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spk11: Please stand by. We're about to begin. Good morning, ladies and gentlemen. Welcome to the Little Fuse third quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode, and please be advised that this call is being recorded. After the speaker's prepared remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star 1 on your telephone keypad, and if you would like to withdraw your question, simply press star 1 again. And now at this time, I would like to turn the call over to the head of investor relations, Mr. David Kelly. Please go ahead, sir.
spk09: Good morning, everyone, and welcome to the Little Fuse third quarter 2023 earnings conference call. With me today are Dave Hinesman, president and CEO, and Meenal Sethna, executive vice president and CFO. Yesterday, we reported results for our third 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 two for our disclaimers. Our discussions today will include forward-looking statements. These forward-looking statements may involve significant risks and uncertainties. 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. 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.
spk10: Thank you, David. Good morning, and thanks for joining us today. Before I begin, I'd like to welcome our new head of investor relations, David Kelly. I expect many of you already know David from his prior role in equity research at Jefferies, where we were part of his sell-side coverage. David brings a strong understanding of our business and industry and will continue fostering strong relationships with our investors and delivering valuable insights as we continue to drive the growth and shareholder value. Please join us in extending a warm welcome to David. With that, let's start with a summary slide four. Our global teams delivered solid Q3 results as both sales and earnings exceeded our prior guidance. Our performance reflects strong execution, ongoing diversification, and favorable content momentum within a continued challenging macro environment. We're pleased with our overall performance, yielding strong year-to-date profitability. Despite the ongoing channel destocking and pockets of in-market softness, we've significantly improved our financial performance versus past market cycles. This reflects our resilient business model and continued strong underlying fundamentals on slide five. Secular growth themes, including sustainability, connectivity, and safety, continue to drive our organic growth trajectory. Our recent acquisitions have further balanced our in-market exposure while complementing our diverse technology capabilities and expanding our market leadership. We remain well-positioned to deliver on our long-term strategy. I want to thank our global teams for their unwavering commitment and persistent hard work. Let me start with a view on what we are seeing across our markets. Through the third quarter, we continued to see inventory destocking across our electronics and commercial vehicle distribution channels. Our electronics book-to-bill remains below 1, and while we have limited visibility, we also believe some of our OEM customers are working through inventory reductions. While we expect inventory destocking to continue into next year, as inventory levels stabilize, we expect to return to normalized order rates. Regarding our in-markets, we're seeing varying demand patterns across a broad customer base. Starting with electronics markets, we continue to see softness in consumer and personal devices, as well as pockets of data. In industrials, we benefited from growth in renewables, infrastructure, power supplies, and industrial safety, offsetting pockets of softer demand. And finally, while the UAW strike had a modest impact in the quarter, automotive demand remained solid, driven by both low and high voltage applications our automotive content expansion is benefiting from program launches led by china and we saw 15 growth above car build in the quarter strongly within our targeted double digit range despite the current challenging macro environment we continue to diversify our portfolio build upon our design wins and fortify our market position We expect a return to growth during 2024. Broadly, across our in-market exposures, design activity remains robust, and we continue to benefit from content outgrowth. Customers remain invested in expanding secular growth capabilities, and we are delivering a robust design win cadence, which supports consistent long-term outgrowth. We believe our execution through this variable macro environment is reflected in our year-to-date margin performance, as well as our robust cash generation. For the full year 2023, we expect to exceed operating margins we delivered when we last experienced market down cycles and disruptions in 2019 and 2020. We remain competent in our margin resiliency despite the current challenging macro environment. reflecting our robust outgrowth opportunity and well-positioned cost structure. Our ability to drive strong cash flow through cycles enables us to continue investing for future growth across our portfolio and deliver outsized long-term shareholder value. Now let's move on to business design wins during the third quarter. For industrial markets on slide six, We continued to build a robust and global funnel of new business opportunities and secured a wide range of design wins. We secured a multi-technology win for energy storage in India and leveraged our solutions-focused product portfolio to deliver a solar design win in the EMEA region. We also secured key industrial safety design wins across the energy sector, including wins in Indonesia and North America. Taking a step back, industrial safety remains a long-term growth theme for us, given the need for safeguards against electrocution from higher power applications in an increasingly electrified world. Turning to the transportation and markets on slide seven, we continue to see a strong funnel of meaningful content opportunities driven by the ongoing push towards greater sustainability, connectivity, and safety. For passenger vehicles, the launch of several new OEM platforms, particularly new programs coming online in China, were a key driver in the quarter. Momentum with EVs and EV charging infrastructure helped secure wins for both low and high voltage applications. We won new business for a vehicle telematics module by leveraging product offerings from our CNK switches portfolio. An area where we are seeing design win success is our innovative current sensor offerings, which are helping drive new business opportunities for EV battery management systems and inverter applications. Within the commercial vehicle space, we secured a multi-technology win for a medium-duty EV truck that will utilize software from our embed acquisition in conjunction with hardware from our legacy portfolio, a great example of leveraging complementary technologies to drive revenue synergy. We also won new business for commercial truck and bus applications in South America and China. In Japan, we were able to leverage some of the rugged and reliable switch products from our Carling portfolio to win new business for construction and specialty vehicle applications. Moving on to slide eight, in electronics end markets, design activity continues to be robust. We're seeing multi-technology design wins globally across a broad set of end markets. We secured a diverse range of design wins, including power tools, garage door openers, appliances, and other general electronics. We continue to see growth in medical equipment and security in markets with wins globally. Our momentum in securing meaningful design wins remains strong. We've achieved success across a diverse range of end markets, applications, and geographies. which underscores our global capabilities and extensive reach. Our close collaboration with our customers' engineering teams has played a pivotal role in accelerating the development of next-generation products and design initiatives. As we continue to grow organically through the new business activities bolstered by strategic acquisitions, we are well positioned to continue executing on our long-term growth strategies. We'll now turn the call over to Miedl to provide additional color on our financial performance and outlook.
spk01: Thanks, Dave. Good morning, everyone, and we appreciate you joining us today. Please turn to slide 10 to start with our third quarter results. Revenue of $607 million exceeded the high end of our guidance as we continued working through backlog and supported several customer product launches. Revenue was down 8% and down 11% organically versus last year. Acquisition and foreign exchange added 3% of growth. GAAP operating margins were 15.4% in the quarter. Adjusted operating margins were 16.5%, while adjusted EBITDA margins finished at 22%. GAAP diluted earnings per share in the quarter with $2.30. Adjusted diluted EPS was $2.97, higher than our projections, driven by our stronger sales performance. Our gap effective tax rate was 23.3% and adjusted effective tax rate was 20%. We've continued to be prudent in spending while furthering investments in high growth opportunities for our future pipeline. We're pleased with the resiliency of our business and operating execution across multiple vectors. resulting in year-to-date adjusted operating margins of 17.4% and adjusted EBITDA margins over 23%. The strength of our business model also shined this quarter as we generated $162 million in operating cash flow and $140 million in free cash flow. Year-to-date, we generated $250 million in free cash flow, a 115% conversion rate to net income. We are ahead of last year despite lower cash earnings, a testament to our ongoing focus on inventory and overall working capital management. We've reduced our own inventory $66 million so far this year and lowered inventory days on hand by 15 days. With our typical fourth quarter seasonality, we expect another strong quarter of cash generation aligned to our full year target of 100% free cash conversion as a percentage of net income. We've also maintained our net debt to EBITDA leverage at 1.4 times, continuing to provide ample capacity for both organic and inorganic growth investments. Moving on to our segment results, please turn to slide 11. Electronic sales were down 14% year over year and down 17% organically. Operating margins continued at over 22% and adjusted EBITDA margins over 28%. Sales were stronger than we had expected as we continued to work through backlog with semiconductor customers in the quarter. We've maintained a strong profitability profile amidst the dynamic end market environment and inventory rebalancing. Turning to the transportation segment, on slide 12, sales were down 3% overall and down 4% on an organic basis. trends vary by end market again this quarter. Our passenger vehicle business grew 12% as we supported several customers on their platform launches, particularly across China. Our commercial vehicle business was down 16% with continued inventory destocking, largely among distribution partners, as well as continued weakness across China markets. Segment operating margins improved sequentially to 5.5% and adjust an EBITDA margin over 11%. We're starting to see the benefits from our footprint reduction work across our passenger vehicle business. Across our commercial vehicle business, we're reducing the cost structure and also extending actions to optimize our product and customer effects. While this will reduce sales growth in the near term, we expect to reduce and refocus our resources to amplify profitability. We anticipate these actions will sustain our progress toward our mid-teens segment margin target. Across our industrial segment on slide 13, sales were up 8% and up 5% organically. We continue to drive wins across growth areas in solar, clean tech manufacturing, and EV fast charging infrastructure. Sales were a bit softer than we expected as we started seeing market softness in some industrial end markets, such as mining, residential HVAC, and capital equipment, as well as some customers working through excess inventory. We've maintained strong profitability with operating margins over 15% and adjusted EBITDA margins just over 20%. Turning to the forecast on slide 14. We expect fourth quarter sales in the range of $520 to $550 million. At the midpoint, that's a decline of 13% versus last year and 12% sequentially. As a reminder, our sales are typically down sequentially across all of our segments going into the fourth quarter. We do expect a more pronounced decline across our electronics product segment with some of the softness we are seeing in some industrial and markets. Additionally, we've assumed about a 1% sales decline relating to the product line pruning in our commercial vehicle business. We've also factored in continued inventory destocking, which we expect to continue into 2024. We expect adjusted EPS to be in the range of $1.90 to $2.10 which assumes an 18% tax rate in the quarter. The sequential decline in earnings is largely driven by the sales volume decline. Slide 15 includes some additional full-year 2023 color. At current rates, we expect foreign exchange to have about a 35-cent unfavorable impact on our EPS and a 50 basis point headwind to operating margins but no material impact to sales. We're projecting amortization expense of $66 million and interest expense of $40 million. Based on our fourth quarter forecasted rate, we expect a full year tax rate around 18.6%. And we're projecting full year capital expenditures of 90 to $100 million. Before I turn it back to Dave, I want to reiterate We remain confident in the strength of the long-term fundamentals of our business. We've laid the foundation with our structural growth themes, combining that with ongoing portfolio diversification and operational execution. We're well positioned to drive Upper Keene's operating margin for the year, stronger than our historical performance during past market cycles. We'll continue to focus on the areas we control, investing for both organic and inorganic growth opportunities and bolstering our cash generation. We're confident these core building blocks position us well to deliver on our long-term growth strategy. I'd like to thank our team members for their unwavering hard work and dedication as they deliver for our customers everywhere and every day. And with that, I'll turn it back to Dave for some final comments.
spk10: Thanks, Mittle. Before we wrap, I wanted to highlight some additions to the Littlefuse Board of Directors as we continue to refresh our board, adding diverse, talented, and capable business leaders. Dr. Greg Henderson joined the board earlier this year. Greg is Senior Vice President of the Automotive and Energy Communications and Aerospace Group for Analog Devices. He's a seasoned global public company leader with extensive technology experience across the broad range of end markets we serve. His comprehensive technical expertise, management experience will make him a great addition to our board. Gayla Deli also recently joined our board. Gayla was CEO and member of the board of directors of Benchmark Electronics before retiring in 2016. Gayla's board leadership and broad management experience across companies operating in a diverse set of end markets will complement our board. Her track record of driving growth with market expansion, while delivering financial performance will be beneficial as we execute our growth strategy. We're pleased to add both Greg and Gayla to our board. In summary, on slide 16, our solid year-to-date performance in the challenging macro environment reflects our resilient and increasingly diversified business model. While our financial results will be impacted in the near term from continued market challenges, we expect to return to growth during 2024 and remain confident in our ability to deliver long-term shareholder value. As we continue to target double-digit sales and EPS growth, we believe our projected 15-year sales and EPS CAGRs of 10% and 18% exemplify our execution track record through multiple cycles. And with that, I'll now turn the call back to the operator for Q&A.
spk11: Thank you. Ladies and gentlemen, at this time, if you do have any questions, simply press star 1. And just a reminder, if you find your question has been addressed, you can remove yourself from the queue by pressing star 1 again. We'll go first this morning to Luke Junk at Baird.
spk04: Good morning. Thanks for taking the questions. First question, Dave, just wanted to gear off the comment that you ended with that you expect to return to growth in 2024, and I just want to align that with the destocking you're seeing in the business right now. I guess in our survey work, we're picking up on the fact that shorter lead times are hurting distributor order placements right now, maybe a little mixed inventory and customers as well. Just curious how that lines up with your worldview and how long or maybe short these newer dynamics could take to digest if you're also seeing them.
spk10: Thanks, Luke. That's always the challenge and the question as we look at the destocking, particularly in electronics. Certainly for little fused products, lead times have been down and come back down to normal for most product lines for quite some time now. Some of our power semiconductor products are really just reaching that stage now to coming to more normal lead time in the environment. What we've seen is our distribution partners We look at their inventory and where they're carrying month to month, we're seeing declining inventory and dollar inventory values at the distribution partners. So it's making steady progress. We've just got to reach that stage where end customers adjust their ordering lead times, distributors get their inventories where they need them to be, and then things start matching up again. When we start matching up again, of course, then that will actually drive that return to growth, even if the end markets are reasonably flat, which we're hopeful that we'll begin to see some momentum in some of the end markets later next year.
spk12: So that's kind of our best view of it.
spk03: Okay, great. Thank you for that. And then,
spk04: You know, in your remarks, you mentioned that, you know, working on actions and transportation in the commercial vehicle portion of that business specifically to reduce costs and optimize your product and customer mix going forward. Can you just comment specifically on what products and customers are looking at there and, you know, appreciate the 1% sales headwind that you provided as well? Thank you.
spk01: Sure. Yeah, you know, just taking a step back, this is not, necessarily anything new that we've done. This is something we do regularly within our portfolio, and especially taking a look at acquisitions and making sure that we're focusing our resources and driving the values from the right areas of the portfolio. So we're focusing on their recently acquired Carling business. Even though it's been a couple of years This is an area where, recall back in 2022, we were really focusing on the customer backlog and really delivering and trying to meet expectations of customers out there. And now that we've gotten past some of that, we're really taking a look at really the entire portfolio we have through that acquisition, both from a product perspective and a customer perspective. And I'll just say there's select areas that we're starting with that are, you know, come forward a little bit and there's an opportunity for us to really improve the profitability of the portfolio. You know, I remind you, this is stuff we've done in the past. As I mentioned, it's an example. We talked about this a few years back when we looked at our automotive sensor portfolio, same type of thing. So this is just part of our playbook as we think about running the company.
spk03: Thanks for that. And if I could just sneak one last question in.
spk04: Dave, if you could just comment on the sort of the backlog that you've been working through in terms of the semiconductor business and electronics and just how you see the backlog for the company compared to just point of sales demand and the fact that you'd highlighted maybe just some pockets of weakness in industrial. Thank you.
spk10: Yeah. We've been... Like a lot of companies, particularly on the semiconductor side, particularly for us in the power semiconductor side, there's been extended lead times there for quite some time. And we've talked in the last couple of quarters how we've been working on that and showing improvements in throughput to be able to bring that sort of inventory level or the backlog down. You know, we had a really strong quarter in the third quarter in the power semi business where we were able to clean up the vast majority of that backlog to kind of get into a more stable environment there in the power semiconductor business. So it becomes a bit business as usual. We're seeing some pockets, you know, where there's some softness. If you recall, that's a very heavy industrial customer base. So we've seen some softness. there but we also have areas where we're seeing strong growth from there some other industrial applications right like renewable we also have a medical business there that is quite strong right now as well so you know although we see some of these kind of broader based softnesses there's these pockets you know we've talked about in the industrial side where kind of broader based industrials are beginning to slow we're still seeing some growth driven out of these pockets of things like renewable energy, industrial safety, and things like that that help balance that. So, you know, it's a complex business with a lot of different end markets that we're serving, and it's actually part of the strength of the portfolio is that we do serve many different applications we've targeted. That helps to balance it a bit.
spk03: Okay, that's very helpful. I'll go ahead and leave it there. Thank you.
spk12: Thank you for your questions, Luke.
spk11: Thank you. The next now to Matt Sheeran at Cycle.
spk08: Yes, thank you, and good morning. A question regarding your guidance on profitability. It looks like just backing into operating margins is going to be down roughly 600 basis points. I'm sorry, 300 basis points sequentially, down significantly year on year. I know that the negative volume leverage plays into that. But is there pricing or other factors? Because it looks like the margins will be, you know, basically where they were during the pandemic. So, you know, the lowest in four years. So does this mark the bottom in terms of margins or are there other things at play here?
spk01: Thanks, Matt. Good question. So what I would say is, you know, and we've talked in the past for us, sales volume tends to be a pretty large driver for us in terms of margin profile as you look quarter over quarter especially when you have you know near-term trends that are going on so in the case of the fourth quarter you know they mentioned in my prepared comments with the sequential sales decline that we have you know really um the margin expected margin decline and i'm not going to comment on the exact margin here but the expected margin decline really is a function of that sales volume as I take a step back and think about, you know, our overall margin expectations for 23 compared to past cycles, I know, you know, we get reminded a lot of times what life was like in 08, 09, where, you know, our margin profile was some 10%. And even during the pandemic period, the 2019 cycle, that 19 to 20 period, you know, our margins finished off at about 14 and a half percent or so. And so our expectation is, With all the work that we've done in the past few years from an execution perspective, from a pricing perspective, portfolio diversification, I expect that we will finish better than that margin profile for 2023. Okay.
spk08: And could you talk about the pricing environment? I know you've had success in the last couple years in terms of passing along higher input costs. Are you seeing pressure the other way here?
spk10: Yeah, Matt, I think the pricing environment, it's been, we get questioned a lot on that and what we've seen. And I think it's kind of broad based, actually. It's not different than when I talk to our peers or our distribution partners are seeing quite similar that we do see pricing pressures. But the pricing pressures are more of a return to kind of our normal environment. The last couple of years have been abnormal where we've been able to pass along the cost increases to our customers, and that's really driven pricing up meaningfully. We're not seeing that retrenching, but we're kind of seeing a return to a more normal environment. The reality is there's still a lot of cost pressures that we're dealing with, and we share that with our customers. So right now what we see is kind of the big increases that we had to make to cover the cost increases over the last couple of years are holding. But it kind of gets a return to that normal environment where you do lose over the course of a year a couple percent on the pricing side.
spk08: Okay, thank you. And just lastly, Dave, you talked about demand in China, auto being a little softer. Could you talk about your position there with China OEMs local OEMs versus international OEMs and content trends, anything positive or negative going on there?
spk10: Yeah, actually, our comments were that our third quarter was quite strong in China. There were preparations for a lot of platform launches. As you may know, a lot of Chinese OEMs have lots of platforms. And as they're launching those, we have a strong position, both with but also with the local Chinese OEMs. And with a lot of launches going on there, we had a very strong third quarter in China. Power build in China, we expect to be okay, not particularly strong going forward, but we feel pretty good about it. We've been open with the fact that on the high voltage side, we expect we may not be able to maintain the same level of share with Chinese OEMs as we do on the low voltage side, but we continue to have tremendous success on the low voltage side and pockets of success with Chinese OEMs on the high voltage side as well.
spk08: Okay. Thanks for clarifying. That's very helpful. Thank you.
spk12: Thanks for your questions, Matt.
spk11: We'll go next now to David Williams at Benchmark.
spk05: Hey, good morning. First, congratulations to David on the new role there. Looking forward to working with you. And just kind of going back to the inventory situation, is there a way maybe to size the magnitude that you think it still needs to be digested across your end markets? And you've talked about maybe this lasting into next year, but do you think this is in the maybe one queue or is it into the first half of the year? Just trying to get a sense on how big of an inventory these stocking we have still remaining.
spk10: Yeah, I... That's the question we wrestle with regularly, is visibility is not perfect. Certainly visibility to our distribution partners' inventories is quite good, but to their end customers, and that's maybe a difference we've seen a little bit in this cycle than what we've maybe seen in previous cycles, perhaps end customers carried a bit more inventory than they normally did. So that's impacted the speed at which our distribution partners, and we've been able to drive down the inventory and the channels. So it's not perfect visibility there. Clearly, we would say if we look at our distribution channels in the electronic side, we still have a few weeks of extra inventory there. So that kind of methodically will wind down as it's been doing. You know, if we look at that, you know, it's going to last well into 2024. unless something changes exactly when we haven't been able to, we don't have the visibility to say, is it going to be in this month or that month? But we certainly expect we should be able to work our way throughout the first half.
spk05: Okay, great. And then back maybe to Matt's question, it's just on the differential in content. If you look across maybe China specifically as opposed to maybe your domestic customers, how should we think about the difference in content there And then maybe how that plays out from an EV and an ICE vehicle. What is that differential? And is it significantly higher in China versus domestically? Thank you.
spk10: Yeah, kind of interesting mix there on content. If you take ICE vehicles, the content on Chinese ICE vehicles is approaching what we would find in the West these days because the sophistication of the vehicles continues to grow dramatically and and large drivers of growth where we're working are with pretty sophisticated vehicles.
spk02: So on the low-voltage side, these OEMs on the EB side,
spk10: But it's a tough environment in China there. So perhaps our content in an EV in China may be a little lower than our content in an EV in Europe.
spk02: Very helpful. Thank you. Thanks for your questions, David.
spk11: And ladies and gentlemen, just a reminder, star 1, please, for questions this morning. We'll go next now to David Silver at CLT and Associates.
spk07: Yeah. Hi. Good morning. Maybe I'll just start with a question on your CapEx guidance. But if I'm correct here, I think the number you put out for full year now is maybe 20, 25 million lower than it was earlier. And I'm just wondering if you could maybe comment on that in terms of maybe pinpoint where, you know, discretionary spending is being reduced and if you consider this maybe more of a delay rather than, you know, suspension or cancellation. So, where would the shifts be in your CapEx budget and how do you expect that to progress maybe into 2024?
spk01: Sure, David. So, yes, compared to, if I think back to the beginning of the year and and the forecast we had on CapEx, we have brought that down. I'd say it's a few things. One, you know, to answer one of your questions, this isn't a, you know, necessarily a permanent reduction. In most cases, it's just delays. And it's delays because You know, when we start out the year, we had a view on what we thought was going to happen to the year. Clearly, it started to move a little bit softer. We've talked about volumes maybe coming down a little bit and or extending a little longer than we thought. So where we have a lot of businesses that were anticipating capacity ads during the year, you know, they've said, you know what, I think we can hold off a little bit given where the volume trends are. And we'll look at moving some of that out into 2024. At the same time, we continue to spend for the growth that we have, the growth that we anticipate, other areas like health and safety, normal maintenance, and even sustainability. There's a lot of things that we're doing around our manufacturing and supply chain footprint around improving the energy usage, the water usage, especially when we think about new equipment. For us, you know, those investments matter. They're important to our customers. They're important to our employees. And they're important to our profitability as well. So no big shifts other than just a little bit of a delay given the macro environment.
spk07: Okay, thanks. And this is a question that has come up, I guess, with a couple of my other kind of electronics clients. components-related companies. But the companies, and I think I heard some parallels in your opening remarks, so here goes, but they did draw a pretty sharp contrast between, on the one hand, continued healthy activity on the new contract wins or the new design front, but then the sluggish, relatively sluggish demand for maybe legacy products in various end markets. And I was just wondering if you could maybe comment on that and maybe think about it in terms of what you're hearing, which you mentioned earlier from your distribution channel. In other words, do you interpret the softness in distribution business now as you know, something temporary? Is it something, you know, where customers are becoming more price-related? Is it cyclical? I mean, are customers waiting for the next generation products? And some of that demand might, you know, just might fall off due to obsolescence. But, you know, in serving the current softer markets, you know, do you draw a pretty clear distinction between, you know, healthy activity at the leading edge versus, you know, you know, persistently soft markets this year, you know, for serving current end markets? Sorry about the long-winded question. Thank you.
spk10: Yeah, no. I understand the nature of the question. You know, our design activity kind of across the board continues to be extremely robust. And certainly in electronics, we have, you know, a great deal of design activity in many, many different end markets. So we don't see any signs of any kind of slowing of activity on designing in new products, designing in new applications. We see that extremely robust right now. So that's a healthy indicator for kind of the medium term and certainly long term for us. We see that. We've talked about the fact that there are pockets of in markets within electronics that have been down for a while. So think of personal electronics, consumer electronics, so kind of customer-facing things like small appliances, PCs, tablets. Those markets have clearly been down. We've heard from some others that perhaps they're seeing the bottom of some of that, that some of the advanced semi-chip guys who are serving some of those markets are beginning to see that they think that's bottoming out a bit, which is Certainly, we welcome that. That'd be good news to see that kind of bottomed. The bulk of our challenge is the digestion of the inventory and the supply chain. That is the primary story that we've just got to work our way through. And as we get through that digestion, then we will naturally, just mathematically, of course, see a return to growth because we'll balance off between orders in and orders out. And so that in and of itself will start to show growth for us. And with the healthy design and activity and things like that, then the real growth comes when you start seeing an uptick in demand beyond that. So we still remain pretty bullish.
spk07: Okay, great. And then just a quick one. I usually hate to grab a question from the headlines, but You know, it's hard to ignore, I guess, a couple of high-profile labor negotiations in recent weeks, maybe the last couple months. And, you know, whether it's the autoworkers or the truck drivers, et cetera, has there been any change in your thinking about kind of your overall labor situation for skilled industrial workers? Or how does that, you know, just that general environment, labor-wise, cost and availability. How does that factor into your thinking about next year? Thank you.
spk10: Yeah, we don't have any kind of unusual situations from a labor perspective. We have labor pretty balanced across different regions of the world that we've had long-term positions within. We work very hard to be kind of the favored employer wherever we're at, and we have a great reputation in those spaces. We invest heavily into the communities where we work And so we usually have pretty good balanced kind of relationships there and don't say anything unusual. Obviously, you know, the UAW strike had a impact, you know, a modest impact on our third quarter and has, you know, good news. It seems to have been winding down now, but even that will have a modest impact on our fourth quarter as well. But we don't see that as an overarching concern.
spk12: Thanks very much. I appreciate all the color. Thanks for your questions, David. We'll go next now to Joshua Buschalter at TD Catlin.
spk06: Hey, guys. Good morning. Thanks for taking my questions, and let me echo the congrats and good luck to David. I wanted to ask about inventories as well. So totally appreciate that trying to time or quantify things in the channel is difficult, but I wanted to ask about your on-books levels. you know when you're prepared we'll actually call out some good progress year to date uh i was wondering is there a target level that you'd like it to be because you know i still see it's over 100 days now and pre-covered it used to run sort of in the 80 to 90 days range i just would be curious how you're thinking about the level you'd like on books inventories to be and and how we should think about that as we contextualize the uh channel inventory as well thank you yeah no that's a great question josh as you mentioned we made
spk01: Really good progress this year on inventory reductions as, you know, I've been talking about the past few quarters. That's been a huge working capital focus area for us. And that's been a nice tailwind as it relates to our cash generation this year. We are running at about, you know, 115-ish days or so of inventory on hand. I think our target is somewhere 100, maybe a little bit more than 100 days of inventory on hand. The biggest change for us versus the reference point you mentioned is as our businesses evolve versus pre-pandemic times, you know, there's different myths, some of which have longer lead time. And as we continue to grow our OEM-related business, where we're holding a lot of our own inventory, also that adds a little bit more. So I would say, you know, our target might be a little higher than historical, but But at the same time, we've got more progress that we can make that's going to help us from a cash generation still going into the end of the year and going into 2024. So I'm pretty pleased with where we are, the progress we've made, and where we're heading. I think our teams have done really a tremendous job on managing through some really challenging market dynamics.
spk06: I appreciate all the color there, and you actually keyed up my follow-up pretty nicely. You called out softness in consumer and personal electronics, that it's sort of stabilizing. Could you remind us of, you know, within your electronics segment, as we sort of think about this inventory digestion, the exposure between things like consumer, personal electronics, data comm, and industrial and automotive, anything you can help us quantify would be great. Thank you.
spk10: Yeah, what I would say is on kind of the consumer facing the consumer electronics side, That's around 20% or less of our electronics business or if you think about it corporately, it's less than 10% corporately. We don't really break out industrial within electronics specifically, but keep in mind our power semiconductor business has a heavy industrial piece to that and some of the core electronics as well. So it's a meaningful portion of In fact, we've talked about from an in-market exposure as a company, although we have our reporting segments which are technology-based, kind of keeping in mind that we have about a third of our revenues that are targeting, that are ending up in the transportation space, and that's kind of split 50-50 between commercial vehicle and past car, about a third in traditional electronics, and about a third in traditional industrial applications. So hopefully that helps give you a little color.
spk12: Definitely. Thank you, Dave. I appreciate the caller.
spk02: Thanks for your questions, Josh. And ladies and gentlemen, just a final reminder, Star 1, please, for any further questions this morning. And it appears we have no further questions this morning.
spk11: Mr. Kelly, I'll hand things back to you for any closing comments.
spk09: Thanks, Beau, and thanks, everyone, for your questions. That concludes our Q&A session. Thank you for joining us on today's call and for your interest in Little Fuse. We look forward to speaking with many of you at the November 8th Baird Global Industrial Conference and the November 9th Steeple Midwest One-on-One Growth Conference. Have a wonderful day. Thank you.
spk11: Thank you, Mr. Kelly. Again, ladies and gentlemen, that will conclude the Little Fuse third quarter 2023 earnings call. Again, thank you so much for joining, and I wish you all a great day.
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