Good day, everyone, and welcome to the Littelfuse Second Quarter 2025 Earnings Conference Call. Today's call is being recorded. At this time, I will turn the call over to the Head of Investor Relations, David Kelley. Please proceed.

Good morning, and welcome to the Littelfuse Second Quarter 2025 Earnings Conference Call. With me today are Greg Henderson, President and CEO; and Abhi Khandelwal, Executive Vice President and CFO. This morning, we reported results for our second quarter, and a copy of our earnings release and slide presentation is available on the Investor Relations section of our website. A webcast of today's conference call will also be available on our website. Please advance to Slide 2 for our disclaimers. Our discussions today will include forward-looking statements. These forward-looking statements may involve significant risks and uncertainties. Please review today'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. Also, our remarks today refer to non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measure is provided in our earnings release available on the Investor Relations section of our website. I will now turn the call over to Greg.

Thank you, David, and thank you to everyone for joining us today. I want to start this morning with highlights of our second quarter and then provide an update on the progress we're making on our strategic priorities. We're in the early process of capitalizing on our numerous growth and operational enhancement opportunities. An important milestone in this process was the hiring of our new CFO, Abhi Khandelwal, for the quarter. Abhi joins us from IDEX Corporation, and he brings more than 2 decades of financial and operational leadership. He has significant experience in driving strategic growth, both organic and acquisitions as well as in scaling operations. Abhi has already had a significant impact in his first month at Littelfuse. I look forward to continuing our partnership as we focus on scaling our business for long-term growth, enhanced profitability and best-in-class shareholder returns. In the second quarter, we demonstrated broad-based strength across our businesses, delivering revenue growth of 10% relative to the prior year. Our performance reflects our leadership position in safe and efficient electrical energy transfer, the ongoing meaningful technology evolutions in front of us and the fact that our customers deeply value our trusted and essential capabilities. Across our segments, we observed continued momentum in the second quarter. Our Electronics segment benefited from improved demand for passive electronics and protection products. In our Transportation segment, we delivered broad-based growth, while our strong Industrial segment performance reflects our unique market and customer positioning. Our end markets continue to move to higher power and higher energy density, and we are leveraging our market leadership and unique product portfolio to help our customers solve increasingly complex challenges. Supporting this, our second quarter book-to-bill again tracked above 1, while our bookings exited the quarter at the highest run rate since the first…

Thank you, Greg, and to everyone joining us today. I'm excited to have joined this great organization as we scale our business for the next growth phase of Littelfuse. One month into the role, I've been working with Greg and our leadership team as we build on our strategic priorities. I see opportunities to enhance our secular growth momentum, further optimize our portfolio and strengthen our talent as we drive medium to long-term returns. With that, please turn to Slide 7 to start with details on our second quarter results. As Greg mentioned, we exceeded the high end of our guidance range for revenue and adjusted EPS. Going forward, comparisons I will discuss will be relative to the prior year, unless stated otherwise. Revenue in the quarter was $613 million, up 10% in total and up 6% organic. The Dortmund acquisition contributed 2% to sales growth, while FX was a 1% tailwind. Adjusted EBITDA margin finished at 21.4%, up 280 basis points. Our solid margin expansion reflects strong conversion on higher sales growth, improved operational performance as well as the benefit due to the timing of tariff collections and payments. Second quarter adjusted diluted earnings was $2.85, up 45% and exceeded the high end of our guidance range. This reflects solid sales growth across our segments as well as margin expansion across our Transportation and Industrial segments. Please note, our second quarter adjusted effective tax rate was 23%, in line with our expectations. Please turn to Slide 8 for updates on capital allocation. We delivered strong cash generation in the second quarter. Operating cash flow was $82 million, and we generated $73 million in free cash flow. Year-to-date, we have generated $115 million of free cash flow, yielding a strong 114% conversion rate. We ended the quarter with $685 million…

[Operator Instructions] Your first question comes from Luke Junk of Baird.

Greg or Abhi, maybe to start, if you could just help us to put the margin upside in both Transportation and Industrial, just in context relative to history, both recent history and some of the longer-term targets that have been out there. Transportation, in particular, the company has had a long-held 15% margin target. You're right there this quarter. Just how should we square current trends with what the historical context has been for that business operating wise? And then, Abhi, I think you mentioned some tariff timing impacts to margins. If you could just clarify what that was.

Sure. Thanks, Luke. This is Greg. I'll just start. Just maybe I'll take them one at a time. So starting with our Transportation segment. I think as we mentioned in the prepared remarks, one of the key areas that we're focusing on is scaling our operational excellence. And actually, we've been working on focusing on that inside of our Transportation business. So strategically, we kind of have 2 initiatives in Transportation. One is that we're strategically focused on diversifying our portfolio, so diversifying our market exposure. So we have a strong exposure, as you know, to passenger car and maybe traditional transportation like heavy trucks. But we have a strategy to try to diversify. So we're winning new designs in more diversified areas, things like agriculture and other customers that we don't penetrate today. But also we have a focus on scaling our operational excellence. And so this is one of the areas that it's still in early innings for us, but we're working on optimizing our factory performance, taking some of our best-in-class capabilities and scaling them across our factories. And we saw meaningful improvement in our transportation margin in the quarter because of that, and Abhi can give some more color to that. In industrial, I would say that we continue to have positive revenue growth and margin. And I would say a lot of the performance in Industrial is related to the markets we're playing in. So we're continuing to play in focus of energy storage, data center, industrial safety, we have strong growth in HVAC. So in our Industrial business, I would say that our top line growth and our focus on high-value markets is also driving the performance there. And maybe I'll hand it to Abhi to see if he has more color on that.

Yes. So, first of all, pleasure to talk to you. I look forward to our partnership here. But starting with Transportation, building on what Greg said, there's a couple of things I'll point out. First of all, if you look at the performance in the quarter and look at 4% organic growth, I think what that -- the margin reflects is the power of leverage -- operating leverage. So you see that play itself out in the quarter. Secondly, as Greg mentioned, look, we've done a lot of work around operational execution. We continue to focus on that. That's one of our strategic priorities. So as we move forward, right, we will continue to build on that. Now keep in mind, Transportation is -- margins are not going to be linear because there are sales that move over time quarter-by-quarter given seasonality. But I do expect over the longer haul, Transportation as a segment has more margin upside. We'll work the details out as we go through the back half of the year and solidify our strategy. Talking about Industrial, look, we're really, really pleased with the performance that we saw in the quarter, both on the top line and the bottom line. Again, this is pretty much the same story, which is around organic growth translating into powerful operating leverage, which you see itself out in the margin line. Look, Transportation exited the quarter -- or sorry, Industrial exited the quarter at about 19% op margin, right? Now keep in mind, one of the things to consider here is as we start to see our organic growth of 17%, some of the margin drop-through, we're going to invest back in the business to continue to fuel growth as we move forward. But again, we're pretty pleased with our performance. You can see the work that we're doing around our third strategic priority on operational execution really play itself out in the quarter across the company.

Be great to meet you in this context as well. Just on the tariff timing impacts, yes, could you just clarify what you mentioned in the script as well?

Yes, absolutely. Look, what I said in the script is something that basically comes down to the timing of the realization of price versus when we incurred the cost in the quarter. So what really that means is if you think about it sequentially, right, in Q2, we had about a $0.15 benefit or tailwind that will become a headwind in Q3. So really, all it is, is timing between the quarters in terms of the timing of price realization versus cost that we incur in the P&L. So that's what I meant by that. There's about a $0.15 good guide in Q2. That's going to reverse itself on Q3 and be a bad guide sequentially.

Okay. Understood. That's helpful. Second, maybe just a little bigger picture, Greg, but really strong results within Industrial quarter. Historically, this has been a smaller just because of the size of the business, somewhat an uneven segment for the company historically. As you come into the company, is your perception of the business different? I guess I'm thinking, especially your priority around aligning the company's technology capabilities and sales structures. Could that have a sort of outsized impact on the Industrial segment specifically, Greg?

Yes. I think what I'll say is I think we're actually really excited about the Industrial segment. When we think about our bigger picture strategy of focusing on safe and efficient transfer electrical energy and about our customers' transition to higher power, high-voltage current, this plays really well. This is a big megatrend in that Industrial sector. And actually, I think we focused in our Industrial segment on some of these markets that are maybe leading in this transition. And then we built technology. So for example, solar, grid storage, these are some of the areas that are leading in this transition. We built technology. Actually now some of the technology from our Industrial business is now a big part of our data center solutions. So as we talked about data center, some of the data center customers, and actually, we sell to 2 sides of that. We sell to what we would call maybe industrial infrastructure customers that make -- that do maybe the grid side, bringing the power into the data center, doing the cooling for the data center, that's part of our Industrial business, but also products for our Industrial business are playing straight to the hyperscalers directly that are going to the next-generation high-voltage architecture. So broadly, we feel that industrial is a growth sector for us. You heard Abhi say that it's actually -- it's a high growth, but also a good margin, but we're going to continue to invest in this. So Industrial segment is one that aligns well to our strategy, and you will continue to see, in my opinion, both top line and bottom line positive outcomes from those.

Got it. And then jumping off on that on the data center piece specifically, Greg, maybe a multipart question here. You touched on some of the infrastructure side. Can you remind us from an electronics standpoint, where data center exposure is? And I think historically, for the company in total, it's been a good exposure, but not necessarily one of the company's largest kind of just where is that today? I get the sense that it's growing. And as you lean into new engagements and opportunities on next-gen, higher power type applications, it sounds like some of those things are maybe coming to fruition earlier than expected. Can you just help us understand magnitude of that tailwind?

Yes. Thanks. I mean I think data center, we consider as inside of our Electronics segment and the products in our Electronics segment are also having strong traction in data center. We mentioned design wins we had this time in liquid cooling, but also in onboard. And so we have a lot of products from our Electronics segment that are onboard power protection products and actually our semiconductor protection products actually going to data center on board. And I think actually, interestingly, like one of the trends that's happening in this -- you all hear about data center market and the data centers gigawatts of power, et cetera. But every step of the chain in the data center is going to higher energy density. And so our solutions, a lot of our Electronics products are about -- they tend to be slightly smaller than, say, the Industrial products. But again, you're trying to put more energy into a small area and still have that protection. So we have some surface-mount -- for example, our surface-mount fuses, our [ over-voltage ] devices, our semiconductor protection devices are playing well in that space. What was the second half of the question, Luke?

Yes. So just maybe sizing the data center exposure, like I said, I think it's been a good exposure historically, but not one of the largest, but it feels like that's growing right now.

Yes. Yes. I think what I would say is that data center is materially important to Littelfuse, but I also think it's going to be more important as time goes on. So I think the thing to understand about this, we talked about our second strategic priority about selling more of our complete solutions. And this is really about also how we align our go-to-market so that we're more leveraging our broad capabilities. Interestingly, I talked about some of our industrial products selling straight into data center. So the go-to-market for our data center is right now focusing in our Electronics segment, but we're trying to better scale that go-to-market. So data center is a key kind of early area where we're focusing the scaling of go-to-market to bring more of our portfolio to our customers. And so this is an area where we're building pipeline. We have good design wins, but we also have growing pipeline. And so we will continue to see momentum in that area.

The next question comes from Christopher Glynn of Oppenheimer.

Yes. Just would like to dive into the passenger vehicle share gains kind of point in time. I don't think you called it out last quarter. Obviously, you flipped to positive organic. But is this kind of a midstream activity that's just kind of hitting past the starting line presently?

Yes. Thanks, Chris. I think, when we look at passenger vehicle, I think the thing that I'll say is that we have a very strong market position and good exposure globally. And so we participate in the North American market, in the China market and the European market. And we participate strongly actually in EV and also traditional ICE vehicles as well. So we have a pretty good market exposure. And I would say so we have good strong exposure and share. And we've talked about before that on average, EVs tend to have higher content. So therefore, when they have higher content, we tend to have more dollar share that goes with that, but we have good share across. And so I would say, from my perspective, the share gains here is really about kind of where our market exposure is and how our position is. And that's going to go up and down. But I would also say just emphasizing, I think, our -- when we talk about our transportation segment, passenger vehicle is an important part of that. But I think you'll continue to see our strategy is to try to continue to diversify. Passenger vehicle is an important part of our transportation segment. But our strategy is to continue to diversify with some key design wins in the quarter in areas like agriculture that is diversifying out from our traditional customer base, and we consider those to be high growth and SAM opportunities for us.

Okay. Great. And then we just talked about the share gain in Transportation. Industrial, you have good market targeting and penetration. Electronics is a little bigger, more diversified. It's tougher to discern how it ties into better capitalizing on future growth and more complete solutions. You talked about BMS and medical in the past. Just wondering how the kind of momentum is playing behind the scenes there overall at Electronics relative to the kind of more visible at the 2 smaller segments.

Yes. I think what's important to understand about this strategy, and I think from my perspective, we're in the early innings of the strategy right now. But what's important is that in all of our segments in Electronics and Industrials and Transportation, we're trying to get more disciplined and deliberate about, okay, what are the growth drivers in the segment? What are the parts of the market that are growing, where do we want to focus? So -- and then how do -- what's our position there. So we're focused on these areas where they're focused on transition to higher voltage, higher current. I gave an example actually in the script that comes from the Electronics segment, which is actually in enterprise computing. And actually, that example, what's interesting about that to me is we talk about transition, high voltage and high current. And we've talked in the past about data center going to 400 or 800 volts and people think all very high voltage. But actually, this enterprise computing market for this application of connectivity is transitioning from 5-volt to 48-volt. Now 48-volt is not high in the context of 800-volt. But in the context of the application, it's a high voltage, and we've actually developed completely new solutions around semiconductor protection because it's a very demanding requirement in terms of power density and electromagnetic compatibility. So that's a good example. And so what we're trying to do is find where in these markets and in the subsegments, whether it be building automation and electronics or medical or aerospace and defense, where do we have opportunities where we can leverage those megatrends on electrification with our technology. And so you'll be hearing more about that as we build out the strategy over the next quarters.

Okay. And then last for me. I was just curious, the Electronics margin slightly down sequentially on 9% sequential sales growth. I don't know if stock and variable comp plays in there. It looks like that's a 21% year-over-year drag in the third quarter. Maybe we could level set the context of that third quarter timing as well as the Electronics sequential margins.

Yes. So Chris, this is Abhi. So what I'll say is this. I mean if you look at the Electronics margin profile, what you see in there in the second quarter is really strong drop-through in our passive products and our protection business within our semiconductor product business, right, which is partially getting offset by deleveraging of power semi business and the acquisition of Dortmund. Now all that said, what we are seeing is improved orders in our power semi. So as we start to see the volume recover over time, what you're going to see is rescaling and solid margin performance coming out of the Electronics segment. But just so we're clear, one more time on the Electronics side, we did see strong drop-through on passive products protection business within our semiconductor product business, which got offset by power semi. On the Q3 question, what I'll tell you is, I think if you look at our guide for Q3 and look at what we've laid out from a true operational execution standpoint, what you're seeing is year-over-year a flow-through of 38% on EBITDA conversion, which is getting offset by 2 things really. Number one is stock and variable comp. And within that, there's 2 pieces. If you recall, on the stock-based compensation for retirement-eligible employees, instead of taking the hit all in Q2, we spread it between Q2 and Q3. So part of the impact in that $0.21 that you see on the page is tied to that. Second piece is the AIP. So if you recall last year, given where the company's performance were, we had to lower the bonus accrual. So this year, what you see in here is the bonus being accrued at 100% or a target. And so that's why year-over-year, you see an impact. And then the other bucket is nothing more than 2 things. There was a mark-to-market good guy last year that won't repeat this year. And then there's the differential in tax rate that's playing a bit of a role on a year-over-year basis. But again, true operational performance is really strong if you look at it on a year-over-year basis, a 38% conversion on the EBITDA line.

The next question comes from Saree Boroditsky with Jefferies.

I think we've talked a lot on the call about kind of this focus on growth opportunities. And I know it's early days, but I was just curious if you had any thoughts on what this could add to the top line? And are these opportunities accretive to margins? Or do they need higher investments?

Yes. Thanks, Saree. I'll just start. I mean I think it's -- we -- Big picture, we believe that we have significant opportunity to grow and scale the company. And so I think we're focusing our strategy. We're focusing around the safe and efficient transfer of energy in all 3 of our markets, we see opportunity there. So big picture, we believe we have top line growth. We're building our long-term models now that we're going to be rolling out as we go forward. So we'll be able to talk more in future quarters about kind of the details of our growth model. But I think early indicators that I can say, we mentioned in the call that we have double-digit growth and opportunity pipeline. I do believe that we're seeing traction already from a customer engagement perspective on how we're aligning our go-to- market. So we're building these long-term models as we go, and we'll be talking about that more in future quarters, but we do believe that we will be driving top line growth. But we also want to drive bottom line growth as well. So that's part of the second half. We do believe we have untapped opportunity from an operational perspective. That's part of our scaling operational excellence. We saw some early results on that as well. So we believe that we can grow both top line and bottom line. Obviously, the top line will require some investments, but that's kind of the scale, I would say. And Abhi, you're a month in here and you can give your views to how you see that as well.

Yes, absolutely. I mean, look, first of all, thanks for the question. Pleasure to meet you. I guess I'll tell you, as Greg laid out the strategic priorities, what's really exciting about the journey that we are on is a couple of things. First of all, as we sharpen our focus and go after opportunities that's really going to help us grow our top line, that's the work we're doing right now. And as Greg mentioned, we're going to review that in the fall. But in classic fashion, if you kind of think about our portfolio and think about our business model, right, when you see organic growth, just the way you saw it in Q2, when you start to move that organic needle, what that translates into is bottom line margin expansion and bottom line growth, right? And that's what we're really excited about. But I think Greg's point in his Page 3 on the slide deck around focusing and capitalizing on future growth opportunities, really providing more broader solutions for our customer and following that with operational execution, I'm really excited about. And I think that will translate into top line growth, bottom line growth over the longer haul. And to Greg's point, in February of next year, we plan to lay that out as part of our 3-year target in terms of what we believe the organic, the inorganic piece is going to convert into over the next 3 years and what that means from a bottom line standpoint.

I look forward to having those targets. Maybe just sticking on the subject, you talked in the beginning about some higher voltage solutions, data centers. Maybe just any sense of the competitive environment there and maybe your market share today versus what you think it can be?

Yes. Thanks, Saree. Well, I mean, listen, we feel very comfortable with our technology position. And in general, I would say our position is that as the markets move to these higher voltage, higher current, higher power, we are more differentiated. I've met with some of these customers, even the data center customers myself, and they really value Littelfuse's capability there. And I think there's a big part of our capability and brand that plays to our strength there because we have experience and people know, okay, they can count on Littelfuse working in that model. Of course, we have competition. We have competition in all of the markets and places that we play. But I would say, in general, we feel good about our technology and capability. And in general, as we move to these higher energy density applications, our products are more differentiated and also the problem that the customers are more challenging. And so therefore, we are a bigger part of the solution. So in general, that's a good trend for us and for our...

[Operator Instructions] Your next question comes from David Williams with Benchmark.

Congrats on the really solid execution here. I guess maybe first is just kind of thinking about the power semi segment, and you talked about the orders improving there. But when do you think we can see that leverage really return and begin to see some real impact from the power semi side?

Yes. Thanks, David. Just to start, just kind of maybe zoom on and just -- and Abhi referred to this a little bit in his remarks earlier. We zoom out and look at our semiconductor business, about 50% of our semiconductor business is our semiconductor protection business. That was actually the example we gave on the call here of enterprise computing. And so that business has actually been doing very well, very strong and actually been following our kind of path in Electronics business. The other half of our semiconductor business is our power semiconductor business. The market for the power semiconductor business has been soft, as you know. And so we've had a soft market position. We also will be transparent that we've had some of our own execution challenges in the power semiconductor business. But I would say the good news is that we are starting to see areas of improvement in power semi. And 2 things. First, I would say that in general, our market position in power semi, when you get to higher energy density solutions, just like we are in our passive business, we are more differentiated. We have more value to our customers. But also from a market perspective, we're starting to see signs of stabilization, orders have been improving. And so we do expect positive momentum sequentially in the power semiconductor business. And that's areas where we're going to continue as well to focus on improving our execution and things that we can talk about more in future quarters.

Great. And then secondly, just on the visibility and maybe how you see the end demand here. Do you feel like what we're seeing in terms of the improvement across your segments, does this feel like an inflection maybe on the end demand side? Or do you think there's some tariff maybe uncertainty that's pulling things forward? Anything that you see that's maybe outside of just that normal inflection in demand that you think is driving this?

I mean, I think what we said on the call, right, we had solid momentum in the quarter, strong backlog and bookings. And we are, I would say, from our perspective, seeing improved stability in our end markets. We're still in a dynamic macro environment. But one thing I think we would say is that if we compare this to maybe 3 to 6 months ago, we have more -- we have better visibility. So we feel better about our kind of medium- to near-term visibility than we did 3 to 6 months ago, given that the environment that we're in.

Yes, David, I mean, even if I take a step back and kind of think about our Q3 guide, I mean, if you look at it on a year-over-year basis, we are talking about a 9% reported, 6% organic. So again, if we just look at Q3 performance, back to your question, we are expecting a pretty nice 6% organic for the quarter on a year-over-year basis. And all 3 segments, as I think about all 3 segments, 2Q to 3Q, I expect Electronics and Industrial to go up sequentially. Now Transportation seasonally is down 2 to 3 due to shutdowns. And then on a year-over-year basis, as I kind of look at our performance, that's a part of this guide across all 3 segments, you should expect growth.

This concludes the question-and-answer session. I'll turn the call to Greg Henderson for closing remarks.

Okay. Thank you. While I just want to close, thank you. I appreciate all of you coming and asking questions and support of Littelfuse. It's early innings here for us in our strategy, but we are really excited about the future we're building in the safe and efficient energy transfer. And I look forward to future quarters where we can update you on the progress on our strategy. So thank you very much.

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