses that you're seeing in commercial transportation. Sounds like there's some softness in Europe and also China, but maybe some positive offsetting there from agriculture. Just wondering if you could unpack kind of that softness, you know, geographically by end product, and then how you are thinking about a rebound eventually for that part of the business.
William Cohen: Hi, everyone. Thanks for letting me get on here at the end.
William Cohen: Maybe to start I was hoping if you could elaborate on some of the weakness that youre seeing in commercial transportation sounds like there is some softness in Europe and also China, but maybe some positive offsetting there.
Speaker Change #113: The agriculture.
Speaker Change #136: Wondering if you could unpack kind of that that softness geographically by end product and then how you are thinking about a rebound eventually for that part of the business.
William Kerwin: Thanks William. Yeah, a bit of a correction there. Actually, construction and agriculture is probably the weakest spot for us that we're seeing from a market perspective, where we've seen, for us, our exposure and on-road heavy truck has been a bit more resilient than we anticipated, and that's been positive for us. But con ag certainly has been challenged, and we see certainly Europe and China, specifically where it's the softest. You know, so we don't see that shifting too much in the foreseeable future. We kind of see that pattern now.
William Cohen: Thanks William.
Speaker Change #118: Yes, a bit of a correction there actually construction and agriculture is probably the weakest spot for us that we're seeing from a market perspective.
Speaker Change #127: Where we've seen actually for us our exposure in on road heavy truck has been a bit more resilient than we anticipated and that's been positive for us a con AG certainly has been challenged and we see certainly Europe, and China, specifically, where it's soft.
David W. Heinzmann: We continue to look for it. The good news is for us, as we've worked to kind of rebalance our portfolio there, and we've done some pruning in the commercial vehicle space, which has kind of pulled back our organic growth, if you will. But we think there's still meaningful opportunity for us in content improvement and the design of our technologies into our customer base on the commercial vehicle side. So, while we think the markets are going to continue to be a bit challenging, we think there's meaningful opportunity for us to go after design wins and activities. Okay, terrific. And then, you know, maybe that's a good time for a longer one here or a longer term one.
William Cohen: Yes.
William Cohen: So we don't see that shifting too much in the foreseeable future, we kind of see that pattern now we continually look for us the good news is for us.
William Cohen: As we've worked to kind of rebalance our portfolio there and we've done some pruning.
William Cohen: In the commercial vehicle space, which is kind of pulled back our organic growth if you will.
William Cohen: But we think there's still meaningful opportunity for us and content improvement in design in of our technologies into our customer base in the commercial vehicle side. So while we think the markets are going to continue to be a bit challenging we think there's meaningful opportunity for us to go after design wins and activities there.
William Kerwin: I'm curious if you could talk through how you're seeing the competitive landscape evolve with electric vehicles, both across, you know, past cars and just rising competition as that high-voltage market rises, and how you feel about defending your position there. Sure. You know, certainly, the EV space is a pretty dynamic space these days, and with our past car OEMs, as we've seen, we have good, great design and activity in the EV space.
Speaker Change #130: Okay terrific and then.
Speaker Change #116: Maybe that's a good policy with a longer one here or longer term one.
Speaker Change #134: I'm curious if you could talk through how you're seeing the competitive landscape evolve with electric vehicles, both cross pass car and commercial transportation and just rising competition.
Speaker Change #126: The high voltage market rises.
Speaker Change #120: How you feel about defending your position there.
Speaker Change #120: Sure.
Speaker Change #129: So certainly the EV space is a pretty dynamic space These days and.
Speaker Change #160: With our particularly the western pass car Oems.
Speaker Change #120: As we've seen we have good great design in activity in the EV space. We've seen that we continue to see that however, a lot of programs are getting pushed out as theyre shifting focus to hybrids plug in hybrids those types of things. The good news is we have a good balance of our technologies that serve.
William Kerwin: We've seen that, and we continue to see that. However, a lot of programs are getting pushed out as they're shifting focus to hybrids, plug-in hybrids, those types of things. The good news is we have a good balance of our technologies that serve, regardless of the power train, we have good content opportunities there, but it is shifting a little bit in the West on where we're seeing launches and volumes and things there that have been pulled back a little bit. From a competitive landscape, what I would say is that in China, specifically, the competitive landscape on the high voltage side is tough.
Speaker Change #120: Regardless of the powertrain, we have good content opportunity there.
William Cohen: But it is shifting a little bit in the west on where we're seeing launches and volumes and things there that's pulled back a little bit from a competitive landscape what I would say is.
David W. Heinzmann: That has been kind of, we've seen that and talked about that for the last year and a half or so. So that continues to be challenging there. You know, competition-wise with the rest of the world on EB, we have not seen that get tougher. In fact, we've seen a few players maybe pull back a little bit from that space. So we've seen that to be pretty stable in the Western world, if you will, in the EB competition for commercial vehicle electrification. It's all over the map.
William Cohen: In China, specifically the competitive landscape on the high voltage side as top that has been kind of we've seen that and talked about that for the last year and a half or so so that continues to be challenging there.
William Cohen: Competition wise on the rest of the world on ebay, we have not seen that get tougher fact, we've seen a few players maybe pull back a little bit from that space.
William Cohen: So we've seen that to be pretty stable on the.
William Cohen: On the Western World, If you will on the EV competition.
William Cohen: On the commercial vehicle electrification.
David W. Heinzmann: Each customer has a very different view and where there's a lot of energy around the kind of last mile sorts of vehicles there that continue to be good for construction and agriculture. There's progress, but volumes really aren't taking off yet in electrification. So it's a bit of a mixed bag.
William Cohen: It's all over the map each customer has a very different view and where theres a lot of energy around the kind of last mile source of vehicles. There that continues to be good.
William Cohen: On the construction and agriculture, there is progress, but volumes really arent, taking off yet and electrification. So it's a bit of a mixed bag there.
William Kerwin: Okay, terrific. Thank you for the detail, and thanks again. Thanks, William. Thanks for your questions, William. Your next question comes from the line of David Silver with CLK. Your line is open.
Speaker Change #135: Okay terrific. Thank you for the detail and thanks again.
Brian: Sure. Thanks, Brian.
William Cohen: Thanks for your questions William.
William Cohen: Okay.
Speaker Change #141: And your next question comes from the line of David Silver with CLK. Your line is open.
William Cohen: <unk>.
David Cyrus Silver: Yeah, hi, thank you. You know, the question I wanted to ask was really about the status of, you know, the wafer fab purchase in Germany. And Meenal certainly touched on it a little bit.
David Cyrus Silver: Yes, hi, thank you.
David Cyrus Silver: The question I wanted to ask was really about the status of the.
Speaker Change #133: Wafer fab purchases in Germany.
Speaker Change #133: And.
Speaker Change #122: I'll certainly touched on it a little bit, but I was just wondering a couple of things.
David Cyrus Silver: But I was just wondering a couple of things like, You know, I think with the original announcement, there was a timeline where regulatory approvals and then final closing were supposed to be targeted for the end of this year. And I'm, you know, so the first thing is, I'm wondering if that's, you know, still on track. And then maybe more to the point, I mean, with all of the turmoil in the transportation, or I shouldn't say turmoil, uncertainty in the transportation sector right now, my understanding was that that facility, the legacy owner, was using the wafers there for transportation-oriented end markets. And, you know, it's been about a year since the deal was announced.
Speaker Change #161: I think with the original announcement, there was a timeline where regulatory approvals and then final closing we're supposed to be targeted for the end of this year.
Speaker Change #122: So first thing is I'm wondering if that's still on track and then may be more to the point I mean with all of the turmoil in the transportation or I Shouldnt say turmoil uncertainty in the transportation sector right now.
Speaker Change #152: My understanding was that that facility the legacy owner was.
Speaker Change #122: Using the wafers there for.
Speaker Change #122: Transportation oriented end markets.
Speaker Change #143: It's been about a year since the deal was announced I'm just wondering from your perspective.
Speaker Change #142: Is there any change in your thinking about how you would use your capacity.
David W. Heinzmann: I'm just wondering from your perspective, is there any change in your thinking about how you would use, you know, your capacity allocation, you know, in the early years, and then maybe longer term, you know, you're thinking about, you know, the highest and best use of that asset? Sure, sure. Happy to get some color on that.
Speaker Change #122: Allocation.
Speaker Change #138: The early years and then <unk>.
Speaker Change #138: Maybe longer term.
Speaker Change #137: Youre thinking about the highest and best use of that of that asset.
David W. Heinzmann: First of all, everything's on track. You know, we do expect to close at the end of this year, beginning of next year on that, where we'll take ownership of the fab. But the nature of the contract, and you're correct, Elmos uses that fab, and it's supporting automotive applications and things like that. That's part of their business.
Speaker Change #139: Sure sure happy to give some color on that first of all everything is on track, we do expect to close at the kind of end of this year beginning of next year on that where we'll take ownership of the fab, but the nature of the contract and you are correct al Moss uses that fab and is supporting automotive applications.
Speaker Change #139: And things like that Thats part of their business.
David W. Heinzmann: The reason we acquired this FAB in the manner we did is that this is a long-term play for us, that candidly for us is more oriented towards industrial, not automotive. But there's a multi-year, like a four or five-year contract agreement with the seller, where we will continue to produce product for them out of this fab, as they begin to export out of this fab into different fabs, which takes time. It could take years for us to do that.
Speaker Change #137: The reason we acquired this fab in the manner, we did.
Speaker Change #137: This is a long term play for us candidly for us is more oriented towards industrial non automotive, but theres a multiyear like a four five year contract agreement.
Speaker Change #122: With the seller, where we will continue to produce product for them out of this fab.
Speaker Change #122: As they begin to export out of this fab into different Fabs, which takes time. It can take years to do that we support them during that as they begin to ramp down and we'll begin to ramp up our industrial products in that fab over that same timeframe. So the goal is to try to keep the fab fairly.
David W. Heinzmann: We support them during that as they begin to ramp down, and we'll begin to ramp up our industrial products in that fab over that same time frame. So the goal is to try to keep the fab fairly well loaded through the transition. And it's really a long-term play for us for our power semiconductor products with a heavy focus on industrial applications. Very good. Thanks for all that color.
Speaker Change #122: Well loaded through the transition.
Speaker Change #122: And it's really a long term play for us for our power semiconductor products with a heavy focus on the industrial application side.
Speaker Change #122: Okay.
Speaker Change #156: Very good thanks for all that color, that's all I had I appreciate it.
David: Thanks, David.
David Cyrus Silver: That's all I had. I appreciate it. Thanks, David. And we will take follow-up questions from Matt Sheerin with Stiefel. Your line is open. Yes, thank you. I just had a quick modeling question, Meenal, regarding OPEX.
Speaker Change #153: And we will take follow up question is from Matt Sheerin with Stifel. Your line is open.
Matthew John Sheerin: I know that it was up sequentially because of the stock comp, which is seasonal. So how should we think about OPEX in Q3, and in Q4? Yeah, I would say you can look at it, the continued trends that we've had. I think I talked about the fact that in the second quarter, the long-term incentive was about 30 cents, think of it as, let's call it $10 million or so, rounded, etc. So from there, you can expect sort of back to a normalized run rate. I would put it in the, what I'd say is for something like an FG&A, you know, think about it in the mid-80s range, and for R&D, think about it in the upper 20s, million dollars.
Matthew John Sheerin: Yes. Thank you I just had a quick modeling question.
Matthew John Sheerin: Regarding opex I know that was up sequentially because of stock comp, which is seasonal and so how should we think about opex in Q3 in Q4.
Speaker Change #149: Yeah, I would say you can look at it the continued trends that we've had I think I talked about the fact that.
Speaker Change #157: And then the second quarter. The long term incentive was about 37, I think of it as let's call it $10 million or so.
Matthew John Sheerin: Rounded et cetera. So from there you can expect sort of back to that normalized run rate or so.
Matthew John Sheerin: <unk>.
Matthew John Sheerin: I would put it in.
Matthew John Sheerin: What I'd say is.
Matthew John Sheerin: For something like an SG&A think about it in the mid 80 range and for.
Matthew John Sheerin: R&D think about it in the upper 20.
Matthew John Sheerin: Million.
Meenal Anil Sethna: Got it. Okay. Okay. Okay. Yeah, that's it.
Speaker Change #150: Got it okay. Okay.
Matthew John Sheerin: Okay, Yes.
Speaker Change #146: Alright, thanks, so much.
Speaker Change #146: Yeah.
Matthew John Sheerin: All right. Thanks so much. And we will take a follow-up... Oh, my apologies. We will take a follow-up question from David Williams with Benchmark.
Mike: Thanks, Mike.
Mike: Apologies.
Speaker Change #151: We will take a follow up question from David Williams with benchmark.
David Neil Williams: Hey, thanks for letting me ask this follow-up real quick. Just wanted to ask David or Meenal maybe about the fab and that transition over four to five years, as you load your Field Manufacturing, The Automotive. There typically is quite a large margin difference as you load that.
Speaker Change #151: Hey, Thanks for letting me ask a follow up real quick just wanted to ask David.
David Neil Williams: Maybe on the thinking about the fab and that transition over four to five years as you as you load your industrial products, which are still manufacturing the automotive products Theres typically is quite a large margin differential there as youre, making for others. How should we think about the margin impact from either gross or offer.
Speaker Change #140: Any margin as you load that fab overtime. Thank you.
Meenal Anil Sethna: Sure, great question. So, with the arrangement that Dave mentioned that we've worked out, we will have a modest margin that, to your point, will be lower than our typical margin, as we're really performing a service, almost like a foundry partner is really what we are. So, really, the goal was, as Dave mentioned, to really level out the fab and not, you know, that's been the main point. So, we will have a margin that will look like it's dilutive, but that's really the arrangement. So, as we get into talking about 2025, we'll provide some further details on that and what that does to the overall segment margin.
Matthew John Sheerin: Sure.
Speaker Change #154: Question so.
Speaker Change #159: With the arrangement that Dave mentioned that we've worked out we will have a modest margin that to your point will be lower than our typical margin. We're really performing a service almost like a foundry partner who is really what we are.
Speaker Change #154: So really the goal was as Dave mentioned took really level load the fab and not that that's been the main point. So we will have margin that will be that will look like it's dilutive, but thats really the arrangement with <unk>.
Speaker Change #155: Get into talking about 2025 will provide some further details on that and what that does to the overall segment market.
Speaker Change #148: Thank you.
David Lee Kelley: Thanks, David. And that concludes our question and answer session. I will now turn the conference back over to Mr. David Kelley for closing remarks. Yes, thank you, Abby. We look forward to speaking with everyone at the August 28 Evercore ISI Semiconductor IT Hardware and Networking Conference in Chicago, as well as the September 5th Jeffries Industrials Conference in New York. We hope everyone has a great rest of their day. Thanks again. Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.
David: Thanks, David.
Speaker Change #148: And that concludes our question and answer session I will now turn the conference back over to Mr. David Kelley for closing remarks.
David Lee Kelley: Yes. Thank you Abbie, we look forward to speaking with everyone at the August 28, Evercore ISI semiconductor it hardware and networking conference in Chicago as well as the September 5th Jefferies Industrials Conference in New York, We hope everyone has a great rest of their day. Thanks again.
Speaker Change #144: Ladies and gentlemen, this concludes today's call and we thank you for your participation you may now disconnect.
Speaker Change #144: Thank you.
Speaker Change #144: Okay.
Speaker Change #144: Yes.